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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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INTEGRATED ELECTRICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
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<C> <C> <C>
DELAWARE 1731 76-0542208
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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2301 PRESTON
HOUSTON, TEXAS 77003
(713) 222-1875
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
JIM P. WISE
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
2301 PRESTON
HOUSTON, TEXAS 77003
(713) 222-1875
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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copy to:
JOHN F. WOMBWELL T. MARK KELLY
MELINDA H. BRUNGER VINSON & ELKINS L.L.P.
ANDREWS & KURTH L.L.P. 2300 FIRST CITY TOWER
4200 TEXAS COMMERCE TOWER HOUSTON, TEXAS 77002
HOUSTON, TEXAS 77002 (713) 758-2222
(713) 220-4200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value...... $120,750,000 $36,591
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
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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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 24, 1997
PROSPECTUS
7,000,000 SHARES
INTEGRATED ELECTRICAL SERVICES, INC.
[LOGO]
COMMON STOCK
------------------------
All of the shares of Common Stock, $.01 par value per share (the "Common
Stock"), offered hereby (the "Offering") are being offered by Integrated
Electrical Services, Inc. (the "Company").
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $ and $ per share. See "Underwriting" for information relating to the
factors to be considered in determining the initial public offering price.
Shares of Common Stock are being reserved for sale to certain employees,
directors and business associates of, and certain other persons designated by,
the Company, at the initial public offering price. Such employees, directors,
and other persons are expected to purchase, in the aggregate, not more than 10%
of the Common Stock offered in the Offering. See "Underwriting."
The Company intends to make application to list the Common Stock on The New
York Stock Exchange ("NYSE") under the symbol "IEE."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share............................... $ $ $
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Total(3)................................ $ $ $
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(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the several Underwriters an option, exercisable
within 30 days after the date hereof, to purchase up to 1,050,000 additional
shares of Common Stock solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock offered hereby are offered by the several
Underwriters, subject to prior sale, when, as and if issued to and accepted by
the Underwriters against payment therefor, subject to certain conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the share
certificates representing the Common Stock will be made in New York, New York on
or about , 1997.
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
EQUITABLE SECURITIES CORPORATION
SANDERS MORRIS MUNDY
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
[MAP OF LOCATIONS AND OTHER GRAPHICS]
Certain persons participating in the Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock. Such
transactions may include stabilizing, the purchase of Common Stock to cover
syndicate short positions and the imposition of penalty bids. For a description
of these activities, see "Underwriting."
<PAGE> 4
PROSPECTUS SUMMARY
Concurrently with the closing of the Offering, Integrated Electrical
Services, Inc. plans to acquire, in separate transactions (collectively, the
"Acquisitions"), for consideration including cash and shares of Common Stock
(the "Acquisitions Consideration"), the following 16 companies engaged in all
facets of electrical contracting and maintenance services: Houston-Stafford
Electric, Inc. and Stark Investments, Inc., a related electrical supply company
(such two companies, collectively, "Houston-Stafford"), Mills Electrical
Contractors, Inc. ("Mills"), BW Consolidated, Inc., including Bexar Electric
Company, Ltd., and Calhoun Electric Company, Ltd. (collectively,
"Bexar-Calhoun"), Pollock Electric, Inc. ("Pollock"), Daniel Electrical
Contractors, Inc. and Daniel Electrical of Treasure Coast Inc. (collectively,
"Daniel"), Muth Electric, Inc. ("Muth"), Amber Electric, Inc. ("Amber"), Summit
Electric of Texas, Inc. ("Summit"), Haymaker Electric, Ltd. ("Haymaker"),
Thurman & O'Connell Corp. ("Thurman & O'Connell"), Hatfield Electric, Inc.
("Hatfield"), Ace Electric, Inc. ("Ace"), Reynolds Electric Corp. ("Reynolds"),
Thomas Popp & Co., Inc. ("Popp") and Rodgers Electric Co., Inc. ("Rodgers") (the
foregoing companies referred to herein as the "Founding Companies"). Unless
otherwise indicated, references herein to "IES" mean Integrated Electrical
Services, Inc., and references to the "Company" mean IES and the Founding
Companies collectively.
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information, share and per share data in this
Prospectus (i) give effect to the Acquisitions, (ii) assume the Underwriters'
over-allotment option is not exercised and (iii) give effect to a
2,329.6-for-one stock split of the Common Stock effected in October 1997.
THE COMPANY
IES was founded in June 1997 to create a leading national provider of
electrical contracting and maintenance services to the commercial, industrial
and residential markets. Concurrently with the closing of the Offering, IES will
acquire 15 electrical contracting and maintenance service companies and a
related supply company with pro forma combined 1996 revenues of $272 million,
making it one of the largest providers of electrical contracting and maintenance
services in the United States. Of such 1996 pro forma revenues, approximately
62% was derived from commercial and industrial work, approximately 25% was
derived from residential work and approximately 13% was derived from electrical
maintenance work. Combined revenues of the Founding Companies, which have been
in business an average of 18 years, increased at an average compound annual
growth rate of approximately 23% from 1994 through 1996.
The Company offers a broad range of electrical contracting services,
including design and installation for both new and renovation projects in the
commercial, industrial and residential markets. The Company also offers
long-term and per call maintenance services, which generally provide recurring
revenues that are relatively independent of levels of construction activity.
Typically, the Founding Companies specialize in either commercial and industrial
or residential work, although a few of the Founding Companies have both
commercial and industrial and residential operations.
In certain markets the Company offers design-and-build expertise and
specialized services, which typically require specific skills and equipment and
provide higher margins than general electrical contracting and maintenance
services. In a design-and-build project, the electrical contractor applies
in-house electrical engineering expertise to design the most cost-effective
electrical system for a given structure and purpose, taking into account local
code requirements. Specialized services offered by the Company include
installations of wiring or cabling for the following: data cabling for computer
networks; fiber optic cable systems; telecommunications systems; energy
management systems which control the amount of power used in facilities; fire
alarm and security systems; cellular phone transmission sites; "smart houses"
that integrate computer, energy management, security, safety, comfort and
telecommunication systems; lightning protection systems; clean rooms for
fabrication of microprocessors and similar devices; computer rooms; back-up
electrical systems and uninterruptible power supplies; high voltage distribution
and traffic signal systems.
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INDUSTRY OVERVIEW
General. Virtually all construction and renovation in the United States
generates demand for electrical contracting services. Depending upon the exact
scope of work, electrical work generally accounts for approximately 8% to 12% of
the total construction cost of the Company's commercial and industrial projects
and 5% to 10% of the total construction cost of the Company's residential
projects. In recent years, the Founding Companies have experienced a growing
demand for electrical contracting 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 construction of smart houses with integrated systems.
The overall electrical contracting 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
contracting and maintenance services and that the fragmented nature of the
electrical contracting industry will provide significant opportunities to
consolidate commercial and industrial and residential electrical contracting and
maintenance businesses.
Commercial and Industrial Market. Commercial and industrial consumers of
electrical contracting and maintenance services include general contractors;
developers; consulting engineers; architects; owners and managers of large
retail establishments, office buildings, high-rise apartments and condominiums;
theaters and restaurants; hotels and casinos; manufacturing and processing
facilities; arenas and convention centers; hospitals; school districts; military
and other government agencies; airports; prisons and car lots. The Company
provides contracting and maintenance services to the full range of commercial
and industrial customers.
Over the past three years, the Founding Companies' revenues from electrical
contracting for commercial and industrial customers have grown at an average
compound annual rate of approximately 24% per year. The Company believes that
growth in the commercial and industrial market reflects a number of factors,
including (i) levels of construction and renovation activity; (ii) regulations
imposed by electric codes, which establish minimum power and wiring
requirements; (iii) safety codes mandating additional installation of smoke
detectors and the use of ground fault circuit protection devices in more
locations; (iv) revised national energy standards that dictate the use of more
energy-efficient lighting fixtures and other equipment; (v) continuing demand to
build out lease spaces in office buildings and to reconfigure space for new
tenants; (vi) increases in use of electrical power, creating needs for increased
capacity and outlets, as well as data cabling and fiber optics and (vii)
requirements of building owners and developers to facilitate marketing their
properties to tenants and buyers by installing electrical capacity in excess of
minimum code requirements.
Residential Market. Contracting work for the residential market consists
primarily of electrical installations in new single family and low-rise
multifamily residence construction for customers such as large homebuilders and
apartment developers. The Company also provides maintenance services to these
customers as well as to individual property owners in some locations. The
residential market is primarily dependent on the number of single family and
multifamily home starts, which are in turn affected by interest rates, tax
considerations and general economic conditions. Competitive factors particularly
important in the residential market include a contractor's ability to build
relationships with customers by providing services in diverse geographic markets
as construction activity shifts to new locations. The Founding Companies'
residential electrical contracting revenues have grown at an average compound
annual rate of approximately 22% over the past three years.
STRATEGY
The Company believes that its size, geographical diversity of operations,
industry relationships, expertise in specialized markets, number of licensed
electricians and access to design technology give the Company significant
competitive advantages in the electrical contracting and maintenance services
industry. Through increased size, the Company believes it will have greater
ability to compete for larger jobs that require greater
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technical expertise, personnel availability and bonding capacity, to more
effectively allocate and share resources in serving customers in each of its
markets and to attract, train and retain qualified electricians. The Company
also believes that increased size will provide increased efficiency in materials
purchasing, computer system development, employee benefits, bonding, insurance
and financing. The Company believes that the diversity of its operations will
diminish the effects of regional and market downturns, offer opportunities to
pursue growth in its existing markets and create a base of expertise to expand
into new markets and serve new customers.
The Company plans to leverage its experienced management and extensive
relationships within the electrical contracting industry to increase its
revenues and reduce its cost infrastructure through internal growth as well as
the acquisition of additional electrical contracting businesses. The Company's
management includes a Chief Executive Officer and two Chief Operating Officers,
each with 25 years or more of experience in the electrical contracting industry.
The Company has extensive business relationships within the industry, in part
through Founding Companies that are members of the Independent Electrical
Contractors Association ("IEC"). The IEC is the second largest electrical trade
organization in the U.S. and has nearly 3,000 contracting firms as members. The
Company's Chief Executive Officer is a past president of the IEC, and two
founders are members of the executive committee of the IEC. The IEC sponsors
forum groups, which are discussion groups of members of the IEC that foster the
sharing of best business practices. The Founding Companies are members of the
IEC and other trade organizations, and the Company intends to expand the
practice of sharing best practices among the Founding Companies and with future
acquisitions.
The Company's goal is to become a leading national provider of electrical
services by improving its operations, expanding its business and markets through
internal growth and pursuing an aggressive acquisition strategy.
Operating Strategy. The Company believes there are significant
opportunities to increase revenues and profitability of the Founding Companies
and subsequently acquired businesses. The key elements of the Company's
operating strategy are:
Share Information, Technical Capabilities and Best Practices. The
Company believes it will be able to expand the services it offers in its
local markets by leveraging the specialized technical and marketing
strengths of individual Founding Companies. The Company will identify and
share best practices that can be successfully implemented throughout its
operations. The Company intends to use the computer-aided-design technology
and expertise of certain of the Founding Companies to bid for more
design-and-build projects and to assist customers in value engineering and
creating project documents. The Company believes that its increased size,
capital and workforce will permit it to pursue projects that require
greater design and performance capabilities and the ability to meet
accelerated timetables.
Expand Scope of Maintenance and Specialized Services. The Company
intends to further develop its long-term and per call maintenance service
operations, which generally realize higher gross margins and provide
recurring revenues that are relatively independent of levels of
construction activity. The Company also believes that certain specialized
businesses currently offered by only a few of the Founding Companies can be
expanded throughout the Company and in some cases can provide higher
margins. Through sharing of expertise and specialized licenses and the
ability to demonstrate a safety record in specialized markets served by the
Founding Companies, the Company intends to expand its presence and
profitability in markets where it previously relied on subcontractors.
Establish National Market Coverage. The Company believes that the
growth of many of the Founding Companies has been restricted due to the
geographic limitations of existing operations and that the Company's broad
geographic coverage will increase internal growth opportunities. The
Company intends to leverage its geographic diversity to bid for additional
business from existing customers that operate on a regional and national
basis, such as developers, contractors, homebuilders and owners of national
chains. The Company believes that significant demand exists from such
companies to utilize the services of a single electrical contracting and
maintenance service provider and that existing local and regional
relationships can be expanded as the Company develops a nationwide network.
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Operate on Decentralized Basis. The Company believes that, while
maintaining strong operating and financial controls, a decentralized
operating structure will retain the entrepreneurial spirit present in each
of the Founding Companies. The Company also will be structured to allow it
to capitalize on the considerable local and regional market knowledge and
customer relationships possessed by each Founding Company, as well as
companies that may be acquired in the future. By maintaining a local and
regional focus in each of its markets, the Company believes it will be able
to build relationships with general contractors and other customers,
address design preferences and code requirements, respond quickly to
customer demands for higher-margin renovation and upgrade projects and
adjust to local conditions.
Attract and Retain Quality Employees. The Company believes that the
ability to attract and retain qualified electricians is a critical
competitive factor and that the Acquisitions and the Offering will provide
competitive advantages in this regard. The Company intends to attract and
develop skilled employees by extending active recruiting and training
programs, offering stock-based compensation for key employees, and offering
expanded career paths and more stable income through the larger public
company. The Company believes that this ability will allow it to increase
efficiency and pursue additional customer relationships.
Achieve Operating Efficiencies. Certain administrative functions will
be centralized following the Offering. In addition, by combining
overlapping operations of certain of the Founding Companies, the Company
expects to realize savings in overhead and other expenses. The Company
intends to use its increased purchasing power to gain volume discounts in
areas such as electrical materials, vehicles, advertising, bonding,
employee benefits and insurance. The Company will seek to realize cost
savings and other benefits by the sharing of purchasing, pricing, bidding
and other business practices and the sharing of licenses. The Company
intends to further develop and extend the use of computer systems to
facilitate communication among the Founding Companies. At some locations,
the larger combined workforce will provide additional staffing flexibility.
Acquisition Strategy. The Company believes that, due to the highly
fragmented nature of the electrical contracting and maintenance services
industry, it has significant opportunities to pursue its acquisition strategy.
The Company intends to focus on acquiring companies with management philosophies
based on both an entrepreneurial attitude as well as a willingness to learn and
share improved business practices through open communications. The Company
believes that many electrical contracting and service businesses that lack the
capital necessary to expand operations will become acquisition candidates. For
these acquisition candidates, the Company will provide (i) information on best
practices, (ii) expertise in expanding in specialized markets, (iii) the
opportunity to focus on customers rather than administration, (iv) national name
recognition, (v) increased liquidity and (vi) the opportunity for a continued
role in management. The Founding Companies participate in professional
associations such as the IEC and Associated Builders and Contractors, and the
Company intends to continue these relationships, in part to assist in
identifying attractive acquisition candidates. Other key elements of the
Company's acquisition strategy are:
Enter New Geographic Markets. The Company will pursue acquisitions
that are located in new geographic markets, are financially stable and have
the customer base necessary to integrate with or complement its existing
business. The Company also expects that increasing its geographic diversity
will allow it to better serve an increasingly nationwide base of customers
and further reduce the impact on the Company of local and regional economic
cycles, as well as weather-related or seasonal variations in business.
Expand Within Existing Markets. Once the Company has entered a market,
it will seek to acquire other well-established electrical contracting and
maintenance businesses operating within that region, including "tuck-in"
acquisitions of smaller companies. The Company believes that tuck-in
acquisitions afford the opportunity to improve its overall cost structure
through the integration of such acquisitions into existing operations as
well as to increase revenues through access to additional specialized
markets, such as heavy industrial markets. Despite such integration
opportunities afforded by such tuck-in
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acquisitions, the Company intends to maintain existing business names and
identities to retain goodwill for marketing purposes.
THE OFFERING
Common Stock offered................ 7,000,000 shares
Common Stock to be outstanding after
the Offering(1)..................... 23,365,337 shares
Use of proceeds..................... To pay the cash portion of the
Acquisitions Consideration, to repay
certain indebtedness of the Founding
Companies, to use for working capital
and for general corporate purposes,
which are expected to include
acquisitions. See "Use of Proceeds."
Proposed NYSE trading symbol........ "IEE"
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(1) Includes (i) 12,313,026 shares to be issued to the owners of the Founding
Companies, (ii) 7,000,000 shares to be sold in the Offering, (iii) 1,396,602
shares issued to the management of IES and (iv) 2,655,709 shares of
Restricted Common Stock issued to the founder of IES. Excludes options to
purchase 300,000 shares which are currently outstanding and options to
purchase 2,100,000 shares which are expected to be granted upon consummation
of the Offering. See "Management -- 1997 Stock Plan," "Management -- 1997
Directors Stock Plan," "Certain Transactions" and "Description of Capital
Stock."
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SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
IES will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. For financial statement
presentation purposes, Houston-Stafford has been identified as the "accounting
acquiror." The following summary unaudited pro forma combined financial data
present certain data for the Company, as adjusted for (i) the effects of the
Acquisitions, (ii) the effects of certain other pro forma adjustments to the
historical financial statements and (iii) the consummation of the Offering and
the application of the net proceeds therefrom. The unaudited pro forma combined
income statement data assume that the Acquisitions, the Offering and related
transactions were closed on October 1, 1995 and are not necessarily indicative
of the results that the Company would have obtained had these events actually
then occurred or of the Company's future results. During the periods presented
below, the Founding Companies were not under common control or management and,
therefore, the data presented may not be comparable to or indicative of
post-combination results to be achieved by the Company. The unaudited pro forma
combined income statement data are based on preliminary estimates, available
information and certain assumptions that Company management deems appropriate.
The unaudited pro forma combined financial statements should be read in
conjunction with the other financial information included elsewhere in this
Prospectus. See "Selected Financial Data," the Unaudited Pro Forma Combined
Financial Statements and notes thereto, and the historical financial statements
for certain of the Founding Companies and the notes thereto, all included
elsewhere in this Prospectus.
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PRO FORMA
---------------------------------------
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 JUNE 30, 1997
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INCOME STATEMENT DATA:
Revenues................................................. $ 272,236 $ 226,210
Cost of services (including depreciation)................ 216,382 178,287
----------- -----------
Gross profit............................................. 55,854 47,923
Selling, general and administrative expenses(a).......... 28,546 26,729
Goodwill amortization(b)................................. 2,857 2,143
----------- -----------
Income from operations................................... 24,451 19,051
Interest and other income (expense), net(c).............. (31) (74)
----------- -----------
Income before income taxes............................... 24,420 18,977
Provision for income taxes............................... 10,436 8,076
----------- -----------
Net income(d)............................................ $ 13,984 $ 10,901
=========== ===========
Net income per share..................................... $ .64 $ .50
=========== ===========
Shares used in computing pro forma net income per
share(e).............................................. 21,693,969 21,693,969
=========== ===========
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JUNE 30, 1997 PRO FORMA(F)
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COMBINED AS ADJUSTED(G)(H)
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BALANCE SHEET DATA:
Working capital........................................... $(36,116)(i) $ 50,265
Total assets.............................................. 199,247 224,326
Long-term debt, net of current maturities................. 12,204 11,445
Total stockholders' equity................................ 75,673 162,813
</TABLE>
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(a) The unaudited pro forma combined income statement data reflect an aggregate
of approximately $6.0 million and $4.5 million for the year ended September
30, 1996 and the nine months ended June 30, 1997, respectively, in pro forma
reductions in salary, bonus and benefits of the owners of the Founding
Companies to which they have agreed prospectively, and the effect of
revisions of certain lease agreements between the Founding Companies and
certain stockholders of the Founding Companies. See "Certain Transactions."
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(b) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period and computed on the basis described in
the notes to the Unaudited Pro Forma Combined Financial Statements.
(c) Reflects the reduction for interest expense of $0.7 million and $0.5 million
for the year ended September 30, 1996 and the nine months ended June 30,
1997, respectively, attributed to the repayment of $4.6 million of
historical debt with proceeds from the Offering and other debt distributed
prior to the Acquisitions, net of additional interest expense discussed in
(h) below. Additionally, reflects a $250,000 and $222,000 reduction in
minority interest expense for the year ended September 30, 1996 and the nine
months ended June 30, 1997, respectively.
(d) Assumes all pretax income before non-deductible goodwill and other permanent
items is subject to a 38% overall tax rate.
(e) Includes (i) 12,313,026 shares to be issued to the owners of the Founding
Companies, (ii) 1,396,602 shares issued to the management of IES, (iii)
2,655,709 shares of Restricted Common Stock issued to the founder of IES and
(iv) 5,208,632 of the 7,000,000 shares to be sold in the Offering necessary
to pay the cash portion of the Acquisitions Consideration and the Offering
expenses. Includes 120,000 shares computed under the treasury stock method
related to 300,000 options which are currently outstanding, but excludes
options to purchase 2,100,000 shares which are expected to be granted upon
consummation of the Offering. See "Description of Capital Stock."
(f) Reflects the Acquisitions and related transactions as if they had occurred
on June 30, 1997 as described in the notes to the Unaudited Pro Forma
Combined Financial Statements. The unaudited pro forma combined balance
sheet data are based upon preliminary estimates, available information and
certain assumptions that management deems appropriate and should be read in
conjunction with the other financial information and historical financial
statements, and notes thereto, included elsewhere in this Prospectus.
(g) Reflects the closing of the Offering and the Company's application of the
net proceeds therefrom to fund the cash portion of the Acquisitions
Consideration and to repay certain indebtedness of the Founding Companies.
See "Use of Proceeds" and "Certain Transactions."
(h) A number of the Founding Companies have historically elected S corporation
status for tax purposes. In connection with the Acquisitions, these Founding
Companies will make distributions to their stockholders totaling
approximately $17.8 million, representing substantially all of the
previously taxed undistributed earnings (the "S Corporation Distributions").
In order to fund these distributions, the Company will distribute $4.4
million of cash, distribute $2.5 million of nonoperating assets, net of
liabilities, and borrow approximately $10.9 million. Accordingly, pro forma
interest expense has been increased by $1.0 million for the year ended
September 30, 1996 and $0.7 million for the nine months ended June 30, 1997
and pro forma stockholders' equity has been reduced by approximately $17.8
million. Additionally, approximately $3.0 million of nonoperating assets,
net of liabilities, will be distributed by other Founding Companies prior to
the Acquisitions.
(i) Includes the estimated $57.5 million of notes payable to owners of the
Founding Companies, representing the cash portion of the Acquisitions
Consideration to be paid from a portion of the net proceeds from the
Offering. See "Pro Forma -- As Adjusted" amounts. The cash portion of the
Acquisitions Consideration will be adjusted based on the initial public
offering price of the Common Stock offered hereby.
7
<PAGE> 11
SUMMARY INDIVIDUAL FOUNDING COMPANY HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
The following table presents certain summary historical income statement
data of the Founding Companies for each of their three most recent fiscal years
and their first six-month fiscal year-to-date results for 1996 and 1997. The
historical income statement data below have not been adjusted for the pro forma
adjustments related to contractually agreed reductions in salaries and benefits,
or any other pro forma adjustments, reflected in the Unaudited Pro Forma
Combined Financial Statements, included elsewhere in this Prospectus. The income
statement data presented below have been audited for certain of the Founding
Companies and certain of the periods as reflected in the historical financial
statements of certain of such Founding Companies, included elsewhere in this
Prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
SIX-MONTH FISCAL
YEAR-TO-DATE
FISCAL YEARS(A) PERIODS(A)
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
HOUSTON-STAFFORD:
Revenues.................................................. $48,001 $54,082 $70,493 $35,299 $37,508
Income from operations.................................... 519 1,343 5,021 3,407 2,428
MILLS:
Revenues.................................................. $25,544 $35,250 $65,439 $27,902 $35,613
Income from operations.................................... 1,216 3,137 7,261 3,577 2,622
BEXAR-CALHOUN:
Revenues.................................................. $23,168 $27,730 $33,023 $16,680 $16,311
Income from operations.................................... 2,110 3,129 4,320 2,262 1,735
POLLOCK:
Revenues.................................................. $11,847 $13,002 $15,816 $ 5,675 $ 8,011
Income/(Loss) from operations............................. 455 251 (181) (406) 68
DANIEL:
Revenues.................................................. $12,198 $12,049 $12,585 $ 5,134 $ 9,259
Income/(Loss) from operations............................. 219 (1,178) 988 281 1,698
MUTH:
Revenues.................................................. $13,466 $16,012 $16,830 $ 8,065 $ 8,308
Income from operations.................................... 983 900 1,039 476 81
AMBER:
Revenues.................................................. $ 8,735 $ 9,728 $13,878 $ 6,881 $ 7,910
Income from operations.................................... 281 136 503 428 1,199
SUMMIT:
Revenues.................................................. $ 9,243 $ 9,233 $10,565 (b) (b)
Income from operations.................................... 166 159 68 (b) (b)
HAYMAKER:
Revenues.................................................. $ 5,736 $ 7,571 $ 7,560 $ 3,187 $ 5,841
Income from operations.................................... 220 376 435 105 241
THURMAN & O'CONNELL:
Revenues.................................................. $ 3,658 $ 4,729 $ 4,551 $ 2,842 $ 2,254
Income from operations.................................... 502 908 989 630 910
ALL OTHER FOUNDING COMPANIES(C):
Revenues.................................................. $19,608 $22,238 $21,496 $11,470 $12,815
Income from operations.................................... 1,083 1,545 883 1,096 1,126
</TABLE>
- ---------------
(a) The fiscal years presented above are the years ended December 31, 1994, 1995
and 1996, except for Pollock for which the fiscal years presented are the
years ended October 31, 1994, 1995 and 1996; and Summit for which the fiscal
years presented are the years ended March 31, 1995, 1996 and 1997 (See (b)
below). Additionally, the six-month fiscal year-to-date periods presented
above are the six months ended June 30, 1996 and 1997, except for Pollock
for which the six-month fiscal year-to-date periods are the six months ended
April 30, 1996 and 1997.
(b) Summit has a fiscal year ended March 31, 1997, and, accordingly, the first
six-month fiscal year-to-date results for 1997 are not currently available.
(c) The other Founding Companies are Hatfield, Ace, Reynolds, Rodgers and Popp,
and the fiscal years presented for such other Founding Companies are for
December 31, 1994, 1995 and 1996, in the case of Ace, Reynolds and Popp;
October 31, 1994, 1995 and 1996, in the case of Hatfield; and September 30,
1994, 1995 and 1996, in the case of Rodgers.
8
<PAGE> 12
RISK FACTORS
Prospective investors should carefully consider the following factors as
well as the other information contained in this Prospectus. This Prospectus
contains forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including the risk factors set forth below and elsewhere in this
Prospectus.
ABSENCE OF COMBINED OPERATING HISTORY
IES was founded in June 1997 but has conducted no operations and generated
no revenue to date. IES has entered into agreements to acquire the Founding
Companies simultaneously with the closing of the Offering. The Founding
Companies have been operating and will continue to operate as separate
independent entities, and there can be no assurance that the Company will be
able to integrate these businesses on an economic basis. In addition, there can
be no assurance that the recently assembled management group will be able to
oversee the combined entity and effectively implement the Company's operating or
growth strategies. The pro forma combined financial results of the Founding
Companies cover periods during which the Founding Companies and IES were not
under common control or management and, therefore, may not be indicative of the
Company's future financial or operating results. The success of the Company will
depend on management's ability to integrate the Founding Companies and other
future acquisitions into one organization in a profitable manner. The inability
of the Company to successfully integrate the Founding Companies and to
coordinate and integrate certain administrative, banking, insurance and
accounting functions and computer systems would have a material adverse effect
on the Company's financial condition and results of operations and would make it
unlikely that the Company's acquisition program will be successful.
EXPOSURE TO DOWNTURNS IN COMMERCIAL CONSTRUCTION OR HOUSING STARTS
A substantial portion of the Company's business involves installation of
electrical systems in newly constructed and renovated commercial buildings,
plants and residences. The extent to which the Company is able to maintain or
increase revenues from new installation services will depend on the levels of
new construction starts from time to time in the geographic markets in which it
operates and likely will reflect the cyclical nature of the construction
industry. The level of new commercial installation services is affected by
fluctuations in the level of new construction of commercial buildings in the
markets in which the Company operates, due to local economic conditions, changes
in interest rates and other related factors. The housing industry is similarly
affected by changes in general and local economic conditions, such as employment
and income levels, the availability and cost of financing for home buyers
(including the continued deductibility of mortgage-linked interest expenses in
determining federal income tax), consumer confidence and housing demand.
Downturns in levels of commercial construction or housing starts would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality and Quarterly Fluctuations."
RELIANCE ON ACQUISITIONS
One of the Company's principal growth strategies is to increase its
revenues, geographic diversity and the scope of services offered and to
diversify its business mix through the acquisition of electrical contracting
companies. There can be no assurance that the Company will be able to acquire
additional businesses or to integrate and manage such additional businesses
successfully. Acquisitions may involve a number of risks, including: adverse
short-term effects on the Company's reported operating results; diversion of
management's attention; dependence on retention, hiring and training of key
personnel; risks associated with unanticipated problems or legal liabilities and
amortization of acquired intangible assets. Some or all of these risks could
have a material adverse effect on the Company's financial condition or results
of operations. In addition, to the extent that consolidation becomes more
prevalent in the industry, the prices for attractive acquisition candidates may
increase and the number of attractive acquisition candidates may decrease. The
Company believes that the electrical contracting industry may experience
consolidation on both a national and a regional level by other companies that
have acquisition objectives similar to the Company's objectives. Other
9
<PAGE> 13
consolidators may have greater financial resources than the Company to finance
acquisition and internal growth opportunities and might be willing to pay higher
prices than the Company for the same acquisition opportunities. If such
acquisitions can be made, there can be no assurance that the businesses acquired
will achieve sales and profitability that justify the investment therein. See
"Business -- Strategy."
MANAGEMENT OF GROWTH
The Company expects to grow internally and through acquisitions. Management
expects to expend significant time and effort in evaluating, completing and
integrating acquisitions and opening new facilities. There can be no assurance
that the Company's systems, procedures and controls will be adequate to support
the Company's operations as they expand. Any future growth also will impose
significant added responsibilities on members of senior management, including
the need to identify, recruit and integrate new senior level managers and
executives. There can be no assurance that such additional management will be
identified and retained by the Company. If the Company is unable to manage its
growth efficiently and effectively, or is unable to attract and retain
additional qualified management, there could be a material adverse effect on the
Company's financial condition and results of operations. See
"Business -- Strategy."
AVAILABILITY OF ELECTRICIANS
The Company's ability to provide high-quality electrical services on a
timely basis is dependent upon an adequate supply of skilled electricians.
Accordingly, the Company's ability to increase its productivity and
profitability will be limited by its ability to employ, train and retain skilled
electricians necessary to meet the Company's requirements. Many companies in the
electrical contracting and service industry are currently experiencing shortages
of qualified electricians, and there can be no assurance that the Company will
be able to maintain an adequate skilled labor force necessary to operate
efficiently, that the Company's labor expenses will not increase as a result of
a shortage in the supply of skilled technicians or that the Company will not
have to curtail its planned internal growth as a result of labor shortages. See
"Business -- Employee Screening, Training and Development."
COMPETITION
The electrical contracting industry is highly competitive and is served by
small, owner-operated private companies, public companies and several large
regional companies. Additionally, the Company could face competition in the
future from other competitors entering the market, including public utilities.
Certain of the Company's larger competitors offer a greater range of services,
such as mechanical construction, plumbing and heating, ventilation and air
conditioning services. 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. See "Business -- Industry
Overview -- Industry Developments." Competition in the electrical contracting
industry depends on a number of factors, including price. Certain of the
Company's competitors may have lower overhead cost structures and may,
therefore, be able to provide their services at lower rates than the Company.
See "Business -- Competition."
ACQUISITION FINANCING
The Company intends to use its Common Stock for a portion of the
consideration for future acquisitions. If the Common Stock does not maintain a
sufficient valuation or potential acquisition candidates are unwilling to accept
Common Stock as part of the consideration for the sale of their businesses, the
Company may be required to utilize more of its cash resources, if available, in
order to pursue 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 future debt or equity financings. The Company has
recently initiated negotiations with a group of commercial banks to provide the
Company with a credit facility to be used for acquisitions, working capital and
other general corporate purposes and may result in financial covenants that
limit the Company's operations and financial flexibility. There can be no
assurance that the Company will be able to obtain such financing if and when it
is needed or that, if available, it will be available on terms the Company deems
acceptable. As a result, the Company might be unable to pursue its acquisition
strategy successfully.
10
<PAGE> 14
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources" and
"Business -- Strategy."
SEASONALITY; FLUCTUATION OF QUARTERLY OPERATING RESULTS
The electrical contracting service business can be subject to seasonal
variations in operations and demand that affect the construction business,
particularly in residential construction, which is affected by weather
conditions. Quarterly results may also be materially affected by the timing of
acquisitions, the timing and magnitude of acquisition assimilation costs and
regional economic conditions. Accordingly, the Company's performance in any
particular quarter may not be indicative of the results which can be expected
for any other quarter or for the entire year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality and
Quarterly Fluctuations."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the completion of the Acquisitions and the Offering, the
Company's executive officers, directors and affiliates will beneficially own
approximately 42% of the total outstanding shares of Common Stock and Restricted
Common Stock. These persons, if acting in concert, will be able to continue to
exercise control over the Company's affairs, to elect the entire Board of
Directors and to control the disposition of any matter submitted to a vote of
stockholders. See "Principal Stockholders."
PROCEEDS OF OFFERING AND BENEFITS TO AFFILIATES
Approximately $57.5 million, or approximately 66%, of the net proceeds of
the Offering will be paid in cash to the owners of the Founding Companies (who
will generally become officers, directors or employees of the Company). In
addition, approximately $4.6 million, or approximately 5% of the net proceeds of
the Offering, will be used to repay historical indebtedness of the Founding
Companies. Net proceeds available for acquisitions, working capital and other
corporate purposes will be approximately $25.0 million, or 29% of the net
proceeds of the Offering. The Company will incur approximately $10.9 million in
indebtedness to fund the S Corporation Distributions. See "Use of Proceeds" and
"Certain Transactions."
BENEFITS TO FOUNDER AND MANAGEMENT
In connection with the formation of the Company, C. Byron Snyder, the
founder of IES, and management received in the aggregate 4,052,311 shares of
Common Stock for nominal consideration. These shares will represent, in the
aggregate, approximately 17.3% of the total outstanding Common Stock following
the consummation of the Offering. Of these shares of Common Stock, the 2,655,709
shares held by Mr. Snyder are Restricted Common Stock, which are entitled to
elect one member of the Company's Board of Directors and to one-half of one vote
for each share held on all other matters on which they are entitled to vote.
Holders of Restricted Common Stock are not entitled to vote on the election of
any other directors and will control in the aggregate 5.7% of the votes of all
shares of Common Stock. Such restrictions may be terminated by the Company after
January 1, 2000. See "Principal Stockholders."
NO PRIOR MARKET, POSSIBLE VOLATILITY OF STOCK
Prior to the Offering, no public market for the Common Stock has existed,
and the initial public offering price, which will be determined by negotiations
between the Company and representatives of the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the Offering.
See "Underwriting" for the factors to be considered in determining the initial
public offering price. The Company intends to make application to list the
Common Stock on the NYSE, but no assurance can be given that an active trading
market for the Common Stock will develop or, if developed, continue after the
Offering. The market price of the Common Stock after the Offering may be subject
to significant fluctuations from time to time in response to numerous factors,
including variations in the reported financial results of the Company and
changing conditions in the economy in general or in the electrical contracting
and maintenance service
11
<PAGE> 15
industry in particular. In addition, the stock markets experience significant
price and volume volatility from time to time which may affect the market price
of the Common Stock for reasons unrelated to the Company's performance.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers and senior management of the Founding Companies. Furthermore,
the Company will be dependent on the senior management of companies that may be
acquired in the future. Although the Company will enter into an employment
agreement with each of the Company's executive officers, there can be no
assurance that any individual will continue in such capacity for any particular
period of time. The loss of key personnel, or the inability to hire and retain
qualified employees could have an adverse effect on the Company's business,
financial condition and results of operations. See "Management."
SHARES ELIGIBLE FOR FUTURE SALE
As of October 20, 1997, 4,052,311 shares of Common Stock were issued and
outstanding. Simultaneously with the closing of the Offering, the stockholders
of the Founding Companies will receive, in the aggregate, 12,313,026 shares of
Common Stock as a portion of the Acquisitions Consideration. None of these
16,365,337 shares was or will be issued in a transaction registered under the
Securities Act, and, accordingly, such shares may not be sold except in
transactions registered under the Securities Act or pursuant to an exemption
from registration, including the exemptions contained in Rules 144 and 701 under
the Securities Act. In addition, the owners of the Founding Companies have
agreed with the Company not to sell, contract to sell or otherwise dispose of
any shares of Common Stock received as consideration in the Acquisitions for a
period of two years following receipt thereof without the Company's consent.
When these shares become saleable, the market price of the Common Stock could be
adversely affected by the sale of substantial amounts of the shares in the
public market. The current stockholders of the Company (including the
stockholders of the Founding Companies) have certain piggy-back registration
rights with respect to their shares, which may be exercised during the two-year
period referred to above.
Upon the closing of the Offering, the Company also will have outstanding
options to purchase up to a total of approximately 2,400,000 shares of Common
Stock issued pursuant to the Company's 1997 Stock Option and Incentive Plan (the
"1997 Stock Plan"). A total of 3,500,000 shares will be issuable pursuant to the
1997 Stock Plan. The Company intends to file a registration statement covering
all such shares under the Securities Act. See "Management -- 1997 Stock Plan."
The Company currently intends to file a registration statement covering up
to an additional 6.0 million shares of Common Stock under the Securities Act for
its use in connection with future acquisitions. These shares generally will be
freely tradeable after their issuance by persons not affiliated with the Company
unless the Company contractually restricts their resale.
There can be no assurance that the resale or the availability for sale of
the shares of Common Stock eligible for future sale will not have an adverse
effect on the prevailing market price of the Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation, Bylaws,
employment agreements and employee benefit plans contain provisions which may
have the effect of delaying, deferring or preventing a change in control of the
Company. For example, the Company's Amended and Restated Certificate of
Incorporation and Bylaws provide for, among other things, a classified Board of
Directors, the prohibition of stockholder action by written consent and the
affirmative vote of at least 66 2/3% of all outstanding shares of Common Stock
to approve the removal of directors from office. The Company's Board of
Directors has the authority to issue shares of preferred stock in one or more
series and to fix the rights and preferences of the shares of any such series
without stockholder approval. Any series of preferred stock is likely to be
senior to the Common Stock with respect to dividends, liquidation rights and,
possibly, voting. In addition, the Board of Directors may issue certain rights
pursuant to the rights plan authorized by the Amended and Restated
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<PAGE> 16
Certificate of Incorporation. The ability to issue preferred stock or rights
could have the effect of discouraging unsolicited acquisition proposals. The
Company's 1997 Stock Plan contains provisions that allow for, among others, the
acceleration of vesting or payment of awards granted under such plan in the
event of a "change of control," as defined in such plan. In addition, the
Company has entered into employment agreements with certain executive officers
and key employees allowing for cash payments under certain circumstances
following a change in control, as defined, of the Company.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate dilution in the net tangible book value of their shares of $11.92 per
share (assuming an initial public offering price of $14.00 per share). See
"Dilution." In the event the Company issues additional shares of Common Stock in
the future, including shares which may be issued in connection with acquisitions
or other public or private financings, purchasers of Common Stock in the
Offering may experience further dilution in the net tangible book value per
share of the Common Stock. See "Dilution."
13
<PAGE> 17
THE COMPANY
IES was founded in June 1997 to create a leading national provider of
electrical contracting and maintenance services. Concurrently with and as a
condition to the closing of the Offering, IES will acquire the 16 Founding
Companies. For 1996, the Founding Companies, which have been in business for an
average of 18 years, had pro forma combined annual revenues of approximately
$272 million. The Acquisitions Consideration to be paid by the Company consists
of approximately $57.5 million in cash (subject to adjustment based on the
initial public offering price of the Common Stock offered hereby) and 12,313,026
shares of Common Stock. The Acquisitions Consideration was determined by
negotiations among the Company and representatives of the Founding Companies.
See "Certain Transactions." A brief description of each of the Founding
Companies is set forth below.
HOUSTON-STAFFORD. Houston-Stafford was founded in 1973 and is headquartered
in Stafford, Texas, near Houston. It operates primarily in Texas, with other
significant operations in Georgia, Virginia, Tennessee and Maryland.
Houston-Stafford had revenues of approximately $70.5 million in fiscal 1996,
primarily from residential contracting and, to a lesser extent, from commercial
and industrial contracting. Because Houston-Stafford has developed ongoing
relationships with developers and homebuilders that have regional and national
operations, Houston-Stafford has experience in establishing business operations
in different locations to meet the demands of its national clientele for
electrical contracting in various regions. Houston-Stafford has approximately
1,000 employees. In May 1997 Houston-Stafford financed the acquisition of an
electrical supply company located in Houston. Ben Mueller, executive vice
president of Houston-Stafford, will become Senior Vice President and Chief
Operating Officer -- Residential and a director of the Company following
consummation of the Offering. Roy D. Brown, president of Houston-Stafford, will
sign a five-year employment agreement with IES to continue in his position as
president of Houston-Stafford following consummation of the Offering. John
Wagner, who is vice president of Houston-Stafford and president of the
electrical supply company, will sign a five-year employment agreement with IES
to continue in his position as president of the electrical supply company
following consummation of the Offering.
MILLS. Mills was founded in 1972 and conducts most of its business in the
greater Dallas-Fort Worth area. Mills had revenues of approximately $65.4
million in fiscal 1996, primarily from commercial and industrial contracting
and, to a lesser extent, from maintenance services. Mills has specialized
expertise in data cabling, fire alarm systems and computer-aided-design for
electrical contracting, and a significant portion of 1996 revenues was
attributable to design-and-build projects. Mills has approximately 570
employees. Jerry Mills, president and founder of Mills, will become Senior Vice
President and Chief Operating Officer -- Commercial and Industrial and a
director of the Company following consummation of the Offering.
BEXAR-CALHOUN. Bexar was founded in 1962 and operates primarily in the
areas around the cities of San Antonio, New Braunfels and Laredo, Texas. Calhoun
was founded in 1958 and operates in the counties around San Antonio. On a
combined basis, Bexar-Calhoun had revenues of approximately $33.0 million in
fiscal 1996, relatively balanced between commercial and industrial contracting,
residential contracting and maintenance services. Bexar-Calhoun has
approximately 450 employees. Bob Weik, president of BW Consolidated, Inc., will
sign a five-year employment agreement with IES to continue his present position
and will be a director of the Company following consummation of the Offering.
POLLOCK. Pollock was founded in 1983 and is headquartered in Houston,
Texas. Pollock had revenues of approximately $15.8 million in fiscal 1996,
primarily from commercial and industrial contracting. For projects located
outside of Houston, Pollock generally works with another electrical service
contractor based near the project. Pollock has specialized design-and-build and
computer-aided-design expertise, and, on certain projects, Pollock prefabricates
materials to reduce costs and time required at the work site. Pollock has
approximately 230 employees. Jon Pollock, founder and president of Pollock and a
former president of the IEC, will become President and Chief Executive Officer
and a director of the Company following consummation of the Offering.
DANIEL. Daniel Electrical Contractors, Inc. was founded in 1986, is
headquartered in Miami, Florida and operates primarily in South Florida. Daniel
Electrical of Treasure Coast, Inc. was founded in 1995 and is headquartered in
Vero Beach, Florida. Daniel had combined revenues of approximately $12.6 million
in fiscal
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<PAGE> 18
1996, primarily from commercial and industrial contracting (including high-rise
condominiums). Because developers generally presell a certain percentage of
condominiums prior to commencing construction, Daniel has experience in meeting
the accelerated contracting schedules that are often required to meet mandated
closing periods for condominium sales. Daniel has approximately 240 employees.
Thomas Daniel, founder and president of Daniel, will sign a five-year employment
agreement with IES to continue his present position following consummation of
the Offering.
MUTH. Muth was founded in 1970 and has 7 offices located in South Dakota,
including its headquarters in Mitchell. Muth also operates from time to time in
Wyoming, Montana, Nebraska and Minnesota. Muth had revenues of approximately
$16.8 million in fiscal 1996, primarily from commercial and industrial
contracting and, to a lesser extent, from residential contracting and
maintenance services. Muth has expertise in design-and-build projects,
computer-aided-design technology and prefabrication of electrical components.
Muth has approximately 180 employees. Richard Muth, founder and president of
Muth, will sign a five-year employment agreement with IES to continue his
present position and will become a director of the Company following
consummation of the Offering.
AMBER. Amber was founded in 1979 and operates from its base near Orlando,
Florida. Amber had revenues of approximately $13.9 million in fiscal 1996,
primarily from commercial and industrial contracting. Amber has approximately
230 employees. Daniel J. Petro, founder and president of Amber, will sign a
five-year employment agreement with IES to continue his present position
following consummation of the Offering.
SUMMIT. Summit was founded in 1987 and is located in Houston, Texas. Summit
had revenues of approximately $10.6 million in its fiscal year ended March 31,
1997, primarily from commercial and industrial contracting and, to a lesser
extent, from maintenance services. Summit has specialized expertise in data
cable design and installation and lighting design. Summit has approximately 150
employees. Steve Jackson, president of Summit, will sign a five-year employment
agreement with IES to continue his present position following consummation of
the Offering.
HAYMAKER. Haymaker was founded in 1981. Haymaker is headquartered in
Birmingham, Alabama, and operates in Alabama, northwest Florida and North
Carolina. Haymaker had revenues of approximately $7.6 million in fiscal 1996,
primarily from commercial and industrial contracting. Haymaker has expertise in
design-and-build projects, lightning protection and fire alarms, and its largest
existing contracts involve new construction of high-rise office buildings.
Haymaker has approximately 110 employees. Charles Bagby, founder and president
of Haymaker, will sign a five-year employment agreement with IES to continue his
present position following consummation of the Offering.
THURMAN & O'CONNELL. Thurman & O'Connell was founded in 1988. It is
headquartered in Louisville, Kentucky, and operates primarily in Louisville and
the surrounding areas. Thurman & O'Connell had revenues of approximately $4.6
million in fiscal 1996, primarily from commercial and industrial contracting.
Thurman & O'Connell bids primarily on larger projects and out-of-budget projects
for which it can apply in-house value engineering, lowering costs to its
customers and typically increasing its margins. Thurman & O'Connell has
approximately 70 employees. James Thurman, president of Thurman & O'Connell and
a member of the executive committee of the IEC, will sign a five-year employment
agreement with IES to continue his present position following consummation of
the Offering.
HATFIELD. Hatfield was founded in 1984 and operates in the greater Phoenix
area from its offices in Scottsdale, Arizona. Hatfield had revenues of
approximately $5.8 million in fiscal 1996, primarily from commercial and
industrial contracting and, to a lesser extent, from commercial and industrial
maintenance services. Hatfield has specialized expertise in electrical
contracting for cellular telephone sites and maintains the necessary state
licenses to perform such services in Arizona and four adjacent states. Hatfield
has approximately 80 employees. Harvey Friedman, founder and president of
Hatfield and a member of the executive committee of the IEC, will sign a
five-year employment agreement with IES to continue his present position
following consummation of the Offering.
ACE. Ace was founded in 1975 in Valdosta, Georgia. Ace had revenues of
approximately $4.2 million in fiscal 1996, primarily from commercial and
industrial contracting and, to a lesser extent, from commercial and industrial
maintenance services. Ace has specialized expertise in prefabrication of
electrical components,
15
<PAGE> 19
which it uses to accelerate the completion time for its construction projects.
Ace has approximately 70 employees. Robert Stalvey and Thomas Stalvey, founders
and officers of Ace, will sign five-year employment agreements with IES to
continue their present positions following consummation of the Offering. Robert
Stalvey will also become a director of the Company following consummation of the
Offering.
REYNOLDS. Reynolds was founded in 1973 in Phoenix, Arizona. Reynolds had
revenues of approximately $6.6 million in fiscal 1996, primarily from commercial
and industrial contracting. Reynolds has specialized expertise in value
engineering for design-and-build projects. Reynolds has approximately 90
employees. Ernie Reynolds, president of Reynolds, will sign a five-year
employment agreement with IES to continue his present position following
consummation of the Offering.
POPP. Popp was founded in 1984 in Cincinnati, Ohio, and operates in Ohio
and northern Kentucky. Popp had revenues of approximately $3.4 million in fiscal
1996, primarily from commercial and industrial contracting. Design-and-build
projects accounted for a significant portion of 1996 revenues. Popp uses
computer-aided-design technology and has also developed software enhancements
for its design-and-build projects. Popp has approximately 50 employees. Thomas
Popp, co-founder and president of Popp, and William Beischel, co-founder and
vice president of Popp, will sign five-year employment agreements with IES to
continue their present positions following consummation of the Offering.
RODGERS. Rodgers was founded in 1977 and is headquartered in Everett,
Washington and operates in Everett and the north Puget Sound area. Rodgers had
revenues of approximately $1.6 million in fiscal 1996, primarily from electrical
maintenance and service work and commercial and industrial contracting. Rodgers
has specialized expertise in computer-aided-design technology and focuses on
design-and-build projects undertaken on negotiated rather than bid terms.
Rodgers has approximately 20 employees. Terry Earnheart, president of Rodgers,
will sign a five-year employment agreement with IES to continue his present
position following consummation of the Offering.
Integrated Electrical Services, Inc. was incorporated in Delaware in June
1997. Its executive offices are located at 2301 Preston, Houston, Texas 77003,
and its telephone number is (713) 222-1875.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (assuming an initial public offering price of $14.00 per share
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company) are estimated to be
approximately $87.1 million (approximately $100.8 million if the Underwriters'
over-allotment option is exercised in full).
Of the $87.1 million net proceeds, the Company estimates that approximately
$57.5 million (subject to adjustment based on the initial public offering price
of the Common Stock) will be used to pay the cash portion of the Acquisitions
Consideration, all of which will be paid to former stockholders and other equity
owners of the Founding Companies. In addition, approximately $4.6 million of the
net proceeds will be used to repay the estimated outstanding indebtedness of the
Founding Companies at the closing of the Offering. The estimated outstanding
indebtedness to be repaid from the proceeds of the Offering bears interest at a
weighted average interest rate of approximately 8.0% and matures at various
dates from December 1997 through October 2012. Prior to the Acquisitions certain
of the Founding Companies will incur approximately $10.9 million in indebtedness
to their stockholders relating to the payment of S Corporation Distributions.
See "Certain Transactions."
The approximately $25.0 million of remaining net proceeds will be used for
working capital and for general corporate purposes, which are expected to
include future acquisitions. Pending such uses, the Company intends to invest
the net proceeds of the Offering in short-term, investment-grade,
interest-bearing securities. While the Company is continuously considering
possible acquisition prospects as part of its growth strategy, the Company is
not presently engaged in active negotiations with respect to any particular
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Combined Liquidity and Capital Resources."
16
<PAGE> 20
The Company is currently negotiating with a group of commercial banks to
provide the Company with a credit facility that may be used for acquisitions,
working capital and other general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources."
DIVIDEND POLICY
The Company currently intends to retain its future earnings, if any, to
finance the growth, development and expansion of its business and, accordingly,
does not currently intend to declare or pay any dividends on the Common Stock
for the foreseeable future. The declaration, payment and amount of future
dividends, if any, will be at the discretion of the Company's Board of Directors
after taking into account various factors, including, among others, the
Company's financial condition, results of operations, cash flows from
operations, current and anticipated capital requirements and expansion plans,
the income tax laws then in effect and the requirements of Delaware law. In
addition, the terms of any credit facility may prohibit the payment of dividends
by the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Combined Liquidity and Capital Resources."
Prior to the Acquisitions, certain of the Founding Companies will make S
Corporation Distributions aggregating $17.8 million and other distributions of
non-operating assets to their former stockholders. In order to fund these
distributions, the Company will borrow approximately $10.9 million.
17
<PAGE> 21
CAPITALIZATION
The following table sets forth the current maturities of long-term debt and
the capitalization as of June 30, 1997 of (i) the Company on a pro forma
combined basis after giving effect to the Acquisitions and related transactions,
and (ii) the Company on a pro forma basis, as adjusted to give effect to the
Offering and the application of the estimated net proceeds therefrom. See "Use
of Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources" and the Unaudited Pro
Forma Financial Statements of the Company and the notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------
PRO FORMA PRO FORMA
COMBINED(A) AS ADJUSTED(B)
----------- --------------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt........................ $61,590(c) $ 288
======= ========
Long-term debt, net of current maturities................... $12,204(d) $ 11,445
------- --------
Stockholders' equity:
Preferred Stock: $0.01 par value, 10,000,000 shares,
authorized; no shares issued and outstanding........... -- --
Common Stock: $0.01 par value, 100,000,000 shares
authorized; 13,709,628 issued and outstanding, pro
forma combined; and 20,709,628 shares issued and
outstanding, as adjusted(e)............................ 137 207
Restricted Common Stock: $0.01 par value, 2,655,709 shares
authorized, issued and outstanding(f).................. 26 26
Additional paid-in capital................................ 67,963 155,033
Retained earnings......................................... 7,547 7,547
------- --------
Total stockholders' equity........................ 75,673 162,813
------- --------
Total capitalization.............................. $87,877 $174,258
======= ========
</TABLE>
- ---------------
(a) Combines the respective accounts of IES and the Founding Companies as
reflected in the Unaudited Pro Forma Combined Balance Sheet as of June 30,
1997 prior to the Offering.
(b) Adjusted to reflect the sale of 7,000,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."
(c) Includes $57.5 million of notes payable to owners of the Founding Companies,
representing the cash portion of the Acquisitions Consideration to be paid
from a portion of the net proceeds of the Offering. The cash portion of the
Acquisitions Consideration will be adjusted based on the initial public
offering price of the Common Stock offered hereby.
(d) Includes $10.9 million in long-term debt generated to fund the S Corporation
Distributions.
(e) Excludes 300,000 shares related to stock options which are currently
outstanding and shares related to approximately 2,100,000 stock options
which are expected to be granted upon consummation of the Offering.
(f) All of such shares of Restricted Common Stock will be issued to the founder
of IES. See "Description of Common Stock."
18
<PAGE> 22
DILUTION
At June 30, 1997, after giving effect to the Acquisitions as if they had
occurred at such date, the deficit in pro forma combined net tangible book value
of the Company would have been $38.6 million, or approximately $(2.36) per
share. The deficit in pro forma combined net tangible book value is equal to the
aggregate net tangible book value (tangible assets less total liabilities) of
the Company after giving effect to the Acquisitions. The number of shares used
for the per share calculation includes the 16,365,337 shares outstanding after
the Acquisitions but prior to the Offering. After giving effect to the
Acquisitions and the sale by the Company of the 7,000,000 shares of Common Stock
offered hereby (assuming an initial public offering price of $14.00 per share
and after deducting underwriting discounts and commissions and estimated
Offering expenses payable by the Company), the pro forma combined net tangible
book value of the Company would have been $48.5 million, or $2.08 per share.
This represents an immediate increase in pro forma net tangible book value of
$4.44 per share to existing stockholders and an immediate dilution in net
tangible book value of $11.92 per share to new investors purchasing the shares
of Common Stock in the Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Pro forma combined net tangible book value per share prior
to the Offering........................................ $(2.36)
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 4.44
-----
Pro forma combined net tangible book value per share after
the Offering.............................................. 2.08
------
Dilution in net tangible book value per share to new
investors................................................. $11.92
======
</TABLE>
The following table sets forth on a pro forma basis, after giving effect to
the Acquisitions as of June 30, 1997, the number of shares of Common Stock
purchased from the Company, the total consideration to the Company and the
average price per share paid to the Company by (i) existing stockholders (ii)
stockholders of the Founding Companies and (iii) the new investors purchasing
Common Stock from the Company in the Offering at the assumed initial offering
price of $14.00 per share (before deducting underwriting discounts and
commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED
---------------------- TOTAL AVERAGE PRICE
NUMBER PERCENT CONSIDERATION PER SHARE
----------- ------- ------------- -------------
<S> <C> <C> <C> <C>
Existing stockholders and stockholders of
Founding Companies(a)(b)................. 16,365,337 70.0% $(38,581,025) $(2.36)
New investors.............................. 7,000,000 30.0 98,000,000 14.00
----------- ----- ------------
Total.................................... 23,365,337 100.0% $ 59,418,975
=========== ===== ============
</TABLE>
- ---------------
(a) See "Certain Transactions" for a discussion of the issuance of Common Stock
to the founder of IES and certain management of IES.
(b) Total consideration paid by Founding Company stockholders represents the
combined stockholders' equity of the Founding Companies before the Offering,
adjusted to reflect: (i) the payment of the estimated $57.5 million in cash
to the stockholders of the Founding Companies as part of the Acquisitions
Consideration; (ii) the S Corporation Distributions and (iii) the transfer
of certain nonoperating assets and liabilities to the stockholders of the
Founding Companies with an approximate net book value of $3.0 million in
connection with the Acquisitions. See "Certain Transactions."
19
<PAGE> 23
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
IES will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. For financial statement
presentation purposes, however, Houston-Stafford has been identified as the
"accounting acquiror." The following selected historical financial data for
Houston-Stafford as of December 31, 1994 and 1995 and for the years ended
December 31, 1994, 1995 and 1996 have been derived from audited financial
statements of Houston-Stafford included elsewhere in this Prospectus and reflect
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of such data. The selected historical financial data for the
six months ended June 30, 1996 and 1997, and for December 31, 1992 and 1993 and
for the years ended December 31, 1992 and 1993, have been derived from the
unaudited financial statements of Houston-Stafford, which have been prepared on
the same basis as the audited financial statements and, in the opinion of
Company management, reflect all adjustments consisting of normal recurring
adjustments, necessary for a fair presentation of such data. The results of
operations for the six months ended June 30, 1997 should not be regarded as
indicative of the results that may be expected for the full year.
The summary unaudited pro forma combined financial data below present
certain data for the Company, adjusted for (i) the Acquisitions, (ii) the
effects of certain other pro forma adjustments to the historical financial
statements and (iii) the consummation of the Offering and the application of the
net proceeds therefrom. The unaudited pro forma combined income statement data
assume that the Acquisitions, the Offering and related transactions were closed
on October 1, 1995, and are not necessarily indicative of the results that the
Company would have obtained had these events actually occurred at that date or
indicative of the Company's future results. During the periods presented below,
the Founding Companies were not under common control or management and,
therefore, the data presented may not be comparable to or indicative of
post-combination results to be achieved by the Company. The unaudited pro forma
combined income statement data are based on preliminary estimates, available
information and certain assumptions that management deems appropriate and should
be read in conjunction with the other financial information included elsewhere
in this Prospectus. See the Unaudited Pro Forma Combined Financial Statements
and the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL INCOME STATEMENT DATA --
HOUSTON-STAFFORD:
Revenues............................ $28,939 $32,363 $48,001 $54,082 $70,493 $35,299 $37,508
Cost of services (including
depreciation)..................... 25,781 29,307 42,163 46,712 57,662 29,162 30,098
------- ------- ------- ------- ------- ------- -------
Gross profit........................ 3,158 3,056 5,838 7,370 12,831 6,137 7,410
Selling, general and administrative
expenses.......................... 2,892 2,720 5,319 6,027 7,810 2,730 4,982
------- ------- ------- ------- ------- ------- -------
Income from operations.............. 266 336 519 1,343 5,021 3,407 2,428
Interest and other income (expense),
net............................... (66) (83) (71) (196) (40) (39) (8)
------- ------- ------- ------- ------- ------- -------
Income before income taxes.......... 200 253 448 1,147 4,981 3,368 2,420
Provision for income taxes.......... 14 56 186 416 1,934 1,213 942
------- ------- ------- ------- ------- ------- -------
Net income.......................... $ 186 $ 197 $ 262 $ 731 $ 3,047 $ 2,155 $ 1,478
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 JUNE 30, 1997
------------------ -----------------
<S> <C> <C>
PRO FORMA COMBINED:
Revenues.................................................. $ 272,236 $ 226,210
Cost of services (including depreciation)................. 216,382 178,287
---------- ----------
Gross profit.............................................. 55,854 47,923
Selling, general and administrative expenses(a)........... 28,546 26,729
Goodwill amortization(b).................................. 2,857 2,143
---------- ----------
Income from operations.................................... 24,451 19,051
Interest and other income (expense), net(c)............... (31) (74)
---------- ----------
Income before income taxes................................ 24,420 18,977
Provision for income taxes................................ 10,436 8,076
---------- ----------
Net income(d)............................................. $ 13,984 $ 10,901
========== ==========
Net income per share...................................... $ 0.64 $ 0.50
========== ==========
Shares used in computing pro forma net income per
share(e)................................................ 21,693,969 21,693,969
========== ==========
</TABLE>
20
<PAGE> 24
<TABLE>
<CAPTION>
HISTORICAL (HOUSTON-STAFFORD)
------------------------------------------------------
DECEMBER 31, JUNE 30, 1997 PRO FORMA(F)
------------------------------------------- JUNE 30, ----------------------------
1992 1993 1994 1995 1996 1997 COMBINED AS ADJUSTED(G)(H)
------ ------ ------ ------ ------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......... $1,845 $2,001 $1,968 $2,675 $ 4,671 $ 4,292 $(36,116)(i) $ 50,265
Total assets............. 5,570 5,740 8,809 9,357 13,226 22,161 199,247 224,326
Long-term debt, net of
current maturities..... 719 505 927 634 1,295 1,139 12,204 11,445
Total stockholders'
equity................. 2,224 2,325 1,952 3,104 5,351 6,829 75,673 162,813
</TABLE>
- ---------------
(a) The unaudited pro forma combined income statement data reflect an aggregate
of approximately $6.0 million and $4.5 million for the year ended September
30, 1996 and the nine months ended June 30, 1997, respectively, in pro forma
reductions in salary, bonus and benefits of the owners of the Founding
Companies to which they have agreed prospectively, and the effect of
revisions of certain lease agreements between the Founding Companies and
certain stockholders of the Founding Companies. See "Certain Transactions."
(b) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period and computed on the basis described in
the notes to the Unaudited Pro Forma Combined Financial Statements.
(c) Reflects the reduction for interest expense of $0.7 million and $0.5 million
for the year ended September 30, 1996 and the nine months ended June 30,
1997, respectively, to the repayment of $4.6 million of historical debt with
proceeds from the Offering and other debt distributed prior to the
Acquisitions, net of additional interest expense discussed in (h) below.
Additionally, reflects a $250,000 and $222,000 reduction in minority
interest expense for the year ended September 30, 1996 and the nine months
ended June 30, 1997, respectively.
(d) Assumes all pretax income before non-deductible goodwill and other permanent
items is subject to a 38% overall tax rate.
(e) Includes (i) 12,313,026 shares to be issued to the owners of the Founding
Companies, (ii) 1,396,602 shares issued to the management of IES, (iii)
2,655,709 shares of Restricted Common Stock issued to the founder of IES and
(iv) 5,208,632 of the 7,000,000 shares sold in the Offering necessary to pay
the cash portion of the Acquisitions Consideration and the Offering
expenses. Includes 120,000 shares computed under the treasury stock method
related to 300,000 options which are currently outstanding, but excludes
options to purchase 2,100,000 shares which are expected to be granted upon
consummation of the Offering. See "Description of Capital Stock."
(f) Reflects the Acquisitions and related transactions as if they had occurred
on June 30, 1997 as described in the notes to the Unaudited Pro Forma
Combined Financial Statements. The unaudited pro forma combined balance
sheet data are based upon preliminary estimates, available information and
certain assumptions that management deems appropriate and should be read in
conjunction with the historical financial statements, and notes thereto,
included elsewhere in this Prospectus.
(g) Reflects the closing of the Offering and the Company's application of the
net proceeds therefrom to fund the cash portion of the Acquisitions
Consideration and to repay certain indebtedness of the Founding Companies.
See "Use of Proceeds" and "Certain Transactions."
(h) A number of the Founding Companies have historically elected S corporation
status for tax purposes. In connection with the Acquisitions, these Founding
Companies will make S Corporation Distributions. In order to fund these
distributions, the Company will distribute $4.4 million of cash, distribute
$2.5 million of nonoperating assets, net of liabilities, and borrow
approximately $10.9 million. Accordingly, pro forma interest expense has
been increased by $1.0 million for the year ended September 30, 1996 and
$0.7 million for the nine months ended June 30, 1997 and pro forma
stockholders' equity has been reduced by approximately $17.8 million.
Additionally, approximately $3.0 million of nonoperating assets, net of
liabilities, will be distributed by other Founding Companies prior to the
Acquisitions.
(i) Includes the estimated $57.5 million in notes payable to owners of the
Founding Companies, representing the cash portion of the Acquisitions
Consideration to be paid from a portion of the net proceeds from the
Offering. See "Pro Forma -- As Adjusted" amounts. The cash portion of the
Acquisitions Consideration will be adjusted based on the initial public
offering price of the Common Stock offered hereby.
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the Founding
Companies' Financial Statements and related notes thereto and "Selected
Financial Data" appearing elsewhere in this Prospectus.
The Company's revenues are derived primarily from electrical construction
and maintenance services provided to commercial, industrial and residential
customers. Approximately 62% of the Company's pro forma combined 1996 revenues
were from commercial and industrial work, approximately 25% were from
residential work, and approximately 13% was derived from electrical maintenance
work. In addition, approximately 87% of the Company's pro forma combined 1996
revenues of $272 million were derived from new construction and renovation and
approximately 13% were attributable to maintenance (including repair and
replacement). Revenues from fixed price construction and renovation contracts
are generally accounted for on a percentage-of-completion basis, using the
cost-to-cost method. The cost-to-cost method measures the percentage completion
of a contract based on total costs incurred to date compared to total estimated
costs at completion. Maintenance revenues are recognized as the services are
performed.
Cost of services consists primarily of salaries and benefits of employees,
subcontracted services, materials, parts and supplies, depreciation, fuel and
other vehicle expenses and equipment rentals. The Company's gross margin, which
is gross profit expressed as a percentage of revenues, depends on the relative
proportions of costs related to labor and materials. On jobs in which a higher
percentage of the cost of services consists of labor costs, the Company
typically achieves higher gross margins than on jobs where materials represent
more of the cost of services. Materials costs can be calculated with relatively
more accuracy than labor costs, and the Company seeks to maintain higher margins
on its labor-intensive projects to compensate for the potential variability of
labor costs for these projects. Selling, general and administrative expenses
consist primarily of compensation and related benefits for owners,
administrative salaries and benefits, advertising, office rent and utilities,
communications and professional fees. Certain owners and certain key employees
of the Founding Companies have agreed to reductions in their compensation and
related benefits totaling $6.0 million in fiscal 1996 in connection with the
Acquisitions. Such reductions in salaries, bonuses and benefits have been
reflected as a pro forma adjustment in the Unaudited Pro Forma Combined
Statement of Operations and are reflected in the terms of employment agreements
with the Company.
The Company believes that it will realize savings from (i) consolidation of
insurance and bonding programs; (ii) reduction in other general and
administrative expenses, such as training and advertising; (iii) the Company's
ability to borrow at lower interest rates than most, if not all, of the Founding
Companies; (iv) consolidation of operations in certain locations and (v) greater
volume discounts from suppliers of materials, parts and supplies. Offsetting
these savings will be costs related to the Company's new corporate management,
being a public company and integrating the Acquisitions.
In September 1997, the Company sold an aggregate of 1,396,602 shares of
Common Stock to management and will record (for financial statement presentation
purposes) a non-recurring, non-cash compensation charge of $12.7 million in
September 1997 relating to such sale. This non-recurring compensation charge is
not included in the Unaudited Pro Forma Combined Financial Statements.
As a result of the Acquisitions, $114.3 million, representing the excess of
the consideration paid over the fair value of the net assets to be acquired,
will be recorded as goodwill on the Company's balance sheet. Goodwill will be
amortized as a non-cash charge to the income statement over a 40-year period.
The pro forma impact of this amortization expense, which is substantially
non-deductible for tax purposes, is $2.9 million per year on an after-tax basis.
SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following supplemental unaudited pro forma combined financial
information for the periods presented do not purport to present those of the
combined Founding Companies in accordance with generally
22
<PAGE> 26
accepted accounting principles, but represent merely a summation of the
revenues, cost of sales and gross profit of the individual Founding Companies on
a historical basis and excludes the effects of the pro forma adjustments that
are included in the Unaudited Pro Forma Combined Statements appearing elsewhere
in this Prospectus. Selling, general and administrative expenses for periods
prior to the Acquisitions reflect the effects of distributions to the owners of
the Founding Companies. The data will not be comparable to, and may not be
indicative of, the Company's post-combination results of operations because (i)
the Founding Companies were not under common control or management and had
different tax structures (generally, S corporations or partnerships) during the
periods presented, (ii) the Company will use the purchase method to establish a
new basis of accounting to record the Acquisitions, (iii) the Company will incur
incremental costs for its corporate management and the costs of being a public
company and (iv) the combined data do not reflect the potential benefits and
cost savings the Company expects to realize when operating as a combined entity.
The following table sets forth certain supplemental unaudited pro forma
combined financial information for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(A) NINE MONTHS
------------------------------------------------ ENDED
1994 1995 1996 JUNE 30, 1997
-------------- -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues....................... $181,205 100% $211,626 100% $272,236 100% $226,210 100%
Cost of services............... 149,698 83 172,417 81 216,382 79 178,287 79
-------- --- -------- --- -------- --- -------- ---
Gross profit................. 31,507 17 39,209 19 55,854 21 47,923 21
Selling, general and
administrative expenses...... 23,752 13 28,506 13 34,528 13 31,215 14
-------- --- -------- --- -------- --- -------- ---
Income from operations....... $ 7,755 4% $ 10,703 6% $ 21,326 8% $ 16,708 7%
======== === ======== === ======== === ======== ===
</TABLE>
- ---------------
(a) The fiscal years and interim periods presented are the year ended December
31, for all Founding Companies, except for Pollock and Hatfield, for which
the fiscal years presented are the years ended October 31, 1994, 1995 and
1996; Rodgers, for which the fiscal years presented are the years ended
September 30, 1994, 1995 and 1996; and Summit, for which the fiscal years
presented are the years ended March 31, 1995, 1996 and 1997.
Pro Forma Combined Results for the year ended September 30, 1996, compared to
the year ended September 30, 1995.
Revenues increased approximately $60.6 million, or 29% from $211.6 million
for the year ended September 30, 1995 to $272.2 million for the year ended
September 30, 1996. The increase in combined revenues occurred primarily at
Houston-Stafford, Mills and Bexar-Calhoun. Houston-Stafford's revenues increased
$16.4 million, or 30% from 1995 to 1996, primarily due to an overall increase in
market demand and new contractual arrangements for Houston-Stafford to be the
sole or primary provider of electrical installation services for certain
residential contractors. Mills' revenues increased $30.1 million, or 86% from
1995 to 1996, primarily due to the acquisition of Fort Worth Regional Electrical
Systems, L.L.C. ("Regional Electric") in June 1996 (which represents
approximately $5.2 million of 1996 revenues), an increase in market demand for
large industrial construction contracts for manufacturing and distribution
facilities in the greater Dallas area, and a 30% increase in maintenance and
service revenues. Bexar-Calhoun's revenues increased $5.3 million, or 19% from
1995 to 1996, as certain personnel were reassigned to the growing markets around
Laredo and New Braunfels, Texas, resulting in a $3.6 million increase in
revenues in these two markets between 1995 and 1996. Of the remaining 12
Founding Companies, seven reported an increase in revenues, one reported
relatively constant revenues and four recorded a decline in revenues between
1995 and 1996. The most significant decline in revenue of $2.0 million occurred
at Ace, where an unusually high demand for design-and-build projects in
Valdosta, Georgia in 1995 did not recur in 1996. The most significant increase
in revenues among these other Founding Companies of $4.2 million or 43% occurred
at Amber due to an increase in large commercial projects on shopping malls and
grocery stores in central Florida.
23
<PAGE> 27
Gross profit increased $16.6 million, or 42% from $39.2 million for the
year ended September 30, 1995, to $55.9 million for the year ended September 30,
1996. Gross margin increased to 21% in 1996 from 19% in 1995. The increase in
combined gross profit occurred primarily due to increases in gross profit of
$5.4 million or 74% at Houston-Stafford, $7.0 million or 89% at Mills, and $1.3
million or 18% at Bexar-Calhoun. Houston-Stafford's gross margin increased from
14% in 1995 to 18% in 1996, Mills' gross margin increased from 22% in 1995 to
23% in 1996, and Bexar-Calhoun's gross margin remained constant at 24% in 1995
and 1996. The increases in Houston-Stafford's gross profit and gross margin are
primarily attributed to favorable pricing associated with increased demand and
higher discounts on certain long-term material purchase commitments. Mills'
gross profit and gross margin increases are primarily attributed to the
acquisition of Regional Electric, increased demand for complex industrial
contracts, and an increase in higher margin maintenance service revenues.
Bexar-Calhoun's gross profit and gross margin increased as a result of its
overall increase in business volume.
Selling, general and administrative expenses increased 21% from $28.5
million in 1995 to $34.5 million in 1996. This increase occurred primarily due
to increases in selling, general and administrative expenses of $1.8 million at
Houston-Stafford and $2.9 million at Mills. The increase in Houston-Stafford's
selling, general and administrative expenses was primarily attributed to the
addition of infrastructure associated with its growth. Mills' increase in
selling, general and administrative expenses was attributed to increased
business volume, including that related to the acquisition of Regional Electric,
and increases in discretionary bonus and savings plan distributions.
Pro Forma Combined Results for the year ended September 30, 1995 compared to
the year ended September 30, 1994.
Revenues increased $30.4 million, or 17% from $181.2 million for the year
ended September 30, 1994, to $211.6 million for the year ended September 30,
1995. The increase in combined revenues occurred primarily at Houston-Stafford,
Mills and Bexar-Calhoun. Houston-Stafford's revenues increased $6.1 million, or
13% from 1994 to 1995, primarily due to an overall increase in demand and a new
contract under which Houston-Stafford is the sole or primary provider of
electrical installation services for a multifamily residential contractor.
Mills' revenues increased $9.8 million, or 38% from 1994 to 1995, primarily due
to increased demand for higher margin industrial contracting services and a 61%
increase in maintenance and service revenues. Bexar-Calhoun's revenues increased
$4.5 million, or 20% from 1994 to 1995, due to an increase in retail
construction activity in San Antonio.
Of the remaining 12 Founding Companies, seven reported an increase in
revenues, two reported relatively constant revenues and three reported a decline
in revenues between 1994 and 1995. The most significant decline in revenues of
$1.3 million occurred at Hatfield, where an unusually large $2.0 million
contract was completed in 1994 and no comparable contract was performed in 1995.
The most significant increase in revenue among these other Founding Companies of
$2.6 million occurred at Ace due to an unusually high demand for
design-and-build commercial projects in 1995 as compared to 1994.
Gross profit increased $8.0 million, or 26% from $31.2 million for the year
ended September 30, 1994, to $39.2 million for the year ended September 30,
1995. Gross margin increased to 19% in 1995 from 17% in 1994. The increase in
combined gross profit occurred primarily due to increases in gross profit of
$1.6 million or 26% at Houston-Stafford, $3.3 million or 71% at Mills, and $1.5
million or 30% at Bexar-Calhoun. Houston-Stafford's gross margin increased from
12% in 1994 to 14% in 1995, Mills' gross margin increased from 18% in 1994 to
22% in 1995, and Bexar-Calhoun's gross margin increased from 22% in 1994 to 24%
in 1995, respectively. The increase in Houston-Stafford's gross profit and gross
margin are primarily attributed to favorable pricing related to increased
demand. Mills' gross profit and gross margin increases are primarily attributed
to increased market demand for complex industrial contracts, and an increase in
higher margin maintenance and service revenues. Bexar-Calhoun's gross profit and
gross margin increased as a result of higher margin retail construction
contracts in San Antonio, Texas.
Selling, general and administrative expenses increased 22% from $23.4
million in 1994 to $28.5 million in 1995. The increase in combined selling,
general and administrative expenses occurred primarily due to
24
<PAGE> 28
increases in selling, general and administrative expenses of $0.7 million at
Houston-Stafford, $1.3 million at Mills and $0.5 million at Bexar-Calhoun. The
increase in Houston-Stafford's selling general and administrative expenses was
attributed to the addition of infrastructure associated with its growth. Mills'
increase in selling, general and administrative expenses was attributed to
increased business volume and increases in discretionary bonus and savings plan
distributions. Bexar-Calhoun's increase in selling, general and administrative
expenses was attributed to the addition of infrastructure associated with
Bexar-Calhoun's growth.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
Upon consummation of the Acquisitions and after applying the estimated net
proceeds of the Offering as discussed under "Use of Proceeds," the Company will
have $28.4 million of cash and cash equivalents, $50.3 million of working
capital and no outstanding indebtedness other than debt relating to S
Corporation Distributions and capital lease capital expenditures obligations
totaling $11.7 million. The Founding Companies' historical indebtedness of $4.6
million is anticipated to be repaid from Offering proceeds.
On a combined basis, the Founding Companies generated $17.0 million of cash
from operating activities during 1996. Net cash used in investing activities was
$3.4 million on a combined basis and was primarily used for capital
expenditures. Net cash used in financing activities was $8.5 million on a
combined basis and was primarily used for debt repayment and distributions.
The Company is currently negotiating with a group of banks to obtain a
credit facility which would be available upon the closing of the Offering.
According to the proposed terms, the Company would have an unsecured revolving
line of credit that may be used for general corporate purposes, including
post-Offering acquisitions, capital expenditures and working capital. The
ability of the Company to secure the credit facility is subject to negotiations
with potential lenders as well as the satisfaction of certain conditions,
including the execution of appropriate loan documentation. In the event the
credit facility is not available after this Offering, the Company believes that
sufficient alternative sources of financing will be available on reasonable
terms to the Company.
The Company anticipates that its cash flow from operations and proceeds
from the Offering will provide sufficient cash to enable the Company to meet its
working capital needs, debt service requirements and planned capital
expenditures for property and equipment through 1998. On a combined basis, the
Founding Companies made capital expenditures of $4.8 million in fiscal 1996.
The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments cannot be predicted. The Company
expects to fund future acquisitions primarily with a portion of the net proceeds
of the Offering, working capital, cash flow from operations and borrowings,
including any unborrowed portion of the proposed credit facility, as well as
issuances of additional equity.
Due to the relatively low levels of inflation experienced in fiscal 1994,
1995 and 1996, inflation did not have a significant effect on the results of the
combined Founding Companies in those fiscal years.
HOUSTON-STAFFORD RESULTS OF OPERATIONS
Houston-Stafford was founded in 1973 and is headquartered in Stafford,
Texas near Houston. It operates primarily in Texas, with other significant
operations in Georgia, Virginia, Tennessee and Maryland.
25
<PAGE> 29
The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $48,001 100% $54,082 100% $70,493 100% $35,299 100% $37,508 100%
Cost of services.................... 42,163 88 46,712 86 57,662 82 29,162 83 30,098 80
------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit...................... 5,838 12 7,370 14 12,831 18 6,137 17 7,410 20
Selling, general and administrative
expenses.......................... 5,319 11 6,027 11 7,810 11 2,730 8 4,982 13
------- --- ------- --- ------- --- ------- --- ------- ---
Income from operations............ $ 519 1% $ 1,343 3% $ 5,021 7% $ 3,407 9% $ 2,428 7%
======= === ======= === ======= === ======= === ======= ===
</TABLE>
Houston-Stafford results for the six months ended June 30, 1996 compared to
six months ended
June 30, 1997
Revenues increased $2.3 million, or 6% from $35.2 million for the six
months ended June 30, 1996 to $37.5 million for the six months ended June 30,
1997, primarily as a result of increased market demand and the acquisition of an
electrical supply company effective in May 1997, offset by the effects of
unusually rainy weather in Texas.
Gross profit increased $1.3 million during the first six months of 1997 to
$7.4 million, and gross margin increased to 20% in 1997 from 17% in 1996 as a
result of favorable pricing related to the increase in demand and higher
discounts on certain long-term material purchase commitments.
Selling, general and administrative expenses increased 82% from $2.7
million to $5.0 million. The increase was attributable to an increase in bonuses
for certain key employees and to a lesser degree higher insurance costs.
Houston-Stafford results for the year ended December 31, 1996 compared to the
year ended
December 31, 1995
Revenues increased $16.4 million, or 30% from $54.1 million for the year
ended December 31, 1996, to $70.5 million for the year ended December 31, 1996,
primarily due to an overall increase in market demand and new contracts under
which Houston-Stafford is the sole or primary provider of electrical
installation services for certain significant residential contractors.
Gross profit increased $5.4 million, or 74% from $7.4 million for the year
ended December 31, 1995 to $12.8 million for the year ended December 31, 1996.
Gross margin increased from 14% to 18% over these periods. The increase in gross
profit amounts and percentages is primarily attributed to favorable pricing
related to the increase in market demand and higher discounts on certain
long-term material purchase commitments.
Selling, general and administrative expenses increased 30% from $6.0
million to $7.8 million. The increase was attributable to the addition of
infrastructure necessary to support the company's growth and the establishment
of a new merit bonus system. Selling, general, and administrative expenses as a
percentage of revenues remained constant during 1996 when compared to 1995.
Houston-Stafford results for the year ended December 31, 1995 compared to the
year ended
December 31, 1994
Revenues increased $6.1 million, or 13% from $48.0 million for the year
ended December 31, 1994, to $54.1 million for the year ended December 31, 1995,
due to increased market demand and a new contract where the company is the sole
or primary provider of electrical contracting services for a significant multi-
family residential contractor.
26
<PAGE> 30
Gross profit increased $1.6 million, or 26% from $5.8 million for the year
ended December 31, 1994 to $7.4 million for the year ended December 31, 1995.
Gross margin increased from 12% to 14% over these periods due to favorable
pricing partially offset by lower profits from government projects in 1995.
Selling, general and administrative expenses increased 14% in 1995 when
compared to 1994 as a result of the additional infrastructure necessary to
support the company's growth. Selling, general and administrative expenses as a
percentage of revenues remained constant during 1995 when compared to 1994.
HOUSTON-STAFFORD LIQUIDITY AND CAPITAL RESOURCES
Houston-Stafford generated $1.0 million of net cash from operating
activities for the six months ended June 30, 1997. Net cash used in investing
activities was approximately $0.2 million, primarily for the purchase of fixed
assets. Net cash provided by financing activities of $0.2 million resulted from
advances on Houston-Stafford's line of credit. Houston-Stafford had a $3.1
million line of credit as of June 30, 1997 that expires in July 1998. At June
30, 1997, Houston-Stafford had $0.4 million outstanding under their line of
credit.
At June 30, 1997, Houston-Stafford had working capital of $4.3 million and
total debt of $2.4 million.
Houston-Stafford generated $2.7 million in net cash from operating
activities for the year ended December 31, 1996. Net cash used in investing
activities was approximately $0.6 million for the purchase of fixed assets. Net
cash used in financing activities was $0.5 million for the year ended December
31, 1996 primarily as a result of the repayment of debt partially offset by
additional borrowings.
At December 31, 1996 Houston-Stafford had working capital of $5.2 million
and total debt of $1.7 million.
MILLS RESULTS OF OPERATIONS
Mills, headquartered in Dallas, Texas was founded in 1972 and operates
primarily in the greater Dallas-Fort Worth area. Mills derives a significant
portion of its revenues from higher margin design-and-build services and from
data cabling and fire alarm systems.
The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $25,544 100% $35,250 100% $65,439 100% $27,902 100% $35,613 100%
Cost of services..... 20,937 82 27,372 78 50,535 77 22,089 79 29,636 83
------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit....... 4,607 18 7,878 22 14,904 23 5,813 21 5,977 17
Selling, general and
administrative
expenses........... 3,391 13 4,741 13 7,643 12 2,236 8 3,355 10
------- --- ------- --- ------- --- ------- --- ------- ---
Income from
operations...... $ 1,216 5% $ 3,137 9% $ 7,261 11% $ 3,577 13% $ 2,622 7%
======= === ======= === ======= === ======= === ======= ===
</TABLE>
Mills results for the six months ended June 30, 1996 compared to six months
ended June 30, 1997
Revenues increased $7.7 million, or 28% from $27.9 million for the six
months ended June 30, 1996 to $35.6 million for the six months ended June 30,
1997, primarily as a result of the acquisition of Regional Electric, which
specializes in commercial and industrial electrical contracting and fire alarm,
data cabling and control system installation in the greater Fort Worth area.
Gross profit remained relatively constant during the first six months of
1997. Gross margin decreased from 21% to 17% due to a decrease in demand for
higher margin, complex industrial work offset by an increase in market demand
for lower margin commercial work.
27
<PAGE> 31
Selling, general and administrative expenses increased 50% from $2.2
million to $3.4 million. The increase was attributable to additional personnel
as a result of the acquisition of Regional Electric, and the addition of
infrastructure associated with Mills' growth.
Mills results for the year ended December 31, 1996 compared to the year ended
December 31, 1995
Revenues increased $30.1 million, or 86% from $35.3 million for the year
ended December 31, 1995 to $65.4 million for the year ended December 31, 1996,
primarily due to the acquisition of Regional Electric in June of 1996 (which
represents approximately $5.2 million of 1996 revenues), an increase in market
demand for large and complex industrial construction contracts for manufacturing
and distribution facilities in the greater Dallas area for which only a select
group of electrical contractors have the resources and expertise to bid and a
30% increase in maintenance and service revenues resulting from the Company's
focus on increasing its maintenance and service revenues.
Gross profit increased $7.0 million, or 89% from $7.9 million for the year
ended December 31, 1995 to $14.9 million for the year ended December 31, 1996.
Gross margin increased to 23% from 22% during this period due to an increase in
higher margin maintenance and service work.
Selling, general and administrative expenses increased 61% from $4.7
million to $7.6 million. The increase was attributable to increased business
volume, including that related to the acquisition of operations of Regional
Electric and increases in discretionary bonus and savings plan distributions.
Mills results for the year ended December 31, 1995 compared to the year ended
December 31, 1994
Revenues increased $9.8 million, or 38% from $25.5 million for the year
ended December 31, 1994 to $35.3 million for the year ended December 31, 1995,
primarily due to increased market demand for higher margin new industrial
contracting services and a 61% increase in maintenance and service revenues.
Gross profit increased $3.3 million, or 71% from $4.6 million for the year
ended December 31, 1994 to $7.9 million for the year ended December 31, 1995.
Gross margin increased to 22% from 18% due to the increases in higher margin
industrial contracting and maintenance service revenues.
Selling, general and administrative expenses increased 40% from $3.4
million to $4.7 million. The increase was attributable to increased business
volume and increases in discretionary bonus and savings plan distributions.
MILLS LIQUIDITY AND CAPITAL RESOURCES
Mills used approximately $2.2 million of net cash for operating activities
for the six months ended June 30, 1997, primarily for working capital. Net cash
used in investing activities was approximately $0.7 million, primarily for the
purchase of tools and equipment. At June 30, 1997, Mills had a $2.0 million
revolving line of credit available that expires June 1, 1999. At June 30, 1997,
there were no outstanding draws against this line of credit.
At June 30, 1997, Mills had working capital of $7.4 million and total debt
obligations of $0.5 million that relate to the acquisition of Regional Electric
and certain capital leases.
Mills generated $7.9 million in net cash from operating activities for the
year ended December 31, 1996, as a result of the Company's increased
profitability. Net cash used in investing activities was approximately $0.6
million, representing $0.9 million used for the purchase of property and
equipment, partly offset by $0.3 million, net, in collection of loans. Net cash
used in financing activities was $3.9 million for the year ended December 31,
1996, primarily for distribution of dividends to stockholders. At December 31,
1996, Mills had a $2.0 million revolving line of credit that was originally
scheduled to expire June 1, 1997 and was extended to June 1, 1999. At December
31, 1996, there were no outstanding draws against this line of credit.
At December 31, 1996, Mills had working capital of $5.5 million and total
debt obligations of $0.6 million.
28
<PAGE> 32
BEXAR-CALHOUN RESULTS OF OPERATIONS
Bexar was founded in 1966 and operates primarily in the areas around the
cities of San Antonio, New Braunfels and Laredo, Texas. Calhoun was founded in
1958 and operates in the counties around San Antonio.
The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $23,168 100% $27,730 100% $33,023 100% $16,680 100% $16,311 100%
Cost of services..... 17,967 78 20,964 76 25,017 76 12,602 75 12,717 78
------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit....... 5,201 22 6,766 24 8,006 24 4,078 25 3,594 22
Selling, general and
administrative
expenses........... 3,091 13 3,637 13 3,686 11 1,816 11 1,859 11
------- --- ------- --- ------- --- ------- --- ------- ---
Income from
operations...... $ 2,110 9% $ 3,129 11% $ 4,320 13% $ 2,262 14% $ 1,735 11%
======= === ======= === ======= === ======= === ======= ===
</TABLE>
Bexar-Calhoun results for the six months ended June 30, 1996 compared to six
months ended June 30, 1997
Revenues decreased $0.4 million, or 2% from $16.7 million in 1996 to $16.3
million in 1997, primarily due to an increase in overall growth offset by the
completion in 1996 of an unusually large electrical construction contract for a
state university in Laredo, Texas.
Gross profit decreased $0.5 million, or 12% from $4.1 million in 1996 to
$3.6 million in 1997. Gross margin decreased from 25% in 1996 to 22% in 1997.
The decrease in gross profit related to completion of the large state university
contract in 1996 and gross margin declined due to a change in customer mix
associated with a decrease in higher margin retail construction in San Antonio.
Selling, general and administrative expenses remained relatively constant
from 1996 to 1997.
Bexar-Calhoun results for the year ended December 31, 1996 compared to the
year ended
December 31, 1995
Revenues increased $5.3 million, or 19% from $27.7 million in 1995 to $33.0
million in 1996, primarily due to reassignment of certain personnel to Laredo
and New Braunfels, Texas. Bexar-Calhoun realized a $3.6 million increase in
revenues in these two markets between 1995 and 1996, in part from a large
electrical construction contract for a university in Laredo, Texas.
Gross profit increased $1.3 million, or 18% from $6.8 million in 1995 to
$8.0 million in 1996. Gross margin remained stable over these periods. The
increase in gross profit was attributed to higher revenues.
Selling, general and administrative expenses did not significantly change
from 1995 to 1996. Selling, general and administrative expenses declined as a
percentage of revenue from 13% in 1995 to 11% in 1996.
Bexar-Calhoun results for the year ended December 31, 1995 compared to the
year ended
December 31, 1994
Revenues increased $4.5 million, or 20% from $23.2 million in 1994 to $27.7
million in 1995, primarily due to a significant increase in the volume of
Bexar-Calhoun's retail construction business in the San Antonio, Texas market.
Gross profit increased $1.5 million, or 30% from $5.2 million in 1994 to
$6.7 million in 1995. Gross margin increased from 22% in 1994 to 24% in 1995.
Gross profit increased due to the revenue increase, while gross margin increased
due to higher margin retail construction.
29
<PAGE> 33
Selling, general and administrative expenses increased 18% from $3.1
million in 1994 to $3.6 million in 1995. The increase was attributable to the
addition of infrastructure associated with Bexar-Calhoun's growth.
BEXAR-CALHOUN LIQUIDITY AND CAPITAL RESOURCES
Bexar-Calhoun generated $2.2 million of net cash from operating activities
for the six months ended June 30, 1997. Net cash used in investing activities
was approximately $1.2 million, primarily for additions to property, plant, and
equipment and loans to stockholders. Net cash used in financing activities of
$0.8 million resulted from stockholder distributions net of debt repayments.
At June 30, 1997, Bexar-Calhoun had working capital of $3.8 million and
total debt of $1.4 million.
Bexar-Calhoun generated $2.7 million in net cash from operating activities
for the year ended December 31, 1996, primarily from net income offset by growth
in working capital. Net cash used in investing activities was approximately $0.6
million for additions to property, plant, and equipment net of stockholder loan
repayments. Net cash provided by financing activities was $2.8 million for the
year ended December 31, 1996 primarily as a result of stockholder distributions
net of debt repayments.
At December 31, 1996 Bexar-Calhoun had working capital of $3.7 million and
total debt of $1.0 million.
POLLOCK RESULTS OF OPERATIONS
Pollock was founded in 1983 and is headquartered in Houston, Texas. Pollock
has specialized expertise in design-and-build projects.
The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, EIGHT MONTHS ENDED JUNE 30,
----------------------------- ----------------------------
1995 1996 1996 1997
------------- ------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $13,002 100% $15,816 100% $8,160 100% $11,273 100%
Cost of services........... 10,602 82 13,534 86 7,242 89 9,480 84
------- --- ------- --- ------ --- ------- ---
Gross profit............. 2,400 18 2,282 14 918 11 1,793 16
Selling, general and
administrative
expenses................. 2,149 16 2,463 15 1,536 19 1,817 16
------- --- ------- --- ------ --- ------- ---
Income/(loss) from
operations............ $ 251 2% $ (181) (1)% $ (618) (8)% $ (24) --%
======= === ======= === ====== === ======= ===
</TABLE>
Pollock results for the eight months ended June 30, 1996 compared to eight
months ended June 30, 1997
Revenues increased $3.1 million, or 38% from $8.2 million for the eight
months ended June 30, 1996 to $11.3 million for the eight months ended June 30,
1997, primarily due to an increase in large commercial contracts, increased data
cabling work and higher revenues for service and small project work.
Gross profit increased $0.9 million, or 95% from $0.9 million for the eight
months ended June 30, 1996 to $1.8 million for the eight months ended June 30,
1997. Gross margin increased to 16% from 11% over these periods. The gross
profit and gross margin increases in 1997 when compared to 1996 are primarily
attributed to specific low margin or loss contracts in 1996 that did not recur
in 1997.
Selling, general and administrative expenses increased 18% from $1.5
million to $1.8 million due to the addition of certain strategic management
personnel. As a percent of revenues, selling, general and administrative
expenses actually decreased in 1997 over 1996 by 3%.
30
<PAGE> 34
Pollock results for the year ended October 31, 1996 compared to the year ended
October 31, 1995
Revenues increased $2.8 million, or 22% from $13.0 million for the year
ended October 31, 1995, to $15.8 million for the year ended October 31, 1996,
primarily due to an increase in commercial construction and the addition of data
cabling services.
Gross profit decreased $0.1 million, or 5% from $2.4 million for the year
ended October 31, 1995 to $2.3 million for the year ended October 31, 1996.
Gross margin decreased to 14% from 18% over these periods. These decreases were
due to specific low margin or loss contracts in 1996.
Selling, general and administrative expenses increased 15% from $2.1
million to $2.5 million. The increase was attributable to an increase in
management staff necessary to support the company's growth strategy, including
the addition of data cabling expertise.
POLLOCK LIQUIDITY AND CAPITAL RESOURCES
Pollock used $0.3 million of net cash for operating activities for the
eight months ended June 30, 1997. Net cash used in investing activities was
approximately $.1 million, primarily for increases in the leasing of capital
assets. Net cash provided by financing activities of $.2 million resulted from
additional short-term line of credit borrowings.
At June 30, 1997, Pollock had working capital of $0.3 million and total
debt of $1.7 million.
Pollock used $0.7 million in net cash from operating activities for the
year ended October 31, 1996, primarily to fund working capital requirements. Net
cash used in investing activities was approximately $0.2 million for additions
to property and equipment. Net cash provided by financing activities was $0.7
million for the year ended October 31, 1996 primarily as a result of short-term
line of credit borrowings.
At October 31, 1996 Pollock had working capital of $0.5 million and total
debt of $1.5 million.
DANIEL RESULTS OF OPERATIONS
Daniel Electrical Contractors, Inc. was founded in 1986, is headquartered
in Miami, Florida, and operates primarily in South Florida. Daniel Electrical of
Treasure Coast Inc. was founded in 1995 and is headquartered in Vero Beach. In
addition to commercial and industrial contracting, Daniel services high-end
residential construction and repairs on a time-and-material basis, from both its
Miami and Vero Beach, Florida locations.
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------- ---------------------------
1995 1996 1996 1997
------------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $12,049 100% $12,585 100% $5,134 100% $9,259 100%
Cost of services........... 11,725 97 9,713 77 3,979 78 6,294 68
------- --- ------- --- ------ --- ------ ---
Gross profit............. 324 3 2,872 23 1,155 22 2,965 32
Selling, general and
administrative
expenses................. 1,502 13 1,884 15 874 17 1,267 14
------- --- ------- --- ------ --- ------ ---
Income/(loss) from
operations............ $(1,178) (10)% $ 988 8% $ 281 5% $1,698 18%
======= === ======= === ====== === ====== ===
</TABLE>
Daniel results for the six months ended June 30, 1996 compared to six months
ended June 30, 1997
Revenues increased $4.2 million, or 80% from $5.1 million for the six
months ended June 30, 1996 to $9.3 million for the six months ended June 30,
1997, primarily due to favorable pricing for negotiated contracts in process
during the six months ended June 30, 1997.
31
<PAGE> 35
Gross profit increased $1.8 million, or 157%, from $1.2 million for the six
months ended June 30, 1996 to $3.0 million for the six months ended June 30,
1997. Gross margin increased from 22% to 32%, primarily due to increased labor
efficiencies and an increase in higher margin high-rise residential contracts.
Selling, general and administrative expenses increased $0.4 million, or
45%, from $0.9 million for the six months ended June 30, 1996 to $1.3 million
for the six months ended June 30, 1997, primarily due to increases in office
salaries associated with increased revenues. As a percentage of revenues,
selling, general and administrative expenses decreased from 17% to 14%.
Daniel results for the year ended December 31, 1996 compared to the year ended
December 31, 1995
Revenues increased $0.6 million, or 4%, from $12.0 million for the year
ended December 31, 1995 to $12.6 million for the year ended December 31, 1996,
primarily due to increased revenues from negotiated contracts in process during
the year ended December 31, 1996.
Gross profit increased $2.6 million, or 786%, from $0.3 million for the
year ended December 31, 1995 to $2.9 million for the year ended December 31,
1996. Gross margin increased from 3% to 23%, as a result of cost overruns
incurred in 1995 on certain projects and an increase in labor efficiencies and
an increase in higher margin high-rise residential contracts.
Selling, general and administrative expenses increased $0.4 million, or 25%
from $1.5 million for the year ended December 31, 1995 to $1.9 million for the
year ended December 31, 1996, as a result of the increase in revenues.
DANIEL LIQUIDITY AND CAPITAL RESOURCES
Daniel generated $0.6 million in net cash from operating activities for the
six months ended June 30, 1997, primarily due to an increase in accounts
receivable and accounts payable, both of which represented offsets to net income
generated during the period. Net cash used in investing activities was
approximately $0.3 million, principally for capital expenditures. Net cash used
in financing activities was approximately $0.4 million, principally for
shareholder distributions net of long-term borrowings.
Working capital as of June 30, 1997 was $3.7 million, and total debt
outstanding was $0.6 million, of which $0.5 million was owed to a shareholder.
Daniel generated $1.2 million in net cash from operating activities for the
year ended December 31, 1996, primarily due to an increase in collections of
deposits and billings on contracts in progress. Net cash used in investing
activities was approximately $0.5 million, principally for capital expenditures
and increases in mutual fund investments. Net cash used in financing activities
was approximately $0.4 million, principally for debt repayments.
Working capital as of December 31, 1996 was $2.4 million, and total debt
outstanding was $0.5 million, of which $0.5 million was owed to a shareholder.
MUTH RESULTS OF OPERATIONS
Muth was founded in 1970 and has 7 offices located in South Dakota,
including its headquarters in Mitchell. Muth also from time to time operates in
Wyoming, Montana, Nebraska and Minnesota.
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<PAGE> 36
The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $13,466 100% $16,012 100% $16,830 100% $8,065 100% $8,308 100%
Cost of services...... 9,805 73 12,189 76 12,834 76 6,134 76 6,660 80
------- --- ------- --- ------- --- ------ --- ------ ---
Gross profit........ 3,661 27 3,823 24 3,996 24 1,931 24 1,648 20
Selling, general and
administrative
expenses............ 2,678 20 2,923 18 2,957 18 1,455 18 1,567 19
------- --- ------- --- ------- --- ------ --- ------ ---
Income from
operations....... $ 983 7% $ 900 6% $ 1,039 6% $ 476 6% $ 81 1%
======= === ======= === ======= === ====== === ====== ===
</TABLE>
Muth results for the six months ended June 30, 1996 compared to six months
ended June 30, 1997
Revenues increased $0.2 million, or 3% from $8.1 million for the six months
ended June 30, 1996 to $8.3 million for the six months ended June 30, 1997, due
to a significant increase in market demand that was offset by work delays caused
by the harsh winter, which lasted from November 1996 through early April 1997.
Gross profit decreased $0.3 million, or 15% from $1.9 million for the six
months ended June 30, 1996 to $1.6 million for the six months ended June 30,
1997. Gross margin decreased to 20% from 24% over these periods. The decreases
in the gross profit and gross margin are solely attributed to the harsh winter
and related work delays in early 1997.
Selling, general and administrative expenses increased 8% from $1.5 million
to $1.6 million. The increase was attributable to the increase in market demand
and related infrastructure costs.
Muth results for the year ended December 31, 1996 compared to the year ended
December 31, 1995
Revenues increased $.8 million, or 5% from $16 million for the year ended
December 31, 1995 to $16.8 million for the year ended December 31, 1996, due to
increased market demands for electrical contracting services, slightly offset by
delays caused by the harsh winter, which started in November 1996 and continued
through early April 1997.
Gross profit increased $.2 million, or 5% from $3.8 million for the year
ended December 31, 1995 to $4.0 million for the year ended December 31, 1996.
There was no significant change in gross margin. The gross profit and gross
margin increases in 1996 when compared to 1995 were attributed to increased
margin on service work in 1996 and increased revenues.
Selling, general and administrative expenses remained constant over these
periods.
Muth results for the year ended December 31, 1995 compared to the year ended
December 31, 1994
Revenues increased $2.5 million, or 19% from $13.5 million for the year
ended December 31, 1994 to $16 million for the year ended December 31, 1995,
primarily due to increased overall demand.
Gross profit increased $0.1 million from $3.7 million for the year ended
December 31, 1994, to $3.8 million for the year ended December 31, 1995. Gross
margin decreased to 24% from 27% over these periods due to a lower and more
normal mix of higher margin design-and-build projects in 1995.
Selling, general and administrative expenses increased 9% from $2.7 million
to $2.9 million. The increase was due to an increase in administrative salaries
attributable to the additional infrastructure associated with Muth's growth.
MUTH LIQUIDITY AND CAPITAL RESOURCES
Muth generated $.04 million of net cash from operating activities for the
six months ended June 30, 1997. Net cash used in investing activities was
approximately $0.4 million, primarily for additions to property and
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<PAGE> 37
equipment. Net cash used in financing activities of $0.4 million primarily
related to distributions to stockholders.
At June 30, 1997, Muth had working capital of $1.8 million and total debt
of $0.4 million. Muth currently has no long-term debt. Cash requirements
increased in 1996 as a result of a higher proportion of government contracts,
which typically have payment periods of 45 to 60 days rather than the 20-day
period typical for private contracts.
Muth generated $0.5 million in net cash from operating activities for the
year ended December 31, 1996, primarily from earnings net of investments in
working capital. Net cash used in investing activities was approximately $0.4
million for additions to property and equipment. Net cash used by financing
activities was $0.1 million for the year ended December 31, 1996 primarily as a
result of stockholder distributions in excess of borrowings.
At December 31, 1996 Muth had working capital of $1.9 million and total
debt of $0.5 million.
AMBER RESULTS OF OPERATIONS
Amber was founded in 1979 and operates from its base near Orlando, Florida.
Amber's revenues in fiscal 1996 were primarily from commercial and industrial
contracting.
The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------- ----------------------------
1995 1996 1996 1997
------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $9,728 100% $13,878 100% $6,881 100% $7,910 100%
Cost of services........... 8,635 89 12,215 88 5,564 81 5,765 73
------ --- ------- --- ------ --- ------ ---
Gross profit............. $1,093 11% $ 1,663 12% $1,317 19% $2,145 27%
Selling, general and
administrative
expenses................. 957 10 1,160 8 889 13 946 12
------ --- ------- --- ------ --- ------ ---
Income from operations... $ 136 1% $ 503 4% $ 428 6% $1,199 15%
====== === ======= === ====== === ====== ===
</TABLE>
Amber results for the six months ended June 30, 1996 compared to six months
ended June 30, 1997
Revenues increased $1.0 million, or 15% from $6.9 million for the six
months ended June 30, 1996 to $7.9 million for the six months ended June 30,
1997, primarily from three larger than average retail construction contracts in
1997.
Gross profit increased $0.8 million, or 63% from $1.3 million in 1996 to
$2.1 million in 1997. Gross margin increased 8% over these periods. The
improvement in gross margin was attributed to an increase in the number of
commercial contracts with higher gross margins recognized.
Selling, general and administrative expenses remained relatively constant
for the six months ended June 30, 1996 compared to the six months ended June 30,
1997.
Amber results for the year ended December 31, 1996 compared to the year ended
December 31, 1995
Revenues increased $4.2 million, or 43% from $9.7 million in 1995 to $13.9
million in 1996, primarily due to increased commercial construction of shopping
malls and grocery stores in central Florida.
Gross profit increased $0.6 million, or 52% from $1.1 million in 1995 to
$1.7 million in 1996. Gross margin remained stable over these periods.
Selling, general and administrative expenses increased 21% from $1.0
million in 1995 to $1.2 million in 1996. The increase was attributable to
increased management salaries associated with increased revenues.
34
<PAGE> 38
AMBER LIQUIDITY AND CAPITAL RESOURCES
Amber generated $0.4 million of net cash for operating activities for the
six months ended June 30, 1997. Net cash used in investing activities was
approximately $0.2 million, primarily for additions of property and equipment.
Net cash used in financing activities was not significant.
At June 30, 1997, Amber had working capital of $1.2 million and total debt
of $0.7 million.
Amber generated $0.7 million in net cash from operating activities for the
year ended December 31, 1996, primarily for earnings and reductions in working
capital. Net cash used in investing activities was approximately $0.2 million
for additions of property and equipment. Net cash provided by financing
activities was not significant.
At December 31, 1996, Amber had working capital of $0.6 million and total
debt of $0.7 million.
SUMMIT RESULTS OF OPERATIONS
Summit was founded in 1987 and is located in Houston, Texas. Summit's
revenues in its fiscal year ended March 31, 1997 were primarily from commercial
and industrial contracting. Summit has specialized expertise in data cable
installation.
The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, THREE MONTHS ENDED JUNE 30,
------------- ----------------------------
1997 1996 1997
------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................. $10,565 100% $3,136 100% $3,043 100%
Cost of services......................... 9,157 87 2,637 84 2,605 86
------- --- ------ --- ------ ---
Gross profit........................... $ 1,408 13% $ 499 16% $ 438 14%
Selling, general and administrative
expenses............................... 1,340 13 330 11 399 13
------- --- ------ --- ------ ---
Income from operations................. $ 68 1% $ 169 5% $ 39 1%
======= === ====== === ====== ===
</TABLE>
Summit results for the three months ended June 30, 1996 compared to three
months ended June 30, 1997
Revenues decreased $0.1 million, or 3% from $3.1 million for the three
months ended June 30, 1996 to $3.0 million for the three months ended June 30,
1997, primarily due to restrictions in growth of maintenance and repairs revenue
attributed to a shortage in qualified electricians.
Gross profit decreased $0.1 million, or 12% from $0.5 million for the three
months ended June 30, 1996 to $0.4 million for the three months ended June 30,
1997. Gross margin decreased from 16% to 14% from 1996 to 1997. The decrease in
gross profit was primarily attributed to the write-off of a receivable from a
contractor which went bankrupt.
Selling, general and administrative expenses increased 21% from $0.3
million to $0.4 million. The increase was attributable to management bonuses,
higher insurance and business promotional expenses.
SUMMIT LIQUIDITY AND CAPITAL RESOURCES
Summit used $0.2 million of net cash for operating activities for the three
months ended June 30, 1997. Net cash provided by financing activities of $0.1
million resulted from long-term borrowings.
At June 30, 1997, Summit had working capital of $0.6 million and total debt
of $0.1 million.
Summit generated near break-even levels of net cash from operating
activities for the year ended March 31, 1997. Net cash used in investing
activities was approximately $0.2 million primarily for the purchase of service
trucks. Net cash provided by financing activities was $0.2 million for the year
ended March 31, 1997 primarily as a result of long-term borrowings.
35
<PAGE> 39
At March 31, 1997 Summit had working capital of $0.9 million and total debt
of $0.1 million.
HAYMAKER RESULTS OF OPERATIONS
Haymaker was founded in 1981, is headquartered in Birmingham, Alabama, and
operates in Alabama, northwest Florida and North Carolina. Haymaker's revenues
in fiscal 1996 were primarily from commercial and industrial contracting
services.
The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ----------------------------
1996 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.................................. $7,560 100% $3,187 100% $5,841 100%
Cost of services.......................... 6,412 85 2,824 89 5,052 86
------ --- ------ --- ------ ---
Gross profit............................ 1,148 15 363 11 789 14
Selling, general and administrative
expenses................................ 713 9 258 8 548 9
------ --- ------ --- ------ ---
Income from operations.................. $ 435 6% $ 105 3% $ 241 5%
====== === ====== === ====== ===
</TABLE>
Haymaker results for the six months ended June 30, 1996 compared to six months
ended June 30, 1997
Revenues increased $2.6 million, or 83% from $3.2 million for the six
months ended June 30, 1996, to $5.8 million for the six months ended June 30,
1997, primarily due to a large hospital contract and an overall increase in
construction activity in Birmingham, Alabama.
Gross profit increased $0.4 million, or 117% from $0.4 million for the six
months ended June 30, 1996 to $0.8 million for the same period in 1997. Gross
margin increased to 14% in 1997 from 11% in 1996 over these periods. The
increase in gross profit and gross margin was attributed to higher demand and
lower than expected costs and certain fixed price contracts.
Selling, general and administrative expenses increased 112% from $0.3
million for the six months ended June 30, 1996, to $0.5 million for the six
months ended June 30, 1997. The increase was attributable to higher bonus
distributions under the company's incentive compensation plan.
HAYMAKER LIQUIDITY AND CAPITAL RESOURCES
Haymaker used $0.2 million of net cash for operating activities for the six
months ended June 30, 1997. Net cash provided by financing activities of $0.2
million resulted from short-term borrowings.
At June 30, 1997, Haymaker had working capital of $1.0 million and total
debt of $0.2 million.
Haymaker generated $0.1 million in net cash from operating activities for
the year ended December 31, 1996, primarily from earnings net of investments in
working capital. Net cash used by financing activities was $0.2 million for the
year ended December 31, 1996 primarily as a result of distributions to partners.
At December 31, 1996 Haymaker had working capital of $0.7 million and no
debt.
THURMAN & O'CONNELL RESULTS OF OPERATIONS
Thurman & O'Connell was founded in 1988. It is headquartered in Louisville,
Kentucky, and operates primarily in Louisville and the surrounding areas.
Thurman & O'Connell's revenues in fiscal 1996 were primarily from commercial and
industrial contracting, with an emphasis on institutional and commercial
properties.
36
<PAGE> 40
The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $4,729 100% $4,551 100% $2,842 100% $2,254 100%
Cost of services............ 3,309 70 3,059 67 1,973 70 1,073 48
------ --- ------ --- ------ --- ------ ---
Gross profit.............. 1,420 30 1,492 33 869 30 1,181 52
Selling, general and
administrative expenses... 512 11 503 11 239 8 271 12
------ --- ------ --- ------ --- ------ ---
Income from operations.... $ 908 19% $ 989 22% $ 630 22% $ 910 40%
====== === ====== === ====== === ====== ===
</TABLE>
Thurman & O'Connell results for the six months ended June 30, 1996 compared to
six months ended June 30, 1997
Revenues decreased $0.5 million, or 21% from $2.8 million in 1996 to $2.3
million in 1997, primarily due to the completion of a large multi-year hospital
project in 1996.
Gross profit increased $0.3 million, or 36% from $0.9 million in 1996 to
$1.2 million in 1997 primarily due to favorable pricing on certain over budget
projects on which the company shares in the cost savings its provides to its
customers. Gross margin increased from 30% in 1996 to 52% in 1997 due to a large
multi-year lower profit margin hospital project which was completed in 1996.
Selling, general and administrative expenses did not change significantly
between 1997 and 1996. Thurman & O'Connell results for the year ended December
31, 1996 compared to the year ended December 31, 1995
Revenues decreased $0.1 million, or 4% from $4.7 million in 1995 to $4.6
million in 1996, primarily due to the completion of a large multi-year hospital
project in 1996.
Gross profit increased $0.1 million or 5% from $1.4 million in 1995 to $1.5
million in 1996. Gross margin increased 3% from 30% in 1995 to 33% in 1996.
Selling, general and administrative expenses remained relatively constant
between 1995 and 1996. THURMAN & O'CONNELL LIQUIDITY AND CAPITAL RESOURCES
Thurman & O'Connell generated $0.8 million of net cash for operating
activities for the six months ended June 30, 1997. Net cash used by financing
activities of $0.8 million resulted from distributions to stockholders.
At June 30, 1997, Thurman & O'Connell had working capital of $1.4 million
and total debt of $0.1 million.
Thurman & O'Connell generated $1.3 million in net cash from operating
activities for the year ended December 31, 1996, primarily from earnings net of
investments in working capital. Net cash used by financing activities was $0.6
million for the year ended December 31, 1996 primarily as a result of
distributions to stockholders and payments on debt.
At December 31, 1996 Thurman & O'Connell had working capital of $1.3
million and total debt of $0.1 million.
37
<PAGE> 41
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's results of operations from residential construction are
seasonal, depending on weather trends, with typically higher revenues generated
during the spring and summer and lower revenues during the fall and winter. The
commercial and industrial aspect of the Company's business is less subject to
seasonal trends, as this work is performed inside structures protected from the
weather. The Company's service business is not affected by seasonality. In
addition, the construction industry has historically been highly cyclical. The
Company's volume of business may be adversely affected by declines in
construction projects resulting from adverse regional or national economic
conditions. Quarterly results may also be materially affected by the timing of
acquisitions and the timing and magnitude of acquisition assimilation costs.
Accordingly, operating results for any fiscal period are not necessarily
indicative of results that may be achieved for any subsequent fiscal period.
38
<PAGE> 42
BUSINESS
IES was founded in June 1997 to create a leading national provider of
electrical contracting and maintenance services to the commercial, industrial
and residential markets. Concurrently with the closing of the Offering, IES will
acquire 15 electrical contracting and maintenance service companies and a
related supply company with pro forma combined 1996 revenues of $272 million,
making it one of the largest providers of electrical contracting and maintenance
services in the United States. Of such 1996 pro forma revenues, approximately
62% was derived from commercial and industrial work, approximately 25% was
derived from residential work and approximately 13% was derived from electrical
maintenance work. Combined revenues of the Founding Companies, which have been
in business an average of 18 years, increased at an average compound annual
growth rate of approximately 23% from 1994 through 1996.
The Company offers a broad range of electrical contracting services,
including design and installation for both new and renovation projects in the
commercial, industrial and residential markets. The Company also offers
long-term and per-call maintenance services, which provide recurring revenues
that are relatively independent of levels of construction activity. Typically,
the Founding Companies specialize in either commercial and industrial or
residential work, although a few of the Founding Companies have both commercial
and industrial and residential operations.
In certain markets the Company offers design-and-build expertise and
specialized services, which typically require specific skills and equipment and
provide higher margins than general electrical contracting and maintenance
services. In a design-and-build project, the electrical contractor applies
in-house electrical engineering expertise to design the most cost-effective
electrical system for a given structure, local code requirements and purpose.
Specialized services offered by the Company include installations of wiring or
cabling for the following: data cabling for computer networks; fiber optic cable
systems; telecommunications systems; energy management systems which control the
amount of power used in facilities; fire alarm and security systems; cellular
phone transmission sites; "smart houses" that integrate computer, energy
management, security, safety, comfort and telecommunication systems; lightning
protection systems; clean rooms for fabrication of microprocessors and similar
devices; computer rooms; back-up electrical systems and uninterruptible power
supplies; high voltage transmission distribution and traffic signal systems.
INDUSTRY OVERVIEW
General. Virtually all construction and renovation in the United States
generates demand for electrical contracting services. Depending upon the exact
scope of work, electrical work generally accounts for approximately 8% to 12% of
the total construction cost of the Company's commercial and industrial projects
and 5% to 10% of the total construction cost of the Company's residential
projects. In recent years, the Founding Companies have experienced a growing
demand for electrical contracting 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 construction of smart houses with integrated systems.
The overall electrical contracting 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. Based on this Census data, 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
contracting and maintenance services and that the fragmented nature of the
electrical contracting industry will provide significant opportunities to
consolidate commercial and industrial and residential electrical contracting and
maintenance businesses.
Commercial and Industrial Market. Commercial and industrial consumers of
electrical contracting and maintenance services include a broad range of
customers, including general contractors; developers; consulting engineers;
architects; owners and managers of large retail establishments, office
buildings, apartments and condominiums; theaters and restaurants; hotels and
casinos; manufacturing and processing facilities; arenas and convention centers;
hospitals; school districts; military and other government agencies; airports;
prisons
39
<PAGE> 43
and car lots. High-rise residential projects are viewed as commercial rather
than residential projects because the electrical wiring methods and field skills
require similar techniques. Commercial and industrial electrical construction is
most often performed by a subcontractor for a general contractor, although an
electrical contractor may also perform services directly as a prime contractor.
Generally, contracts are obtained through a competitive bid process or on
negotiated terms through ongoing customer relationships.
Typically, electrical contracting services for the industrial and
commercial market involve wiring a structure to specifications set by the
customer, increasingly with design-and-build engineering expertise provided by
the electrical contractor. The normal commercial or industrial job is wired
through pipe or conduit, which is installed through metal or concrete
structures. Some commercial and industrial contractors prefabricate certain
components offsite, at the contractor's office or at the facilities of a
subcontractor or manufacturer, and these items are transported to the job site
ready to be installed.
Over the past three years, the Founding Companies' revenues from electrical
contracting for commercial and industrial customers have grown at an average
compound annual rate of approximately 24% per year. The Company believes that
growth in the commercial and industrial market reflects a number of factors,
including (i) levels of construction and renovation activity; (ii) regulations
imposed by electric codes, which establish minimum power and wiring
requirements; (iii) safety codes mandating additional installation of smoke
detectors and the use of ground fault circuit protection devices in more
locations; (iv) revised national energy standards that dictate the use of more
energy-efficient lighting fixtures and other equipment; (v) continuing demand to
build out lease spaces in office buildings and to reconfigure space for new
tenants; (vi) increases in use of electrical power, creating needs for increased
capacity and outlets, as well as data cabling and fiber optics and (vii)
requirements of building owners and developers to facilitate marketing their
properties to tenants and buyers by installing electrical capacity in excess of
minimum code requirements.
Residential Market. The residential market consists primarily of electrical
installations in new single family and low-rise multifamily residence
construction. The typical residential electrical wiring job is done with
plastic-jacketed wiring installed through wood studs. As in the commercial and
industrial market, the opportunities for design-and-build projects have grown
recently for residential contractors. The residential market, with its
repetitive floor plans, lends itself to prefabrication techniques. The use of
prefabricated components increases productivity by reducing construction time,
labor costs and skill requirements. The residential market is primarily
dependent on the number of single family and multifamily home starts, which are
in turn affected by interest rates, tax considerations and general economic
conditions. Competitive factors particularly important in the residential market
include a contractor's ability to build relationships with customers such as
large homebuilders and apartment developers by providing services in diverse
geographic markets as construction activity shifts to new locations. The
Founding Companies' residential electrical contracting revenues have grown at an
average compound annual rate of approximately 22% over the past three years.
Residential electrical contractors with specialized expertise and the
necessary licenses are in a position to meet market demand for increasingly
complex residential electrical systems. For example, some newly constructed
homes have been designed as smart houses with integrated computer-controlled
systems wired in during construction. In addition, more stringent building and
fire codes have resulted in more complex wiring requirements for smoke detectors
and alarms.
STRATEGY
The Company believes that its size, geographical diversity of operations,
industry relationships, expertise in specialized markets, number of licensed
electricians and access to design technology give the Company significant
competitive advantages in the electrical contracting and maintenance services
industry. Through increased size, the Company believes it will have greater
ability to compete for larger jobs that require greater technical expertise,
personnel availability and bonding capacity, to more effectively allocate and
share resources in serving customers in each of its markets and to attract,
train and retain qualified electricians. The Company also believes that
increased size will provide increased efficiency in materials purchasing,
computer system development, employee benefits, bonding, insurance and
financing. The Company believes that the
40
<PAGE> 44
diversity of its operations will diminish the effects of regional and market
downturns, offer opportunities to pursue growth in its existing markets and
create a base of expertise to expand into new markets and serve new customers.
The Company plans to leverage its experienced management and extensive
relationships within the electrical contracting industry to increase its
revenues and reduce its cost infrastructure through internal growth as well as
the acquisition of additional electrical contracting businesses. The Company's
management includes a Chief Executive Officer and two Chief Operating Officers,
each with 25 years or more of experience in the electrical contracting industry.
The Company has extensive business relationships within the industry, in part
through Founding Companies that are members of the IEC. The IEC is the second
largest electrical trade organization in the U.S. and has nearly 3,000
contracting firms as members. The Company's Chief Executive Officer is a past
president of the IEC, and two founders are members of the executive committee of
the IEC. The IEC sponsors forum groups, which are discussion groups of members
of the IEC that foster the sharing of best business practices. The Founding
Companies are members of the IEC and other trade organizations, and the Company
intends to expand the practice of sharing best practices among the Founding
Companies and with future acquisitions.
The Company's goal is to become a leading national provider of electrical
services by improving its operations, expanding its business and markets through
internal growth and pursuing an aggressive acquisition strategy.
Operating Strategy. The Company believes there are significant
opportunities to increase revenues and profitability of the Founding Companies
and subsequently acquired businesses. The key elements of the Company's
operating strategy are:
Share Information, Technical Capabilities and Best Practices. The
Company believes it will be able to expand the services it offers in its
local markets by leveraging the specialized technical and marketing
strengths of individual Founding Companies. The Company will identify and
share best practices that can be successfully implemented throughout its
operations. The Company intends to use the computer-aided-design technology
and expertise of certain of the Founding Companies to bid for more
design-and-build projects and to assist customers in value engineering and
creating project documents. The Company believes that its increased size,
capital and workforce will permit it to pursue projects that require
greater design and performance capabilities and the ability to meet
accelerated timetables.
Expand Scope of Maintenance and Specialized Services. The Company
intends to further develop its long-term and per call maintenance service
operations, which generally realize higher gross margins and provide
recurring revenues that are relatively independent of levels of
construction activity. The Company also believes that certain specialized
businesses currently offered by only a few of the Founding Companies can be
expanded throughout the Company and in some cases can provide higher
margins. Through sharing of expertise and specialized licenses and the
ability to demonstrate a safety record in specialized markets served by the
Founding Companies, the Company intends to expand its presence and
profitability in markets where it previously relied on subcontractors.
Establish National Market Coverage. The Company believes that the
growth of many of the Founding Companies has been restricted due to the
geographic limitations of existing operations and that the Company's broad
geographic coverage will increase internal growth opportunities. The
Company intends to leverage its geographic diversity to bid for additional
business from existing customers that operate on a regional and national
basis, such as developers, contractors, homebuilders and owners of national
chains. The Company believes that significant demand exists from such
companies to utilize the services of a single electrical contracting and
maintenance service provider and existing local and regional relationships
can be expanded as the Company develops a nationwide network.
Operate on Decentralized Basis. The Company believes that, while
maintaining strong operating and financial controls, a decentralized
operating structure will retain the entrepreneurial spirit present in each
of the Founding Companies. The Company also will be structured to allow it
to capitalize on the considerable local and regional market knowledge and
customer relationships possessed by each
41
<PAGE> 45
Founding Company, as well as companies that may be acquired in the future.
By maintaining a local and regional focus in each of its markets, the
Company believes it will be able to build relationships with general
contractors and other customers, address design preferences and code
requirements, respond quickly to customer demands for higher-margin
renovation and upgrade projects and adjust to local conditions.
Attract and Retain Quality Employees. The Company believes that the
ability to attract and retain qualified electricians is a critical
competitive factor and that the Acquisitions and the Offering will provide
competitive advantages in this regard. The Company intends to attract and
develop skilled employees by extending active recruiting and training
programs, offering stock-based compensation for key employees, and offering
expanded career paths and more stable income through the larger public
company. The Company believes that this ability will allow it to increase
efficiency and pursue additional customer relationships.
Achieve Operating Efficiencies. Certain administrative functions will
be centralized following the Offering. In addition, by combining
overlapping operations of certain of the Founding Companies, the Company
expects to realize savings in overhead and other expenses. The Company
intends to use its increased purchasing power to gain volume discounts in
areas such as electrical materials, vehicles, advertising, bonding,
employee benefits and insurance. The Company will seek to realize cost
savings and other benefits by the sharing of purchasing, pricing, bidding
and other business practices and the sharing of licenses. The Company
intends to further develop and extend the use of computer systems to
facilitate communication among the Founding Companies. At some locations,
the larger combined workforce will provide additional staffing flexibility.
Acquisition Strategy. The Company believes that, due to the highly
fragmented nature of the electrical contracting and maintenance services
industry, it has significant opportunities to pursue its acquisition strategy.
The Company intends to focus on acquiring companies with management philosophies
based on both an entrepreneurial attitude as well as a willingness to learn and
share improved business practices through open communications. The Company
believes that many electrical contracting and service businesses that lack the
capital necessary to expand operations will become acquisition candidates. For
these acquisition candidates, the Company will provide (i) information on best
practices, (ii) expertise in expanding in specialized markets, (iii) the
opportunity to focus on customers rather than administration, (iv) national name
recognition, (v) increased liquidity and (vi) the opportunity for a continued
role in management. The Founding Companies participate in professional
associations such as the IEC and Associated Builders and Contractors, and the
Company intends to continue these relationships, in part to assist in
identifying attractive acquisition candidates. Other key elements of the
Company's acquisition strategy are:
Enter New Geographic Markets. The Company will pursue acquisitions
that are located in new geographic markets, are financially stable and have
the customer base necessary to integrate with or complement its existing
business. The Company also expects that increasing its geographic diversity
will allow it to better serve an increasingly nationwide base of customers
and further reduce the impact on the Company of local and regional economic
cycles, as well as weather-related or seasonal variations in business.
Expand Within Existing Markets. Once the Company has entered a market,
it will seek to acquire other well-established electrical contracting and
maintenance businesses operating within that region, including "tuck-in"
acquisitions of smaller companies. The Company believes that tuck-in
acquisitions afford the opportunity to improve its overall cost structure
through the integration of such acquisitions into existing operations as
well as to increase revenues through access to additional specialized
markets, such as heavy industrial markets. Despite such integration
opportunities afforded by such tuck-in acquisitions, the Company intends to
maintain existing business names and identities to retain goodwill for
marketing purposes.
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<PAGE> 46
COMPANY OPERATIONS
The Company offers a broad range of electrical contracting services,
including installation and design, for both new and renovation projects in the
commercial, industrial and residential markets. The Company also offers
long-term and per call maintenance services, which generally provide recurring
revenues that are relatively independent of levels of construction activity.
In certain markets the Company offers design-and-build expertise and
specialized services, which typically require specific skills and equipment and
provide higher margins than general electrical contracting and maintenance
services. The Company also acts as a subcontractor for a variety of national,
regional and local builders in the installation of electrical and other systems.
Commercial and Industrial. New commercial and industrial work begins with
either a design request or engineer's plans from the owner or general
contractor. Initial meetings with the parties allow the contractor to prepare
preliminary and then more detailed design specifications, engineering drawings
and cost estimates. Once a project is awarded, it is conducted in scheduled
phases, and progress billings are rendered to the owner for payment, less a
retainage of 5% to 10% of the construction cost of the project. Actual field
work (ordering of equipment and materials, fabrication or assembly of certain
components, delivery of materials and components to the job site, scheduling of
work crews and inspection and quality control) is coordinated during these
phases. The Company generally provides the materials to be installed as a part
of these contracts, which vary significantly in size from a few hundred dollars
to several million dollars and vary in duration from less than a day to more
than a year.
Residential. New residential installations begin with a builder providing
architectural or mechanical drawings for the residences within the tract being
developed. The Company typically submits a bid or contract proposal for the
work. Company personnel analyze the plans and drawings and estimate the
equipment, materials and parts and the direct and supervisory labor required for
the project. The Company delivers a written bid or negotiates an arrangement for
the job. The installation work is coordinated by the Company's field supervisors
along with the builder's personnel. Payments for the project are generally
obtained within 30 days, at which time any mechanics' and materialmen's liens
securing such payments are released. Interim payments are often obtained to
cover labor and materials costs on larger projects.
Maintenance Services. The Company's maintenance services are supplied on a
long-term and per call basis. The Company's long-term maintenance services are
provided through service contracts that require the customer to pay an annual or
semiannual fee for periodic diagnostic services at a specific discount from
standard prices for repair and replacement service. The Company's per call
maintenance services are initiated when a customer requests emergency repair
service or the Company calls the client to schedule periodic maintenance work.
Service technicians are scheduled for the call or routed to the customer's
residence or business by the dispatcher. Service personnel work out of the
Company's service vehicles, which carry an inventory of equipment, tools, parts
and supplies needed to complete the typical variety of jobs. The technician
assigned to a service call travels to the residence or business, interviews the
customer, diagnoses the problem, prepares and discusses a price quotation,
performs the work and often collects payment from the customer. Most work is
warrantied for one year. During fiscal 1996, the Company performed approximately
$35.0 million in service for periodic maintenance under existing service
contracts, emergency or other routine service calls.
Major Customers. The Company has a diverse customer base, with no single
customer accounting for more than 5% of the Company's pro forma combined 1996
revenues. Management and a dedicated sales force at the Founding Companies have
been responsible for developing and maintaining successful long-term
relationships with key customers. Customers of the Founding Companies generally
include general contractors; developers; consulting engineers; architects;
owners and managers of large retail establishments, office buildings, apartments
and condominiums, theaters and restaurants; hotels and casinos; manufacturing
and processing facilities; arenas and convention centers; hospitals; school
districts; military and other government agencies; airports; prisons and car
lots. The Company intends to continue its emphasis on developing and maintaining
long-term relationships with its customers by providing superior, high-quality
service.
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<PAGE> 47
Employee Screening, Training and Development. The Company is committed to
providing the highest level of customer service through the development of a
highly trained workforce. Employees are encouraged to complete a progressive
training program to advance their technical competencies and to ensure that they
understand and follow the applicable codes, the Company's safety practices and
other internal policies. The Company supports and funds continuing education for
its employees, as well as apprenticeship training for its technicians under the
Bureau of Apprenticeship and Training of the Department of Labor and similar
state agencies. Employees who train as apprentices for four years may seek to
become journeymen electricians and, after additional years of experience, master
electricians. The Company pays progressive increases in compensation to
employees who acquire such additional training, and more highly trained
employees serve as foremen, estimators and project managers. The Company's
master electricians are licensed in one or more cities or other jurisdictions in
order to obtain the permits required in the Company's business, and certain
master electricians have also obtained specialized licenses in areas such as
security systems and fire alarm installation. In some areas, licensing boards
have set continuing education requirements for maintenance of licenses. Because
of the lengthy and difficult training and licensing process for electricians,
the Company believes that the number, skills and licenses of its employees
constitute a competitive strength in the industry.
The Company actively recruits and screens applicants for its technical
positions and has established programs in some locations to recruit apprentice
technicians directly from high schools and vocational-technical schools. Prior
to employment, the Company will make an assessment of the technical competence
level of all potential new employees, confirm background references, conduct
random drug testing and check criminal and driving records.
Purchasing. As a result of economies of scale derived through the
Acquisitions and the Company's in-house supply operations, the Company believes
it will be able to purchase equipment, parts and supplies at discounts to
historical levels. In addition, as a result of the Company's size, it believes
it will also lower its costs of (i) the purchase or lease and maintenance of
vehicles; (ii) bonding, casualty and liability insurance; (iii) health insurance
and related benefits; (iv) retirement benefits administration; (v) office and
computer equipment; (vi) marketing and advertising; (vii) long distance services
and (viii) a variety of accounting, financial management and legal services.
Substantially all the equipment and component parts the Company sells or
installs are purchased from manufacturers and other outside suppliers. The
Company is not materially dependent on any of these outside sources.
MANAGEMENT INFORMATION AND CONTROLS
The Company intends to centralize its consolidated accounting and financial
reporting activities at its operational headquarters in Houston, Texas, while
basic accounting activities will be conducted at the operating level. The
Company believes that its current information systems hardware and software are
adequate to meet current needs for financial reporting, internal management
control and other necessary information and the needs of newly acquired
corporations.
PROPERTY AND EQUIPMENT
The Company operates a fleet of owned and leased service trucks, vans and
support vehicles. It believes these vehicles generally are adequate for the
Company's current operations.
At June 30, 1997, the Company maintained offices at locations. All of the
Company's facilities are leased. The Company's corporate headquarters are
located in Houston, Texas. The paragraphs below summarize the Company's primary
office and operating facilities.
The Company's primary warehouses, sales facilities and administrative
offices are as follows, subject to consolidation of certain facilities to
achieve operating efficiencies and subject to the execution of leases with
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<PAGE> 48
certain owners of the Founding Companies in connection with the Acquisitions and
the consummation of the Offering:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FT. TYPE
-------- ----------- ----
<S> <C> <C>
Birmingham, AL.................................... 3,800 Offices
Maricopa, AZ...................................... 6,400 Warehouse/Offices
Phoenix, AZ....................................... 6,900 Offices
Ocoee, FL......................................... 12,800 Warehouse/Offices
Miami, FL......................................... 19,000 Warehouse/Offices
Valdosta, GA...................................... 19,800 Warehouse/Offices
Louisville, KY.................................... 17,000 Warehouse/Offices
Cincinnati, OH.................................... 5,600 Warehouse/Offices
Mitchell, SD...................................... 8,000 Offices
Euless, TX........................................ 32,000 Warehouse/Offices
Houston, TX....................................... 23,040 Offices
Houston, TX....................................... 19,000 Warehouse/Offices
Houston, TX....................................... 8,722 Warehouse/Offices
San Antonio, TX................................... 13,492 Warehouse/Offices
Stafford, TX...................................... 15,000 Warehouse/Offices
Everett, WA....................................... 3,500 Warehouse/Offices
</TABLE>
In addition to the facilities listed above, the Company may operate on a
short-term basis in other locations as may be required from time to time to
perform its contracts. Upon the consummation of this Offering, the Company will
lease its principal and administrative offices in Houston, Texas and is
currently in the process of obtaining office space for this purpose.
The Company believes that its properties are generally adequate for its
present needs. Furthermore, the Company believes that suitable additional or
replacement space will be available as required.
COMPETITION
The electrical contracting industry is highly fragmented and competitive.
Most of the Company's competitors are small, owner-operated companies that
typically operate in a limited geographic area. There are few public companies
focused on providing electrical contracting services. In the future, competition
may be encountered from new entrants, such as public utilities and other
companies attempting to consolidate electrical contracting service companies.
See "Risk Factors" for a description of the bases of competition in the
industry.
REGULATIONS
The Company's operations are subject to various federal, state and local
laws and regulations, including (i) licensing requirements applicable to
electricians; (ii) building and electrical codes; (iii) regulations relating to
consumer protection, including those governing residential service agreements
and (iv) regulations relating to worker safety and protection of the
environment. The Company believes it has all required licenses to conduct its
operations and is in substantial compliance with applicable regulatory
requirements. Failure of the Company to comply with applicable regulations could
result in substantial fines or revocation of the Company's operating licenses.
Many state and local regulations governing electricians require permits and
licenses to be held by individuals. In some cases, a required permit or license
held by a single individual may be sufficient to authorize specified activities
for all the Company's electricians who work in the state or county that issued
the permit or license. The Company intends to implement a policy to ensure that,
where possible, any such permits or licenses that may be material to the
Company's operations in a particular geographic region are held by at least two
Company employees within that region.
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<PAGE> 49
LITIGATION
Each of the Founding Companies has, from time to time, been a party to
litigation arising in the normal course of its business, most of which involves
claims for personal injury or property damage incurred in connection with its
operations. Management believes that none of these actions will have a material
adverse effect on the financial condition or results of operations of the
Company.
EMPLOYEES
At June 30, 1997, the Company had approximately 3,550 employees. The
Company is not a party to any collective bargaining agreements. The Company
believes that its relationship with its employees is satisfactory.
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<PAGE> 50
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors and executive officers and those persons who will become directors,
executive officers and certain key employees following the consummation of the
Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
C. Byron Snyder......................... 49 Chairman of the Board of Directors
Jon Pollock............................. 51 President, Chief Executive Officer and Director*
Jim P. Wise............................. 54 Senior Vice President and Chief Financial Officer
Jerry Mills............................. 57 Senior Vice President and Chief Operating
Officer -- Commercial and Industrial and Director*
Ben L. Mueller.......................... 50 Senior Vice President and Chief Operating
Officer --
Residential and Director*
John S. Stanfield....................... 42 Vice President -- Mergers and Acquisitions*
D. Merril Cummings...................... 36 Vice President -- Mergers and Acquisitions*
J. Paul Withrow......................... 32 Vice President and Chief Accounting Officer
Richard Muth............................ 50 President of Muth Electric, Inc., and Director*
Robert Stalvey.......................... 47 President of Ace Electric, Inc., and Director*
Bob Weik................................ 62 President of BW Consolidated, Inc., and Director*
</TABLE>
- ---------------
* Election as a director or officer of the Company effective upon the
consummation of the Offering.
Directors are elected at each annual meeting of stockholders. All officers
serve at the discretion of the Board of Directors, subject to terms of their
employment agreement terms. See "-- Employment Agreements."
C. Byron Snyder has been Chairman of the Board of Directors of the Company
since its inception. Mr. Snyder is owner and President of Relco Refrigeration
Co., a distributor of refrigerator equipment, which he acquired in 1992. Prior
to 1992, Mr. Snyder was the owner and Chief Executive Officer of Southwestern
Graphics International, Inc., a diversified holding company which owned Brandt &
Lawson Printing Co., a Houston-based general printing business, and Acco Waste
Paper Company, an independent recycling business. Brandt & Lawson Printing Co.
was sold to Hart Graphics in 1989, and Acco Waste Paper Company was sold to
Browning-Ferris Industries in 1991. Mr. Snyder is a director of Carriage
Services, Inc., a publicly held death care company.
Jon Pollock will become President, Chief Executive Officer and a director
of the Company upon consummation of the Offering. Mr. Pollock has been the
president of Pollock Electric Inc., one of the Founding Companies, since he
founded that company in 1983. Mr. Pollock is a Registered Professional Engineer
in Texas and several other states and holds Master Electrician licenses from 50
different jurisdictions. Mr. Pollock received a bachelor of science in
electrical engineering from Washington University. Mr. Pollock is past National
President of the Independent Electrical Contractors Association and received the
IEC Electrical Man of the Year award in 1996. As National President of the IEC,
Mr. Pollock was responsible for overseeing the IEC's activities relating to the
development and execution of apprenticeship and safety training programs,
industry lobbying activities and the development of national electrical code
standards.
Jim P. Wise joined the Company in September 1997 as Senior Vice President
and Chief Financial Officer. From September 1994 to September 1997, he was Vice
President -- Finance and Chief Financial Officer at Sterling Chemicals, Inc., a
publicly held manufacturer of commodity petrochemicals and pulp chemicals. From
September 1991 to July 1994, he was Chairman and Chief Executive Officer of
Neostar Group, Inc., a private investment banking and financial advisory firm.
From July 1994 to September 1994, he was Senior Vice President and Chief
Financial Officer of U.S. Delivery Systems, Inc., a delivery service
consolidator. Mr. Wise was employed by Transco Energy Company as Executive Vice
President, Chief Financial Officer and was a member of the Board of Directors
from November 1982 until September 1991.
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<PAGE> 51
Jerry Mills will become Senior Vice President and Chief Operating
Officer -- Commercial and Industrial and a director of the Company upon
consummation of the Offering. Mr. Mills has been the President of Mills
Electrical Contractors, Inc., one of the founding companies, since he began that
company in 1972. Mr. Mills is a past board member of the Independent Electrical
Contractors, the Associated Builders and Contractors, the Associated General
Contractors and the Richardson Electrical Board. Prior to 1972, Mr. Mills was an
officer and part owner of Koegel Cash Consulting Engineers.
Ben L. Mueller will become Senior Vice President, Chief Operating
Officer -- Residential and a director of the Company upon consummation of the
Offering. Mr. Mueller has been the Executive Vice President of Houston-Stafford
since 1993 and has served as vice president of Houston-Stafford since 1975. Mr.
Mueller is a past member of the board of the IEC, Houston Chapter, and has
served on the Electrical Board for the City of Sugar Land, Texas.
John S. Stanfield will become Vice President -- Mergers and Acquisitions
upon the consummation of the Offering. Since March 1996, he has served as
Controller of Pollock Electric, Inc., one of the Founding Companies. From April
1993 through March 1996, Mr. Stanfield was an independent financial consultant,
specializing in acquisition, corporate reorganization, and accounting and
financial control services. From 1988 through 1993, Mr. Stanfield served as
Chief Financial Officer for companies in the distribution and manufacturing
industries. Mr. Stanfield was employed in various positions by Arthur Andersen
LLP from 1978 through 1988. Mr. Stanfield is a Certified Public Accountant.
D. Merril Cummings will become Vice President -- Mergers and Acquisitions
upon the closing of this Offering. Mr. Cummings has served as a consultant to
the Company since its inception in June 1997. From February 1997 through June
1997 he served as a consultant to C. Byron Snyder and his privately owned
corporations. From 1992 through 1996, Mr. Cummings served as Vice President and
Chief Financial Officer for J A Interests, Inc., a private asset management
company, and its commonly owned affiliates, including Southern Jet Management,
Inc., a general aviation services and charter company. From 1982 through January
1992, Mr. Cummings held various positions with Arthur Andersen LLP. Mr. Cummings
is a Certified Public Accountant.
J. Paul Withrow has served as Vice President and Chief Accounting Officer
of Integrated Electrical Services, Inc. since October 1997. From 1987 to 1997,
Mr. Withrow held various positions with Arthur Andersen LLP. Mr. Withrow is a
Certified Public Accountant.
Richard Muth will become a director of the Company upon consummation of the
Offering. Mr. Muth founded Muth Electric, Inc. in 1970 and has been the owner
and president since that time. Mr. Muth served on the South Dakota State
Electrical Commission from 1980 to 1991 and the Associated General Contractors
Associate Division Board. Mr. Muth also received the South Dakota Electrical
Council "Man of the Year" award in 1993. Mr. Muth holds electrical contractors'
licenses in South Dakota, Minnesota, Nebraska, Wyoming and Montana.
Robert Stalvey will become a director of the Company upon consummation of
the Offering. Mr. Stalvey has served as President and Secretary of Ace since
1976. Mr. Stalvey will continue to serve in these positions following the
consummation of the Offering.
Bob Weik will become a director of the Company upon consummation of the
Offering. Mr. Weik has served as President, Treasurer and a director of the
Bexar-Calhoun companies since their inception in 1958. Mr. Weik will continue to
serve in those positions following the consummation of the Offering.
The Board of Directors will establish an Audit Committee and Compensation
Committee. The Audit Committee will recommend the appointment of auditors and
oversees the accounting and audit functions of the Company. The Compensation
Committee will determine the salaries and bonuses of executive officers and
administer the Stock Option Plan. Messrs. will serve as members
of the Company's Compensation Committee and Audit Committee.
Effective upon consummation of the Offering, the Board of Directors will be
divided into three classes of directors, with directors serving staggered
three-year terms, expiring at the annual meeting of stockholders in
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<PAGE> 52
1998, 1999 and 2000, respectively. At each annual meeting of stockholders, one
class of directors will be elected for a full term of three years to succeed
that class of directors whose terms are expiring.
C. Byron Snyder, as the holder of all of the outstanding Restricted Common
Stock, will be entitled to elect one member of the Company's Board of Directors
and to one-half of one vote for each share held on all other matters. Holders of
Restricted Common Stock are not entitled to vote on the election of any other
directors. Only the holder of the Restricted Common Stock may remove the
director such holder is entitled to elect. See "Description of Capital Stock."
DIRECTOR COMPENSATION
Directors who are employees of the Company or a subsidiary do not receive
additional compensation for serving as directors. Each director who is not an
employee of the Company or a subsidiary will receive a fee of $2,000 for
attendance at each Board of Directors meeting and $1,000 for each committee
meeting (unless held on the same day as a Board of Directors meeting). Directors
of the Company will be reimbursed for reasonable out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof, and for
other expenses reasonably incurred in their capacity as directors of the
Company. Each non-employee director will receive stock options to purchase 5,000
shares of Common Stock upon initial election to the Board of Directors and
thereafter an annual grant of 5,000 options at each annual meeting on which the
non-employee director continues to serve. See "-- 1997 Directors Stock Plan."
EXECUTIVE COMPENSATION
The Company was incorporated in June 1997 and, prior to the Offering, has
not conducted any operations other than activities related to the Acquisitions
and the Offering. The Company anticipates that during 1998 the annualized base
salaries of its most highly compensated executive officers will be: Mr.
Pollock -- $225,000, Mr. Mills -- $200,000, Mr. Mueller -- $200,000, Mr.
Wise -- $190,000 and Mr. Stanfield -- $140,000.
EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements with each executive
officer of the Company which prohibits such officer from disclosing the
Company's confidential information and trade secrets and generally restricts
these individuals from competing with the Company for a period of two years
after the date of the termination of employment with the Company. Each of the
agreements has an initial term of five years and provides for annual extensions
at the end of its initial term, subject to the parties' mutual agreement, and is
terminable by the Company for "cause" upon ten days' written notice and without
"cause" by either party upon thirty days' written notice. All employment
agreements provide that if the officer's employment is terminated by the Company
without "cause" or is terminated by the officer for "good reason," the officer
will be entitled to receive a lump sum severance payment at the effective time
of termination equal to the base salary (at the rate then in effect) for the
greater of (i) the time period remaining under the term of the agreement or (ii)
one year. In addition, the time period during which such officer is restricted
from competing with the Company will be shortened from two years to one year.
The employment agreements contain certain provisions concerning a
change-in-control of the Company, including the following: (i) in the event the
officer's employment is terminated within two years following the change in
control by the Company other than for "cause" or by the officer for "good
reason," or the officer is terminated by the Company within three months prior
to the change in control at the request of the acquiror in anticipation of the
change in control, the officer will be entitled to receive a lump sum severance
amount equal to three years' base salary and the provisions which restrict
competition with the Company shall not apply; (ii) in any change-of-control
situation, the officer may elect to terminate his employment by giving five
business days' written notice prior to the closing of the transaction giving
rise to the change-in-control, which will be deemed a termination of employment
by the Company without "cause," and the provisions of the employment agreement
governing the same will apply, except that the severance amount otherwise
payable shall be doubled (but not to exceed six times the officer's base pay)
(if the successor does not give written notice of its acceptance of the
Company's obligations under the employment agreement at least five business
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<PAGE> 53
days prior to the anticipated closing date, the severance amount shall be
tripled, but not to exceed nine times base salary) and provisions which restrict
competition with the Company shall not apply; (iii) the officer must be given
sufficient time and opportunity to elect whether to exercise all or any of his
options to purchase Common Stock, including any options with accelerated vesting
under the provisions of the Plan, such that the officer may acquire the Common
Stock at or prior to the closing of the transaction giving rise to the change of
control, if he so desires and (iv) if any payment to the officer is subject to
the 20% excise tax on excess parachute payments, the officer shall be made
"whole" on a net aftertax basis.
1997 STOCK PLAN
The Company's 1997 Stock Plan was adopted by the Board of Directors and
stockholders in October 1997. The purposes of the 1997 Stock Plan is to provide
officers, employees and consultants with additional incentives by increasing
their ownership interests in the Company. Individual awards under the 1997 Stock
Plan may take the form of one or more of: (i) either incentive stock options
("ISOs") or non-qualified stock options ("NQSOs"); (ii) stock appreciation
rights; (iii) restricted or phantom stock; (iv) bonus stock awards; (v) awards
not otherwise provided for, the value of which is based in whole or in part upon
the value of the Common Stock and (vi) cash awards that may or may not be based
on the achievement of performance goals, including goals related to one or more
of the following: cash flow, return on equity, sales, profit margin, earnings
per share and stock price.
The Compensation Committee or the Company's President, to the extent such
duties are delegated to him by the Compensation Committee, will administer the
1997 Stock Plan and select the individuals who will receive awards and establish
the terms and conditions of those awards. The maximum number of shares of Common
Stock that may be subject to outstanding awards, determined immediately after
the grant of any award, may not exceed the greater of 3,500,000 shares or 15% of
the aggregate number of shares of Common Stock outstanding; provided, however,
that ISOs may not be granted with respect to more than 1,000,000 shares. Shares
of Common Stock which are attributable to awards which have expired, terminated
or been canceled or forfeited are available for issuance or use in connection
with future awards. The maximum number of shares of Common Stock with respect to
which any person may receive options and stock appreciation rights in any year
is 250,000 shares and the maximum value of any other amount may not exceed $2
million as of the date of its grant.
The 1997 Stock Plan will remain in effect for 10 years, unless earlier
terminated by the Board of Directors. The 1997 Stock Plan may be amended by the
Board of Directors or the Compensation Committee without the consent of the
stockholders of the Company, except that any amendment will be subject to
stockholder approval if required by any federal or state law or regulation or by
the rules of any stock exchange or automated quotation system on which the
Common Stock may then be listed or quoted.
At the closing of the Offering, NQSOs to purchase a total of 535,000 shares
of Common Stock will be granted as follows: 150,000 shares to Mr. Wise, 100,000
shares to Mr. Stanfield and 285,000 to other key employees of the Company. In
addition, at the consummation of the Offering, NQSOs to purchase approximately
2,100,000 shares will be granted to employees of the Founding Companies. Each of
the foregoing options will have an exercise price equal to the initial public
offering price of the shares offered hereby. In addition, 300,000 options have
been granted with exercise price equal to 60% of the initial public offering
price per share. Each of these options will vest at the rate of 20% per year,
commencing on the first anniversary of grant and will expire at the earliest of
(i) ten years from the date of grant, (ii) three months following termination of
employment, other than due to death or disability or (iii) one year following a
termination of employment due to death or disability.
1997 DIRECTORS STOCK PLAN
The Company's 1997 Directors Stock Plan (the "Directors Plan") was adopted
by the Board of Directors and approved by the Company's stockholders in October
1997. The Directors Plan provides for (i) the automatic grant to each
non-employee director serving at the consummation of the Offering of an option
to purchase 5,000 shares, (ii) the automatic grant to each non-employee director
of an option to purchase
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<PAGE> 54
5,000 shares upon such person's initial election as a director and (iii) an
automatic annual grant to each non-employee director of an option to purchase
5,000 shares on each September 30th on which such director remains a
non-employee director. All options will have an exercise price per share equal
to the fair market value of the Common Stock on the date of grant, will vest
over five years at the rate of 20% per year and will expire on the earliest of
(i) ten years from the date of grant, (ii) three months after termination of
service as a director, due to death or disability or (iii) one year following a
termination of employment due to death or disability. In addition, options can
be granted to a non-employee director upon such terms as the Board determines,
whenever it believes such additional grant is appropriate.
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
The Company was founded in June 1997 by C. Byron Snyder. In connection with
the formation of IES, IES issued to Mr. Snyder, the Snyder Children's Trust and
D. Merril Cummings a total of 2,329,600 shares of Common Stock for nominal
consideration. Mr. Snyder is president and a director of the Company. The
trustee of the Snyder Children's Trust is an independent third party not subject
to control by Mr. Snyder. In September 1997, IES issued an additional 442,589
shares to Mr. Snyder and such trust. In October 1997, Mr. Snyder exchanged
2,655,709 shares of Common Stock for an equal number of shares of Restricted
Common Stock. Mr. Snyder has agreed to advance whatever funds are necessary to
effect the Acquisitions and the Offering. As of September 30, 1997, Mr. Snyder
had outstanding advances to the Company in the aggregate amount of approximately
$ , all of which are non-interest-bearing. All of Mr. Snyder's advances
will be repaid from the net proceeds of the Offering.
The Company has issued a total of 1,396,602 shares of Common Stock at $.01
per share to various members of management, including: Mr. Pollock -- 465,914
shares, Mr. Mills -- 232,957 shares, Mr. Mueller -- 232,957 shares, Mr.
Wise -- 100,000 shares, Mr. Stanfield -- 75,000 shares and other key
employees -- 289,774 shares. The Company also granted options to purchase 5,000
shares of Common Stock under the Directors Plan, effective upon the consummation
of this Offering, to the non-employee directors of the Company upon the closing
of the Offering.
Simultaneously with the closing of the Offering, the Company will acquire
by stock purchase all the issued and outstanding capital stock and other equity
interests of the Founding Companies, at which time each Founding Company will
become a wholly owned subsidiary of the Company. The Acquisitions Consideration
consists of (i) an estimated $57.5 million in cash (subject to adjustment based
on the initial public offering price) and (ii) 12,313,026 shares of Common
Stock. In addition, the Company intends to repay approximately $4.6 million of
the historical indebtedness of the Founding Companies. Immediately prior to the
Acquisitions, certain of the Founding Companies will make S Corporation
Distributions to their stockholders in an aggregate amount of $17.8 million and
will transfer certain nonoperating assets and liabilities to their stockholders
with an approximate net book value of $3.0 million in connection with the
Acquisitions. The Company will incur approximately $10.9 million in indebtedness
to fund the S Corporation Distributions.
The consummation of each Acquisition is subject to customary conditions.
These conditions include, among others, the accuracy of the representations and
warranties by the Founding Companies, their stockholders and the Company; the
performance by each of the parties of their respective covenants; and the
nonexistence of a material adverse change in the results of operations,
financial condition or business of each Founding Company. There can be no
assurance that the conditions to closing of the Acquisitions will be satisfied
or waived or that the acquisition agreements will not be terminated prior to
consummation.
The following table sets forth for each Founding Company (i) the
approximate portion of the Acquisitions Consideration to be paid to the
stockholders of each of the Founding Companies in cash and in shares of Common
Stock, which cash is subject to adjustments based on the initial public offering
price of the Common Stock offered hereby, (ii) the amount of S Corporation
Distributions received by the stockholders of such Founding Company prior to the
consummation of the Acquisitions and (iii) the total debt which would
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<PAGE> 55
have been assumed by the Company as of June 30, 1997, which represents
historical indebtedness and indebtedness incurred to pay S Corporation
Distributions of such Founding Company:
<TABLE>
<CAPTION>
SHARES OF
COMMON S CORPORATION TOTAL
CASH STOCK DISTRIBUTIONS(A) DEBT
------- ---------- ---------------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Houston-Stafford..................... $15,643 3,352,039 $ -- $ 320
Mills................................ 11,637 2,493,657 8,755 65
Bexar-Calhoun........................ 8,696 1,863,397 1,449 340
Pollock.............................. 1,092 319,729 -- 1,548
Daniel............................... 3,975 851,823 3,509 121
Muth................................. 2,209 473,324 1,276 363
Amber................................ 2,486 532,728 -- 293
Summit............................... 1,900 321,506 -- 121
Haymaker............................. 2,029 434,735 367 31
Thurman & O'Connell.................. 2,331 499,600 1,474 96
Hatfield............................. 972 208,357 -- 636
Ace.................................. 892 191,056 407 206
Reynolds............................. 939 201,191 261 350
Rodgers.............................. 1,684 360,725 -- 110
Popp................................. 976 209,158 266 --
------- ---------- ------- ------
Total...................... $57,461 12,313,026 $17,764 $4,600
======= ========== ======= ======
</TABLE>
- ---------------
(a) Excludes the transfer of certain nonoperating assets and liabilities to
certain stockholders of the Founding Companies with an approximate net book
value of $3.0 million in connection with the Acquisitions.
Pursuant to the agreements relating to the Acquisitions, all stockholders
of each of the Founding Companies have agreed not to compete with the Company
for a period of two years after the termination of their affiliation with the
Company. In connection with the Acquisitions, the Company and the owners of the
Founding Companies have agreed to indemnify each other for breaches of
representations and warranties and certain other matters, subject to certain
limitations.
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<PAGE> 56
Individuals who are or will become executive officers or directors of the
Company will receive the following portions of the Acquisitions Consideration
for their interests in the Founding Companies, subject to adjustments as
described above.
<TABLE>
<CAPTION>
SHARES OF
COMPANY CASH(A) COMMON STOCK
------- ----------- ------------
<S> <C> <C>
Houston-Stafford
Ben Mueller............................................... $ 5,005,712 1,072,652
Mills
Jerry Mills............................................... 10,022,624 2,147,705
Bexar-Calhoun
Bob Weik(b)............................................... 6,649,695 1,424,935
Pollock
Jon Pollock............................................... 1,092,069 319,729
Muth
Richard Muth(c)........................................... 2,088,961 447,635
Ace
Robert Stalvey............................................ 445,799 95,528
----------- ---------
Total............................................. $25,304,860 5,508,184
=========== =========
</TABLE>
- ---------------
(a) Excludes S Corporation Distributions.
(b) Excludes cash of $347,834 and 74,536 shares of Common Stock to be received
by two related trusts in which Mr. Weik may be deemed to have an interest,
as to which Mr. Weik disclaims beneficial ownership.
(c) Excludes cash of $119,883 and 25,689 shares of Common Stock to be received
by Mr. Muth's wife, Darlene Muth, as to which he disclaims beneficial
ownership.
TRANSACTIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND PRINCIPAL
STOCKHOLDERS
During fiscal 1996, Houston-Stafford made payments totaling $243,000 to the
Brown-Mueller Joint Venture, a general partnership of which Mr. Mueller is a
member, for lease payments on certain real properties used as electrical shops.
No such lease payments were made in 1997. Mr. Mueller will become Senior Vice
President, Chief Operating Officer -- Residential and a director the Company
following the consummation of the Offering.
At December 31, 1996, Houston-Stafford owed Mr. Mueller $185,985 on a
promissory note, payable in monthly installments and maturing April 2001. Such
note was prepaid by Houston-Stafford in October 1997, related to the purchase of
certain property of Houston-Stafford used by Houston-Stafford in Rowlett, Texas.
At December 31, 1996, Houston-Stafford owed Mr. Mueller $766,400 related to
a promissory note maturing August 2003 and secured by Mr. Mueller's stock in
Houston-Stafford, and such obligation and any related obligations shall be
terminated at the consummation of the Offering.
Pursuant to a 5-year lease agreement effective November 1, 1997,
Houston-Stafford agreed to lease certain facilities owned by Mr. Mueller in
Spring, Texas. Such lease agreement provides for an annual rent of $20,000,
which the Company believes is not in excess of fair rental value for such
facilities.
During fiscal 1996, Mills derived contract revenues of $1.3 million from
CIMA Services, Inc. ("CIMA"), an electrical services company of which Mr. Mills
is a part owner. Additionally, during fiscal 1996, Mills paid $1.1 million to
CIMA for material purchases. At December 31, 1996, Mills had outstanding
accounts receivable from CIMA of $208,000 and accounts payable to CIMA of
$633,000. Mr. Mills will become Senior Vice President and Chief Operating
Officer -- Commercial and Industrial and a director of the Company following the
consummation of the Offering.
53
<PAGE> 57
During 1995, Mr. Weik incurred indebtedness from Bexar-Calhoun of which the
largest aggregate amount outstanding at any time was $647,000. All of such
indebtedness was repaid as of April 18, 1997. Mr. Weik will become a director of
the Company following the consummation of the Offering.
During 1997, Mr. Weik incurred indebtedness from Bexar-Calhoun of which the
largest aggregate amount outstanding at any time was $533,525. All of such
indebtedness was repaid as of August 6, 1997.
Prior to the closing of the Acquisitions and the consummation of the
Offering, Bexar-Calhoun will distribute all interest it owns, directly or
indirectly, in real property to Mr. Weik and his immediate family. It is
anticipated that such real estate will be leased to the Company for an annual
rent of approximately $150,000. The Company believes that such rent will not be
in excess of fair rental value for such facilities.
Since January 1, 1996, Mr. Muth has from time to time incurred indebtedness
from Muth, of which the largest aggregate amount outstanding at any time was
$205,000. All amounts owed by Mr. Muth to Muth will be repaid prior to the
closing of the Offering. Mr. Muth will become a director of the Company
following the consummation of the Offering.
Prior to the closing of the Acquisitions and the consummation of the
Offering, certain assets of Muth will be purchased by Mr. Muth for $217,140.
From time to time in the past Muth has completed electrical contracts for
Muth Properties, L.L.C., a limited liability company of which Mr. Muth is a
member. Prior to the closing of the Acquisitions and the consummation of the
Offering, a final payment of $162,900 will be made by Muth Properties, L.L.C. to
Muth.
Muth Properties, L.L.C. leases real property to Muth Electric, Inc. for its
operations. It is anticipated that annual rentals paid to Muth Properties,
L.L.C. by Muth will be approximately $120,000.
Stalvey Rentals, a general partnership of which Mr. Stalvey is a member, is
presently constructing a new facility to lease to Ace in Valdosta, Georgia and
an inducement letter has been executed regarding Ace's commitment to lease the
new facility for a period of 20 years beginning as soon as a certificate of
occupancy is obtained. It is anticipated that annual rentals on this facility
will be $103,200, without respect to property taxes and insurance. Mr. Stalvey
will become a director of the Company following the consummation of the
Offering.
In addition to the transactions described above, certain of the Founding
Companies have entered into lease agreements with parties related to the
Company, for rents that the Company believes are not in excess of fair rental
value.
54
<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Company's Common Stock, after giving effect to the issuance of
shares of Common Stock in connection with the Acquisitions and after giving
effect to the Offering, by (i) all persons known to the Company to be the
beneficial owner of 5% or more thereof, (ii) each director and nominee for
director, (iii) each executive officer and (iv) all officers and directors as a
group. Unless otherwise indicated, the address of each such person is c/o
Integrated Electrical Services, Inc., 2301 Preston, Houston, Texas 77003. All
persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER OFFERING
--------------------
SHARES PERCENT
--------- -------
<S> <C> <C>
C. Byron Snyder(a).......................................... 2,655,709 11.4%
Jon Pollock................................................. 785,643 3.4
Jim P. Wise................................................. 100,000 *
Jerry Mills................................................. 2,380,662 10.2
Ben L. Mueller.............................................. 1,305,609 5.6
John S. Stanfield........................................... 75,000 *
Richard Muth(b)............................................. 473,324 2.0
Robert Stalvey.............................................. 95,528 *
Bob Weik(c)................................................. 1,499,471 6.4
--------- ----
All officers and directors as a group (12 persons)(d)....... 9,660,720 41.3%
========= ====
</TABLE>
- ---------------
* Less than one percent.
(a) Consists entirely of Restricted Common Stock, which represents all of the
Restricted Common Stock outstanding. The holders of Restricted Common Stock,
voting together as a single class, are entitled to elect one member of the
Company's Board of Directors and to one-half of one vote for each share held
on all other matters on which they are entitled to vote. Holders of
Restricted Common Stock are not entitled to vote on the election of any
other directors. Such shares may be converted to Common Stock in certain
circumstances. See "Description of Capital Stock."
(b) Includes 25,689 shares of Common Stock owned by Mr. Muth's wife, as to which
Mr. Muth disclaims beneficial ownership.
(c) Includes 74,536 shares of Common Stock owned by two related trusts, as to
which Mr. Weik disclaims beneficial ownership.
(d) Includes 2,655,709 shares of Restricted Common Stock described in Note (a)
above.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, par value $0.01 per share, 2,655,709 shares of Restricted Common
Stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par
value $0.01 per share. After giving effect to the Acquisitions, there will be
16,365,337 shares of Common Stock outstanding 2,655,709 shares of Restricted
Common Stock, par value $0.01 per share, and no shares of preferred stock
outstanding. After the closing of the Offering, 23,365,337 shares of Common
Stock will be issued and outstanding, assuming no exercise of the Underwriters'
over-allotment option. The following summary of the terms and provisions of the
Company's capital stock does not purport to be complete and is qualified in its
entirety by reference to the Company's Amended and Restated Certificate of
Incorporation and Bylaws, which have been filed as exhibits to the Company's
registration statement, of which this Prospectus is a part, and applicable law.
55
<PAGE> 59
COMMON STOCK AND RESTRICTED COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. Such
holders are not entitled to vote cumulatively for the election of directors.
Holders of a majority of the shares of Common Stock entitled to vote in any
election of directors may elect all of directors standing for election.
The holders of Restricted Common Stock, voting together as a single class,
are entitled to elect one member of the Company's Board of Directors and to
one-half of one vote for each share held on all other matters on which they are
entitled to vote. Holders of Restricted Common Stock are not entitled to vote on
the election of any other directors. Only the holder of the Restricted Common
Stock may remove the director such holder is entitled to elect.
Subject to the rights of any then outstanding shares of preferred stock,
holders of Common Stock and Restricted Common Stock are together entitled to
participate pro rata in such dividends as may be declared in the discretion of
the Board of Directors out of funds legally available therefor. Holders of
Common Stock and Restricted Common Stock together are entitled to share ratably
in the net assets of the Company upon liquidation after payment or provision for
all liabilities and any preferential liquidation rights of any preferred stock
then outstanding. Holders of Common Stock and holders of Restricted Common Stock
have no preemptive rights to purchase shares of stock of the Company. Shares of
common Stock are not subject to any redemption provisions and are not
convertible into any other securities of the Company. Shares of Restricted
Common Stock are not subject to any redemption provisions and are convertible
into Common Stock as described below. All outstanding shares of Common Stock and
Restricted Common Stock are, and the shares of Common Stock to be issued
pursuant to the Offering and the Acquisitions will be, upon payment therefor,
fully paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution by a
holder to its partners or beneficial owners, or a transfer to a related party of
such holders (as defined in Sections 267, 707, 318 and/or 4946 of the Internal
Revenue Code of 1986, as amended)), (ii) in the event any person acquires
beneficial ownership of 15% or more of the total number of outstanding shares of
Common Stock or (iii) in the event any person offers to acquire 15% or more of
the total number of outstanding shares of Common Stock. After January 1, 2000,
the Board of Directors may elect to convert any remaining shares of Restricted
Common Stock into shares of Common Stock.
The Company intends to make application to list the Common Stock on the
NYSE under the symbol "IEE." The Restricted Common Stock will not be listed on
any exchange.
PREFERRED STOCK
The preferred stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Amended and Restated Certificate of Incorporation and
limitations prescribed by law, the Board of Directors is expressly authorized to
adopt resolutions to issue the shares, to fix the number of shares and to change
the number of shares constituting any series, and to provide for or change the
voting powers, designations, preferences and relative, participating, optional
or other special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative), dividend
rates, terms of redemption (including sinking fund provisions), redemption
prices, conversion rights and liquidation preferences of the shares constituting
any class or series of the preferred stock , in each case without any further
action or vote by the stockholders. The Company has no current plans to issue
any shares of preferred stock of any class or series.
One of the effects of undesignated preferred stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of preferred stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, preferred stock issued by the
56
<PAGE> 60
Company may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock. Accordingly, the issuance of shares of
preferred stock may discourage bids for the Common Stock at a premium or may
otherwise adversely affect the market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder, (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans) or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66% of the corporation's outstanding
voting stock at an annual or special meeting, excluding shares owned by the
interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by including in its certificate of incorporation or bylaws by action
of its stockholders to exempt itself from coverage. The Company has not adopted
such an amendment to its Amended and Restated Certificate of Incorporation or
Bylaws.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Amended and Restated Certificate of Incorporation
and under Delaware law, directors of the Company are not liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty, except
for liability in connection with a breach of the duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, for dividend payments or stock repurchases illegal under
Delaware law or any transaction in which a director has derived an improper
personal benefit. The Company has entered into indemnification agreements with
its directors and executive officers which indemnify such person to the fullest
extent permitted by its Amended and Restated Certificate of Incorporation, its
Bylaws and the Delaware General Corporation Law. The Company also intends to
obtain directors' and officers' liability insurance.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The Company's Amended and Restated Certificate of Incorporation and Bylaws
include provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or an unsolicited acquisition
proposal that a stockholder might consider favorable, including a proposal that
might result in the payment of a premium over the market price for the shares
held by stockholders. These provisions are summarized in the following
paragraphs.
Classified Board of Directors. The Amended and Restated Certificate of
Incorporation provides for the Board of Directors to be divided into three
classes of directors serving staggered three-year terms. The classification of
the Board of Directors has the effect of requiring at least two annual
stockholder meetings, instead of one, to replace a majority of members of the
Board of Directors.
57
<PAGE> 61
Supermajority Voting. The Amended and Restated Certificate of Incorporation
requires the approval of the holders of at least 75% of the then outstanding
shares of the Company's capital stock entitled to vote thereon and the approval
of the holders of at least 75% of the then outstanding shares of each class of
stock of the Company voting separately as a class on, among other things,
certain amendments to the Amended and Restated Certificate of Incorporation. The
Board of Directors may amend, alter, change or repeal any bylaws without the
assent or vote of the stockholders, but any such bylaws may be altered, amended
or repealed upon the affirmative vote of at least 66 2/3% of the stock entitled
to vote thereon.
Authorized but Unissued or Undesignated Capital Stock. The Company's
authorized capital stock will consist of 100,000,000 shares of Common Stock,
2,655,709 shares of Restricted Common Stock and 10,000,000 shares of preferred
stock. After the Offering, the Company will have outstanding 23,365,337 shares
of Common Stock (assuming the Underwriters' over-allotment option is not
exercised). The authorized but unissued (and in the case of preferred stock,
undesignated) stock may be issued by the Board of Directors in one or more
transactions. In this regard, the Company's Amended and Restated Certificate of
Incorporation grants the Board of Directors broad power to establish the rights
and preferences of authorized and unissued preferred stock. The issuance of
shares of preferred stock pursuant to the Board of Directors' authority
described above could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and adversely affect the rights and
powers, including voting rights, of such holders and may also have the effect of
delaying, deferring or preventing a change in control of the Company. The Board
of Directors does not currently intend to seek stockholder approval prior to any
issuance of preferred stock, unless otherwise required by law.
Special Meeting of Stockholders. The Bylaws provide that special meetings
of stockholders of the Company may only be called by the Chairman of the Board
of Directors upon the written request of the Board of Directors pursuant to a
resolution approved by a majority of the Board of Directors.
Stockholder Action by Written Consent. The Amended and Restated Certificate
of Incorporation and Bylaws generally provide that any action required or
permitted by the stockholders of the Company must be effected at a duly called
annual or special meeting of the stockholders and may not be effected by any
written consent of the stockholders.
Notice Procedures. The Bylaws establish advance notice procedures with
regard to stockholder proposals relating to the nomination of candidates for
election as director, the removal of directors and amendments to the Amended and
Restated Certificate of Incorporation or Bylaws to be brought before annual
meetings of stockholders of the Company. These procedures provide that notice of
such stockholder proposals must be timely given in writing to the Secretary of
the Company prior to the annual meeting. Generally, to be timely, notice must be
received at the principal executive offices of the Company not less than 80 days
prior to an annual meeting (or if fewer than 90 days' notice or prior public
disclosure of the date of the annual meeting is given or made by the Company,
not later than the tenth day following the date on which the notice of the date
of the annual meeting was mailed or such public disclosure was made). The notice
must contain certain information specified in the Bylaws, including a brief
description of the business desired to be brought before the annual meeting and
certain information concerning the stockholder submitting the proposal.
Charter Provisions Relating to Rights Plan. The Amended and Restated
Certificate of Incorporation authorizes the Board of Directors of the Company to
create and issue rights (the "Rights") entitling the holders thereof to purchase
from the Company shares of capital stock or other securities. The times at
which, and the terms upon which, the Rights are to be issued may be determined
by the Board of Directors and set forth in the contracts or instruments that
evidence the Rights. The authority of the Board of Directors with respect to the
Rights includes, but is not limited to, the determination of (i) the initial
purchase price per share of the capital stock or other securities of the Company
to be purchased upon exercise of the Rights, (ii) provisions relating to the
times at which and the circumstances under which the Rights may be exercised or
sold or otherwise transferred, either together with or separately from, any
other securities of the Company, (iii) antidilutive provisions which adjust the
number or exercise price of the Rights or amount or nature of the securities or
other property receivable upon exercise of the Rights, (iv) provisions which
deny the holder of a specified percentage of the outstanding securities of the
Company the right to exercise the Rights and/or
58
<PAGE> 62
cause the Rights held by such holder to become void, (v) provisions which permit
the Company to redeem the Rights and (vi) the appointment of a rights agent with
respect to the Rights. If authorized by the Board of Directors, the Rights would
be intended to protect the Company's stockholders from certain non-negotiated
takeover attempts which present the risk of a change of control on terms which
may be less favorable to the Company's stockholder than would be available in a
transaction negotiated with and approved by the Board of Directors. The Board of
Directors believes that the interests of the stockholders generally are best
served if any acquisition of the Company or a substantial percentage of the
Company's Common Stock results from arm's-length negotiations and reflects the
Board of Directors' careful consideration of the proposed terms of a
transaction. In particular, the Rights if issued would be intended to help (i)
reduce the risk of coercive two-tiered, front-end loaded or partial offers which
may not offer fair value to all stockholders of the Company, (ii) deter market
accumulators who through open market or private purchases may achieve a position
of substantial influence or control without paying to stockholders a fair
control premium and (iii) deter market accumulators who are simply interested in
putting the Company "in play."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market. All of the
7,000,000 shares sold in the Offering, except for shares acquired by affiliates
of the Company, will be freely tradeable. Simultaneously with the closing of the
Offering, the stockholders of the Founding Companies will receive, in the
aggregate, 12,313,026 shares of Common Stock as a portion of the consideration
for their businesses. Certain other stockholders of the Company will hold, in
the aggregate, an additional 1,396,602 shares of Common Stock and 2,655,709
shares of Restricted Common Stock. None of these 16,365,337 shares was issued in
a transaction registered under the Securities Act, and, accordingly, such shares
may not be sold except in transactions registered under the Securities Act or
pursuant to an exemption from registration, including the exemptions contained
in Rules 144 and 701 under the Securities Act.
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned his or her shares for at
least one year but not more than two years, or a person who may be deemed an
"affiliate" of the Company who has beneficially owned shares for at least year,
would be entitled to sell within any three month period a number of shares that
does not exceed the greater of 1% of the then outstanding shares of the Common
Stock or the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the date on which notice of the proposed sale is sent
to the Securities and Exchange Commission. Sales under Rule 144 are also subject
to certain manner of sale provisions, notice requirements and the availability
of current public information about the Company. A person who is not deemed to
have been an affiliate of the Company at any time for 90 days preceding a sale
and who has beneficially owned his shares for at least two years would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions, notice requirements or the availability
of current public information about the Company.
In general, under Rule 701 under the Securities Act, any employee, officer,
or director of or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701. Such provisions permit nonaffiliates to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitation, or notice provisions of Rule 144 and permit
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding period restrictions, in each case commencing 90 days after the
commencement of the Offering.
The Company has authorized the issuance of 3,500,000 shares of its Common
Stock in accordance with the terms of the Stock Option Plan. Options to purchase
300,000 shares have been granted under the Stock Option Plan and it is
anticipated that approximately 2,100,000 shares of Common Stock will be granted
upon closing of the Offering to certain other officers, directors and former
stockholders of the Founding Companies.
59
<PAGE> 63
The Company intends to file a registration statement on Form S-8 under the
Securities Act registering the issuance of shares upon exercise of options
granted under the Plan. As a result, such shares will be eligible for resale in
the public market.
The Company currently intends to file a registration statement covering
6,000,000 additional shares of Common Stock under the Securities Act for its use
in connection with future acquisitions. These shares generally will be freely
tradeable after their issuance by persons not affiliated with the Company unless
the Company contractually restricts their resale.
The Company has agreed not to (i) directly or indirectly, offer, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, or
dispose of or transfer any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock or file any registration
statement under the Securities Act with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock whether any such swap or transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise, for a period of 180 days from the date
of this Prospectus without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated on behalf of the Underwriters, except for (i) shares
issued in connection with acquisitions, provided that (except with respect to
shares issued in transactions not registered under the Securities Act), the
recipients of such shares agree to be bound by similar restrictions and (ii) any
shares of Common Stock issued or options to purchase Common Stock granted
pursuant to the Company's benefit plans described herein. In addition, the
owners of the Founding Companies have agreed with the Company not to sell,
contract to sell or otherwise dispose of any shares of Common Stock received as
consideration in the Acquisitions for a period of two years following receipt
thereof, subject to the rights of such holders to exercise their registration
rights as described below.
Prior to the Offering, there has been no established trading market for the
Common Stock, and no predictions can be made as to the effect that sales of
Common Stock under Rule 144, pursuant to a registration statement, or otherwise,
or the availability of shares of Common Stock for sale, will have on the market
price prevailing from time to time. Sales of substantial amounts of Common Stock
in the public market, or the perception that such sales could occur, could
depress the prevailing market price. Such sales may also make it more difficult
for the Company to issue or sell equity securities or equity-related securities
in the future at a time and price that it deems appropriate. See "Risk
Factors -- Shares Eligible for Future Sale."
Former stockholders of the Founding Companies, certain executive officers
and directors are entitled to certain rights with respect to the registration of
their shares of Common Stock under the Securities Act. In the aggregate, these
groups hold 16,365,337 shares of Common Stock. If the Company proposes to
register any of its securities under the Securities Act, such stockholders are
entitled to notice of such registration and are entitled to include, at the
Company's expense, all or a portion of their shares therein, subject to certain
conditions. These registration rights will not apply to the registration
statement the Company intends to file for use in future acquisitions or with
respect to employee benefit plans.
60
<PAGE> 64
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement
(the "Purchase Agreement") among the Company and each of the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters severally has agreed to purchase from
the Company, the aggregate number of shares of Common Stock set forth opposite
its name below. The Purchase Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby if any such shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Equitable Securities Corporation............................
Sanders Morris Mundy Inc....................................
---------
Total.......................................... 7,000,000
=========
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus, and to certain dealers at
such price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a discount not in excess of $ per
share to certain other dealers. After the Offering, the initial public offering
price, concession and discount may be changed.
The Company has granted the Underwriters an option, exercisable for 30 days
after the date of this Prospectus, to purchase up to an aggregate of 1,050,000
additional shares of Common Stock at the initial public offering price set forth
on the cover page hereof, less the underwriting discount. The Underwriters may
exercise this option to cover overallotments, if any, made on the sale of the
shares of Common Stock offered hereby. If the Underwriters exercise this option,
each Underwriter will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the foregoing table bears to the
7,000,000 shares of Common Stock initially offered hereby.
The Company has agreed not to (i) directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of,
or dispose of or transfer any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for Common Stock or file any
registration statement under the Securities Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise, for a period of
180 days from the date of this Prospectus without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the
Underwriters, except for (i) shares issued in connection with acquisitions,
provided that (except with respect to shares issued in transactions not
registered under the Securities Act), the recipients of such shares agree to be
bound by similar restrictions and (ii) any shares of Common Stock issued or
options to purchase Common Stock granted pursuant to the Company's benefit plans
described herein.
61
<PAGE> 65
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Underwriters are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Underwriters may
reduce that short position by purchasing Common Stock in the open market. The
Underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase shares of
Common Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an affect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Company intends to make application to list the Common Stock on the
NYSE under the symbol "IEE."
The Underwriters have reserved for sale, at the initial public offering
price, up to 700,000 shares of Common Stock for certain employees, directors and
business associates of, and certain other persons designated by, the Company who
have expressed an interest in purchasing such shares of Common Stock. The number
of shares available for sale to the general public in the Offering will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered to the general public on the same basis
as other shares offered hereby.
Prior to the Offering, there has been no established trading market for the
shares of Common Stock. The initial public offering price for the Common Stock
offered hereby has been determined by negotiations between the Company and the
Underwriters. Among the factors considered in making such determination were the
history of and the prospects for the industry in which the Company competes, an
assessment of the Company's management, the past and present operations of the
Founding Companies and the Company, the historical results of operations of the
Founding Companies and the Company and the trend of its revenues and earnings,
the prospects for future earnings of the Company, the general condition of
prices of similar securities of generally comparable companies and other
relevant factors. There can be no assurance that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to the Offering at or above the initial public offering price.
The Underwriters have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
62
<PAGE> 66
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for the Company by Andrews & Kurth L.L.P., Houston,
Texas and for the Underwriters by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The audited financial statements of IES and the Founding Companies included
in this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which is included as part of the Registration Statement, does not
contain all the information contained in the Registration Statement, certain
portions of which have been omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules thereto. Statements made in the Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected, without charge, at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at Citicorp Center, 500 West Madison Street, Room 1400,
Chicago, IL 60661, and 7 World Trade Center, Suite 1300, New York, NY 10048 or
on the Internet at http:www.sec.gov. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by an independent public
accounting firm for each fiscal year.
63
<PAGE> 67
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTEGRATED ELECTRICAL SERVICES, INC. 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 Statements of
Operations............................................ F-5
Notes to Unaudited Pro Forma Combined Financial
Statements............................................ F-7
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
Report of Independent Public Accountants............... F-11
Balance Sheets......................................... F-12
Statements of Operations............................... F-13
Statements of Cash Flows............................... F-14
Statements of Stockholders' Equity..................... F-15
Notes to Financial Statements.......................... F-16
INTEGRATED ELECTRICAL SERVICES, INC.
Report of Independent Public Accountants............... F-25
Balance Sheet.......................................... F-26
Statement of Operations................................ F-27
Statement of Cash Flows................................ F-28
Statement of Stockholders' Equity...................... F-29
Notes to Financial Statements.......................... F-30
FOUNDING COMPANIES
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
Report of Independent Public Accountants............... F-33
Consolidated Balance Sheets............................ F-34
Consolidated Statements of Operations.................. F-35
Consolidated Statements of Cash Flows.................. F-36
Consolidated Statements of Stockholders' Equity........ F-37
Notes to Consolidated Financial Statements............. F-38
BW CONSOLIDATED, INC. AND SUBSIDIARIES
Report of Independent Public Accountants............... F-45
Consolidated Balance Sheets............................ F-46
Consolidated Statements of Operations.................. F-47
Consolidated Statements of Cash Flows.................. F-48
Consolidated Statements of Stockholders' Equity........ F-49
Notes to Consolidated Financial Statements............. F-50
MUTH ELECTRIC, INC.
Report of Independent Public Accountants............... F-58
Balance Sheets......................................... F-59
Statements of Operations............................... F-60
Statements of Cash Flows............................... F-61
Statements of Stockholders' Equity..................... F-62
Notes to Financial Statements.......................... F-63
</TABLE>
F-1
<PAGE> 68
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
POLLOCK ELECTRIC, INC.
Report of Independent Public Accountants............... F-68
Balance Sheets......................................... F-69
Statements of Operations............................... F-70
Statements of Cash Flows............................... F-71
Statements of Stockholder's Equity..................... F-72
Notes to Financial Statements.......................... F-73
HAYMAKER ELECTRIC, LTD.
Report of Independent Public Accountants............... F-81
Balance Sheets......................................... F-82
Statements of Operations............................... F-83
Statements of Cash Flows............................... F-84
Statements of Partners' Capital........................ F-85
Notes to Financial Statements.......................... F-86
AMBER ELECTRIC, INC.
Report of Independent Public Accountants............... F-91
Balance Sheets......................................... F-92
Statements of Operations............................... F-93
Statements of Cash Flows............................... F-94
Statements of Stockholder's Equity..................... F-95
Notes to Financial Statements.......................... F-96
DANIEL ELECTRICAL CONTRACTORS, INC. AND DANIEL ELECTRICAL OF
TREASURE COAST, INC.
Report of Independent Public Accountants............... F-103
Combined Balance Sheets................................ F-104
Combined Statements of Operations...................... F-105
Combined Statements of Cash Flows...................... F-106
Combined Statements of Stockholder's Equity............ F-107
Notes to Combined Financial Statements................. F-108
SUMMIT ELECTRIC OF TEXAS, INC.
Report of Independent Public Accountants............... F-114
Balance Sheets......................................... F-115
Statements of Operations............................... F-116
Statements of Cash Flows............................... F-117
Statements of Stockholder's Equity..................... F-118
Notes to Financial Statements.......................... F-119
THURMAN & O'CONNELL CORPORATION
Report of Independent Public Accountants............... F-126
Balance Sheets......................................... F-127
Statements of Operations............................... F-128
Statements of Cash Flows............................... F-129
Statements of Stockholders' Equity..................... F-130
Notes to Financial Statements.......................... F-131
</TABLE>
F-2
<PAGE> 69
INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to (i) the acquisitions by Integrated Electrical Services, Inc. (IES), of the
outstanding capital stock and other equity interests of Ace, Amber,
Bexar-Calhoun, Daniel, Hatfield, Haymaker, Houston-Stafford, Mills, Muth,
Pollock, Reynolds, Rodgers, Summit, Popp and Thurman & O'Connell (together, the
Founding Companies), and related transactions, and (ii) the Offering (see
below). The acquisitions (the Acquisitions) will occur simultaneously with the
closing of IES's initial public offering (the Offering) and will be accounted
for using the purchase method of accounting. Houston-Stafford has been
identified as the accounting acquiror for financial statement presentation
purposes.
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and related transactions, and the Offering, as if they had occurred
on June 30, 1997. The unaudited pro forma combined statements of operations give
effect to these transactions as if they had occurred on October 1, 1995.
IES has preliminarily analyzed the savings that it expects to be realized
from reductions in salaries, bonuses and certain benefits to the owners. To the
extent the owners of the Founding Companies have contractually agreed to
prospective reductions in salary, bonuses, benefits and lease payments, these
reductions have been reflected in the unaudited pro forma combined statements of
operations. With respect to other potential cost savings, IES has not and cannot
quantify these savings until completion of the Acquisitions. It is anticipated
that these savings will be offset by costs related to IES's new corporate
management and by the costs associated with being a public company. However,
because these costs cannot be accurately quantified at this time, they have not
been included in the pro forma financial information of IES.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that Company management deems appropriate
and may be revised as additional information becomes available. The pro forma
financial data do not purport to represent what IES's financial position or
results of operations would actually have been if such transactions in fact had
occurred on those dates and are not necessarily representative of IES's
financial position or results of operations for any future period. Since the
Founding Companies were not under common control or management, historical
combined results may not be comparable to, or indicative of, future performance.
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. See also "Risk Factors" included elsewhere herein.
F-3
<PAGE> 70
INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BEXAR- HOUSTON-
AMBER CALHOUN DANIEL HAYMAKER STAFFORD MILLS MUTH POLLOCK
------ ------- ------ -------- -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 759 $ 782 $ 343 $ 13 $ 3,647 $ 2,021 $ 9 $ 15
Accounts receivable............................. 2,629 5,576 5,043 2,598 10,294 14,034 3,063 4,330
Less -- Allowance............................... (47) (120) (114) (65) (385) (351) (80) (188)
------ ------- ------ ------ ------- ------- ------ ------
Accounts receivable, net...................... 2,582 5,456 4,929 2,533 9,909 13,683 2,983 4,142
Costs and profits recognized in excess of
billings...................................... 62 122 565 578 408 1,563 582 491
Other receivables............................... -- 459 26 62 610 8 74 10
Inventories..................................... 20 728 68 -- 2,531 76 919 18
Prepaid expenses and other...................... 228 116 894 4 949 67 159 539
------ ------- ------ ------ ------- ------- ------ ------
Total current assets.......................... 3,651 7,663 6,825 3,190 18,054 17,418 4,726 5,215
------ ------- ------ ------ ------- ------- ------ ------
PROPERTY AND EQUIPMENT, NET AND OTHER ASSETS..... 565 5,266 527 60 4,107 2,727 1,080 379
GOODWILL, NET.................................... -- -- -- -- -- -- -- --
------ ------- ------ ------ ------- ------- ------ ------
Total assets.................................. $4,216 $12,929 $7,352 $3,250 $22,161 $20,145 $5,806 $5,594
====== ======= ====== ====== ======= ======= ====== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............ $ 173 $ 448 $ 53 $ 230 $ 1,213 $ 249 $ 363 $1,604
Accounts payable and accrued expenses........... 1,162 2,437 2,110 1,581 9,070 6,427 2,055 2,664
Payable to stockholder/affiliate................ -- -- -- -- -- -- -- --
Billings in excess of costs and profits
recognized.................................... 475 963 858 420 1,835 2,996 481 442
Income taxes payable............................ 534 63 -- -- 514 355 -- 151
Other........................................... 81 1 81 -- 372 -- 25
------ ------- ------ ------ ------- ------- ------ ------
Total current liabilities..................... 2,425 3,912 3,102 2,231 13,004 10,027 2,899 4,886
------ ------- ------ ------ ------- ------- ------ ------
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities....... 553 973 89 -- 1,139 235 -- 73
Deferred income taxes........................... 52 79 -- -- 49 -- -- 21
Other long-term liabilities..................... -- 426 483 -- 1,140 5 -- --
------ ------- ------ ------ ------- ------- ------ ------
Total long-term liabilities................... 605 1,478 572 -- 2,328 240 -- 94
------ ------- ------ ------ ------- ------- ------ ------
COMMITMENTS AND CONTINGENCIES STOCKHOLDERS'
EQUITY:
Common stock.................................... 1 20 8 -- 295 1 74 1
Restricted Common Stock......................... -- -- -- -- -- -- -- --
Additional paid-in capital...................... -- 205 -- -- 112 175 -- 9
Retained earnings............................... 1,619 7,314 3,670 1,019 7,547 9,753 2,833 604
Treasury stock.................................. (434) -- -- -- (1,125) (51) -- --
------ ------- ------ ------ ------- ------- ------ ------
Total stockholders' equity.................... 1,186 7,539 3,678 1,019 6,829 9,878 2,907 614
------ ------- ------ ------ ------- ------- ------ ------
Total liabilities and stockholders' equity.... $4,216 $12,929 $7,352 $3,250 $22,161 $20,145 $5,806 $5,594
====== ======= ====== ====== ======= ======= ====== ======
<CAPTION>
OTHER PRO POST
THURMAN & FOUNDING PRO FORMA FORMA MERGER
SUMMIT O'CONNELL COMPANIES IES ADJUSTMENTS COMBINED ADJUSTMENTS
------ --------- --------- ------ ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 32 $1,480 $1,676 $ -- $ (7,434) $ 3,343 $ 25,079
Accounts receivable............................. 2,856 562 4,036 -- -- 55,021 --
Less -- Allowance............................... (122) (14) (71) -- -- (1,557) --
------ ------ ------ ------ -------- -------- --------
Accounts receivable, net...................... 2,734 548 3,965 -- -- 53,464 --
Costs and profits recognized in excess of
billings...................................... 356 22 1,087 -- -- 5,836 --
Other receivables............................... 341 -- 33 22 (882) 763 --
Inventories..................................... -- 178 352 -- 4,890 --
Prepaid expenses and other...................... 164 12 369 4 222 3,727 --
------ ------ ------ ------ -------- -------- --------
Total current assets.......................... 3,627 2,240 7,482 26 (8,094) 72,023 25,079
------ ------ ------ ------ -------- -------- --------
PROPERTY AND EQUIPMENT, NET AND OTHER ASSETS..... 202 317 1,424 -- (3,726) 12,928 --
GOODWILL, NET.................................... -- -- -- -- 114,296 114,296 --
------ ------ ------ ------ -------- -------- --------
Total assets.................................. $3,829 $2,557 $8,906 $ 26 $102,476 $199,247 $ 25,079
====== ====== ====== ====== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............ $ 21 $ 6 $ 938 -- $ 56,292 $61,590 $(61,302)
Accounts payable and accrued expenses........... 1,372 278 2,319 -- -- 31,475 --
Payable to stockholder/affiliate................ -- -- -- 3 -- 3 --
Billings in excess of costs and profits
recognized.................................... 384 583 430 -- -- 9,867 --
Income taxes payable............................ -- -- 19 -- -- 1,636 --
Other........................................... 938 -- 72 -- 1,998 3,568 --
------ ------ ------ ------ -------- -------- --------
Total current liabilities..................... 2,715 867 3,778 3 58,290 108,139 (61,302)
------ ------ ------ ------ -------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities....... 101 90 488 -- 8,463 12,204 (759)
Deferred income taxes........................... 11 -- 80 -- 879 1,171 --
Other long-term liabilities..................... -- -- 6 -- -- 2,060 --
------ ------ ------ ------ -------- -------- --------
Total long-term liabilities................... 112 90 574 -- 9,342 15,435 (759)
------ ------ ------ ------ -------- -------- --------
COMMITMENTS AND CONTINGENCIES STOCKHOLDERS'
EQUITY:
Common stock.................................... 1 300 34 23 (621) 137 70
Restricted Common Stock......................... -- -- -- -- 26 26 --
Additional paid-in capital...................... -- -- 198 -- 67,264 67,963 87,070
Retained earnings............................... 1,001 1,300 4,352 -- (33,465) 7,547 --
Treasury stock.................................. -- -- (30) -- 1,640 -- --
------ ------ ------ ------ -------- -------- --------
Total stockholders' equity.................... 1,002 1,600 4,554 23 34,844 75,673 87,140
------ ------ ------ ------ -------- -------- --------
Total liabilities and stockholders' equity.... $3,829 $2,557 $8,906 $ 26 $102,476 $199,247 $ 25,079
====== ====== ====== ====== ======== ======== ========
<CAPTION>
AS
ADJUSTED
--------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 28,422
Accounts receivable............................. 55,021
Less -- Allowance............................... (1,557)
--------
Accounts receivable, net...................... 53,464
Costs and profits recognized in excess of
billings...................................... 5,836
Other receivables............................... 763
Inventories..................................... 4,890
Prepaid expenses and other...................... 3,727
--------
Total current assets.......................... 97,102
--------
PROPERTY AND EQUIPMENT, NET AND OTHER ASSETS..... 12,928
GOODWILL, NET.................................... 114,296
--------
Total assets.................................. $224,326
========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............ $ 288
Accounts payable and accrued expenses........... 31,475
Payable to stockholder/affiliate................ 3
Billings in excess of costs and profits
recognized.................................... 9,867
Income taxes payable............................ 1,636
Other........................................... 3,568
--------
Total current liabilities..................... 46,837
--------
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities....... 11,445
Deferred income taxes........................... 1,171
Other long-term liabilities..................... 2,060
--------
Total long-term liabilities................... 14,676
--------
COMMITMENTS AND CONTINGENCIES STOCKHOLDERS'
EQUITY:
Common stock.................................... 207
Restricted Common Stock......................... 26
Additional paid-in capital...................... 155,033
Retained earnings............................... 7,547
Treasury stock.................................. --
--------
Total stockholders' equity.................... 162,813
--------
Total liabilities and stockholders' equity.... $224,326
========
</TABLE>
F-4
<PAGE> 71
INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
BEXAR- HOUSTON-
AMBER CALHOUN DANIEL HAYMAKER STAFFORD MILLS MUTH POLLOCK
------- ------- ------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................ $13,878 $33,023 $12,585 $7,560 $70,493 $65,439 $16,830 $15,816
COST OF SERVICES.................... 12,215 25,017 9,713 6,412 57,662 50,535 12,834 13,534
------- ------- ------- ------ ------- ------- ------- -------
Gross profit....................... 1,663 8,006 2,872 1,148 12,831 14,904 3,996 2,282
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,160 3,686 1,884 713 7,810 7,643 2,957 2,463
GOODWILL AMORTIZATION............... -- -- -- -- -- -- -- --
------- ------- ------- ------ ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS....... 503 4,320 988 435 5,021 7,261 1,039 (181)
OTHER INCOME (EXPENSE):
Interest expense................... (51) (97) (73) -- (134) (61) (24) (104)
Other, net......................... 36 (76) 86 8 94 212 27 156
------- ------- ------- ------ ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES... 488 4,147 1,001 443 4,981 7,412 1,042 (129)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 198 (28) -- -- 1,934 309 -- (30)
------- ------- ------- ------ ------- ------- ------- -------
NET INCOME (LOSS)................... $ 290 $4,175 $ 1,001 $ 443 $ 3,047 $ 7,103 $ 1,042 $ (99)
======= ======= ======= ====== ======= ======= ======= =======
NET INCOME PER SHARE................
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1)............
<CAPTION>
OTHER
THURMAN & FOUNDING PRO FORMA PRO FORMA
SUMMIT O'CONNELL COMPANIES IES ADJUSTMENTS COMBINED
------- --------- ---------- ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................ $10,790 $4,551 $21,271 $ -- $ -- $ 272,236
COST OF SERVICES.................... 9,409 3,059 15,992 -- -- 216,382
------- ------ ------- ------ ------- -----------
Gross profit....................... 1,381 1,492 5,279 -- -- 55,854
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,237 503 4,472 -- (5,982) 28,546
GOODWILL AMORTIZATION............... -- -- -- -- 2,857 2,857
------- ------ ------- ------ ------- -----------
INCOME (LOSS) FROM OPERATIONS....... 144 989 807 -- 3,125 24,451
OTHER INCOME (EXPENSE):
Interest expense................... (56) (8) (90) -- (312) (1,010)
Other, net......................... 25 65 96 -- 250 979
------- ------ ------- ------ ------- -----------
INCOME (LOSS) BEFORE INCOME TAXES... 113 1,046 813 -- 3,063 24,420
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 43 36 59 -- 7,915 10,436
------- ------ ------- ------ ------- -----------
NET INCOME (LOSS)................... $ 70 $1,010 $ 754 $ -- $(4,852) $ 13,984
======= ====== ======= ====== ======= ===========
NET INCOME PER SHARE................ $ 0.64
===========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1)............ 21,693,969
===========
</TABLE>
- ---------------
(1) Includes (a) 2,655,709 shares issued to the IES founder, (b) 1,396,602
shares issued to management of IES, (c) 12,313,026 shares issued to owners
of the Founding Companies and (d) 5,208,632 of the 7,000,000 shares sold in
the Offering necessary to pay the cash portion of the Acquisitions
consideration and expenses of this Offering. The 1,791,368 of Offering
shares excluded reflect the net cash proceeds to IES. Additionally, includes
120,000 shares computed under the treasury stock method related to 300,000
options which are currently outstanding.
F-5
<PAGE> 72
INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
BEXAR- HOUSTON-
AMBER CALHOUN DANIEL HAYMAKER STAFFORD MILLS MUTH POLLOCK SUMMIT
------- ------- ------- -------- -------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES......................... $11,340 $24,339 $13,635 $8,436 $55,066 $57,369 $12,580 $13,784 $7,874
COST OF SERVICES................. 9,795 18,826 9,488 7,088 43,529 46,174 9,697 11,367 6,929
------- ------- ------- ------ ------- ------- ------- ------- ------
Gross profit................... 1,545 5,513 4,147 1,348 11,537 11,195 2,883 2,417 945
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES........ 631 2,832 1,859 890 8,436 7,161 2,193 2,198 1,040
GOODWILL AMORTIZATION............ -- -- -- -- -- -- -- -- --
------- ------- ------- ------ ------- ------- ------- ------- ------
INCOME (LOSS) FROM OPERATIONS.... 914 2,681 2,288 458 3,101 4,034 690 219 (95)
OTHER INCOME (EXPENSE):
Interest expense............... (32) (80) (45) -- (126) (45) (18) (126) (59)
Other, net..................... 55 (111) 39 3 118 222 21 2 17
------- ------- ------- ------ ------- ------- ------- ------- ------
INCOME (LOSS) BEFORE INCOME
TAXES.......................... 937 2,490 2,282 461 3,093 4,211 693 95 (137)
PROVISION (BENEFIT) FOR INCOME
TAXES.......................... 365 71 -- -- 1,452 244 -- 35 (27)
------- ------- ------- ------ ------- ------- ------- ------- ------
NET INCOME (LOSS)................ $ 572 $ 2,419 $ 2,282 $ 461 $ 1,641 $ 3,967 $ 693 $ 60 $(110)
======= ======= ======= ====== ======= ======= ======= ======= ======
NET INCOME PER SHARE.............
SHARES USED IN COMPUTING PRO
FORMA NET INCOME PER
SHARE(1).......................
<CAPTION>
OTHER
THURMAN & FOUNDING PRO FORMA PRO FORMA
O'CONNELL COMPANIES IES ADJUSTMENTS COMBINED
--------- --------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES......................... $3,064 $18,723 $ -- $ -- $ 226,210
COST OF SERVICES................. 1,600 13,794 -- -- 178,287
------ ------- ------- ------- -----------
Gross profit................... 1,464 4,929 -- -- 47,923
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES........ 378 3,597 -- (4,486) 26,729
GOODWILL AMORTIZATION............ -- -- -- 2,143 2,143
------ ------- ------- ------- -----------
INCOME (LOSS) FROM OPERATIONS.... 1,086 1,332 -- 2,343 19,051
OTHER INCOME (EXPENSE):
Interest expense............... (5) (88) -- (222) (846)
Other, net..................... 53 131 -- 222 772
------ ------- ------- ------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES.......................... 1,134 1,375 -- 2,343 18,977
PROVISION (BENEFIT) FOR INCOME
TAXES.......................... 45 (13) -- 5,904 8,076
------ ------- ------- ------- -----------
NET INCOME (LOSS)................ $1,089 $ 1,388 $ -- $(3,561) $ 10,901
====== ======= ======= ======= ===========
NET INCOME PER SHARE............. $ 0.50
===========
SHARES USED IN COMPUTING PRO
FORMA NET INCOME PER
SHARE(1)....................... 21,693,969
===========
</TABLE>
- ---------------
(1) Includes (a) 2,655,709 shares issued to the IES founder, (b) 1,396,602
shares issued to management of IES, (c) 12,313,026 shares issued to owners
of the Founding Companies and (d) 5,208,632 of the 7,000,000 shares sold in
the Offering necessary to pay the cash portion of the Acquisitions
consideration and expenses of this Offering. The 1,791,368 of Offering
shares excluded reflect the net cash proceeds to IES. Additionally, includes
120,000 shares computed under the treasury stock method related to 300,000
options which are currently outstanding.
F-6
<PAGE> 73
INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
Integrated Electrical Services, Inc. (IES), was founded to create a leading
national provider of electrical contracting and maintenance services to the
commercial, industrial and residential markets. IES has conducted no operations
to date and will acquire the Founding Companies concurrently with and as a
condition of the closing of this Offering.
The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements where indicated. The periods
included in these financial statements for the individual Founding Companies are
as of and for the nine months ended June 30, 1997, and for their fiscal years
ended in 1996, with the exception of Summit for which the annual period is for
the year ended September 30, 1996. The audited historical financial statements
included elsewhere herein have been included in accordance with Securities and
Exchange Commission (SEC) Staff Accounting Bulletin No. 80.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrently with and as a condition to the closing of this Offering, IES
will acquire all of the outstanding capital stock and other equity interests of
the Founding Companies. The acquisitions will be accounted for using the
purchase method of accounting with Houston-Stafford being treated as the
accounting acquiror.
The following table sets forth the consideration to be paid (a) in cash and
(b) in shares of Common Stock to the common stockholders of each of the Founding
Companies, other than the accounting acquiror (Houston-Stafford). For purposes
of computing the estimated purchase price for accounting purposes, the value of
the shares was determined using an estimated fair value of $9.80 per share (or
$129.6 million), which is less than the estimated initial public offering price
of $14.00 per share due to restrictions on the sale and transferability of the
shares issued. The total estimated purchase price of $129.6 million for the
acquisitions is based upon preliminary estimates and is subject to certain
purchase price adjustments at and following closing. The table does not reflect
distributions totaling $17.8 million constituting substantially all of the
Founding Companies' undistributed earnings previously taxed to their
stockholders (S Corporation Distributions) or distributions of other
nonoperating assets and liabilities prior to the Acquisitions.
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
------- -------------
(IN THOUSANDS)
<S> <C> <C>
Ace......................................................... $ 892 191
Amber....................................................... 2,486 533
Bexar-Calhoun............................................... 8,696 1,863
Daniel...................................................... 3,975 852
Hatfield.................................................... 972 208
Haymaker.................................................... 2,029 435
Mills....................................................... 11,637 2,494
Muth........................................................ 2,209 473
Pollock..................................................... 1,092 320
Reynolds.................................................... 939 201
Rodgers..................................................... 1,684 361
Summit...................................................... 1,900 321
Popp........................................................ 976 209
Thurman & O'Connell......................................... 2,331 500
------- -----
Total............................................. $41,818 8,961
======= =====
</TABLE>
F-7
<PAGE> 74
INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records the S Corporation Distributions of $17.8 million, which is
expected to be distributed using $4.4 million of cash and $2.5 million
of net nonoperating assets, as well as new borrowings of $10.9 million.
(b) Records the liability for the cash portion of the consideration to be
paid to Houston-Stafford, the accounting acquiror, and the merger of IES
with Houston-Stafford.
(c) Records distribution of certain nonoperating assets and liabilities by
the Founding Companies prior to the Acquisitions.
(d) Records the purchase of the Founding Companies by IES consisting of
notes payable of $41.8 million and 8,960,987 shares of Common Stock
valued at $9.80 per share (or $87.8 million) for a total estimated
purchase price of $129.6 million resulting in excess purchase price of
$114.3 million over the net assets acquired of $15.3 million (see Note
2).
(e) Records the cash proceeds of $87.1 million from the issuance of shares
of IES Common Stock (based on an initial public offering price of $14.00
per share) net of estimated offering costs of $10.9 million. Offering
costs primarily consist of underwriting discounts and commissions,
accounting fees, legal fees and printing expenses.
(f) Records payment of the cash portion of the consideration to the
stockholders of the Founding Companies of $57.5 million in connection
with the Mergers and the expected repayment of outstanding short- and
long-term debt totaling $4.6 million.
The following table summarizes unaudited pro forma combined balance sheet
adjustments (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENT
---------------------------------------- PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
-------- -------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets --
Cash and cash equivalents.................................. $ (4,433) $ -- $(3,001) $ -- $ (7,434)
Other receivables.......................................... (47) -- (835) -- (882)
Prepaid expenses and other................................. (1,313) -- (67) 1,602 222
-------- -------- ------- -------- --------
Total current assets..................................... (5,793) -- (3,903) 1,602 (8,094)
Property and equipment, net and other assets................ (2,773) -- (953) -- (3,726)
Goodwill, net............................................... -- -- -- 114,296 114,296
-------- -------- ------- -------- --------
Total assets......................................... $ (8,566) $ -- $(4,856) $115,898 $102,476
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Current maturities of long-term debt....................... $ (555) $ 15,643 $ (614) $ 41,818 $ 56,292
Payable to shareholder/affiliate........................... -- -- -- -- --
Unearned revenue and other current liabilities............. -- -- -- 1,998 1,998
-------- -------- ------- -------- --------
Total current liabilities................................ (555) 15,643 (614) 43,816 58,290
Long-term debt, net of current maturities................... 9,753 -- (1,290) -- 8,463
Deferred income taxes....................................... -- -- -- 879 879
-------- -------- ------- -------- --------
Total liabilities.................................... 9,198 15,643 (1,904) 44,695 67,632
Stockholders' equity --
Common stock............................................... -- (262) -- (359) (621)
Restricted common stock.................................... -- -- -- 26 26
Additional paid-in capital................................. -- (16,506) -- 83,770 67,264
Retained earnings.......................................... (17,764) -- (2,952) (12,749) (33,465)
Treasury stock............................................. -- 1,125 -- 515 1,640
-------- -------- ------- -------- --------
Total stockholders' equity........................... (17,764) (15,643) (2,952) 71,203 34,844
-------- -------- ------- -------- --------
Total liabilities and stockholders' equity........... $ (8,566) $ -- $(4,856) $115,898 $102,476
======== ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENT
------------------- POSTMERGER
(E) (F) ADJUSTMENT
------- -------- ----------
<S> <C> <C> <C>
ASSETS
Current assets --
Cash and cash equivalents.................................. $87,140 $(62,061) $ 25,079
Other...................................................... -- -- --
------- -------- --------
Total current assets................................. 87,140 (62,061) 25,079
------- -------- --------
Total assets......................................... $87,140 $(62,061) $ 25,079
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Current maturities of long-term debt....................... $ -- $(61,302) $(61,302)
Payable to stockholder/affiliate........................... -- -- --
------- -------- --------
Total current liabilities............................ -- (61,302) (61,302)
Long-term debt, net of current maturities................... -- (759) (759)
------- -------- --------
Total liabilities.................................... -- (62,061) (62,061)
------- -------- --------
Stockholders' equity --
Common stock............................................... 70 -- 70
Restricted common stock.................................... -- -- --
Additional paid-in capital................................. 87,070 -- 87,070
Retained earnings.......................................... -- -- --
Treasury stock............................................. -- -- --
------- -------- --------
Total stockholders' equity........................... 87,140 -- 87,140
------- -------- --------
Total liabilities and stockholders' equity........... $87,140 $(62,061) $ 25,079
======= ======== ========
</TABLE>
F-8
<PAGE> 75
INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
YEAR ENDED SEPTEMBER 30, 1996
(a) Reflects the $6.0 million reduction in salaries, bonuses and benefits
to the owners of the Founding Companies. These reductions in salaries,
bonuses and benefits have been agreed prospectively in accordance with
the terms of the employment agreements. Such employment agreements are
primarily for five years, contain restrictions related to competition
and provide severance for termination of employment in certain
circumstances.
(b) Reflects the amortization of goodwill to be recorded as a result of
these Acquisitions over a 40-year estimated life, as well as a
reduction in historical Founding Companies' minority interest expense
attributable to minority interests that will be acquired as part of the
transaction.
(c) Reflects interest expense of $1.0 million on borrowings of $10.9
million necessary to fund the S Corporation Distributions, net of
interest savings of $.7 million on $9.0 million of debt to be repaid
using proceeds from the Offering or distributed prior to the
Acquisitions.
(d) Reflects the incremental provision for federal and state income taxes
at a 38% overall tax rate before goodwill and other permanent items,
relating to the other statements of operations adjustments and for
income taxes on S Corporation income not provided for in the historical
financial statements.
The following table summarizes unaudited pro forma combined statements of
operations adjustments (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENT
----------------------------------- PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
------- ------- ----- ------- -----------
<S> <C> <C> <C> <C> <C>
Selling, general and administrative
expenses............................ $(5,982) $ -- $ -- $ -- $(5,982)
Goodwill amortization................. -- 2,857 -- -- 2,857
------- ------- ----- ------- -------
Income (loss) from operations....... 5,982 (2,857) -- -- 3,125
Other income (expense) --
Interest expense.................... -- -- (312) -- (312)
Other, net.......................... -- 250 -- -- 250
------- ------- ----- ------- -------
Income (loss) before income taxes... 5,982 (2,607) (312) -- 3,063
Provision for income taxes............ -- -- -- 7,915 7,915
------- ------- ----- ------- -------
Net income (loss)..................... $ 5,982 $(2,607) $(312) $(7,915) $(4,852)
======= ======= ===== ======= =======
</TABLE>
F-9
<PAGE> 76
INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED JUNE 30, 1997
(a) Reflects the $4.5 million reduction in salaries, bonuses and benefits
to the owners of the Founding Companies. These reductions in salaries,
bonuses and benefits have been agreed prospectively in accordance with
the terms of the employment agreements. Such employment agreements are
primarily for five years, contain restrictions related to competition
and provide severance for termination of employment in certain
circumstances.
(b) Reflects the amortization of goodwill to be recorded as a result of
these Acquisitions over a 40-year estimated life, as well as a
reduction in historical Founding Company minority interest expense
attributable to minority interests that will be acquired as part of the
transaction.
(c) Reflects interest expense of $0.7 million on borrowings of $10.9
million necessary to fund the S Corporation Distributions, net of
interest savings of $.5 million on $9.0 million of debt repaid using
proceeds from the Offering or distributed prior to the Acquisitions.
(d) Reflects the incremental provision for federal and state income taxes,
at a 38% overall tax rate before goodwill and other permanent items,
relating to the other statements of operations adjustments and for
income taxes on S Corporation income not provided for in the historical
financial statements.
The following table summarizes unaudited pro forma combined statements of
operations adjustments (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENT
----------------------------------- PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
------- ------- ----- ------- -----------
<S> <C> <C> <C> <C> <C>
Selling, general and administrative
expenses............................ $(4,486) $ -- $ -- $ -- $(4,486)
Goodwill amortization................. -- 2,143 -- -- 2,143
------- ------- ----- ------- -------
Income (loss) from operations......... 4,486 (2,143) -- -- 2,343
Other income (expense) --
Interest expense.................... -- -- (222) -- (222)
Other, net.......................... -- 222 -- -- 222
------- ------- ----- ------- -------
Income (loss) before income taxes..... 4,486 (1,921) (222) -- 2,343
Provision for income taxes............ -- -- -- 5,904 5,904
------- ------- ----- ------- -------
Net income (loss)..................... $ 4,486 $(1,921) $(222) $(5,904) $(3,561)
======= ======= ===== ======= =======
</TABLE>
F-10
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Houston-Stafford Electric, Inc.
We have audited the accompanying balance sheets of Houston-Stafford
Electric, Inc., a Texas corporation, as of December 31, 1995 and 1996, and the
related statements of operations, cash flows and stockholder's equity for each
of the three years in the period ended December 31, 1996. 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 Houston-Stafford Electric,
Inc. as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 15, 1997
F-11
<PAGE> 78
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
(SEE NOTE 1)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $1,048 $ 2,682 $ 3,647
Accounts receivable --
Trade, net of allowance of $220, $264 and $385,
respectively......................................... 4,605 5,445 7,928
Retainage.............................................. 1,480 1,847 1,981
Inventories............................................... 337 346 2,531
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 259 247 408
Prepaid expenses and other current assets................. 560 663 801
------ ------- -------
Total current assets.............................. 8,289 11,230 17,296
RECEIVABLES FROM RELATED PARTIES............................ 335 338 496
OTHER RECEIVABLES........................................... 210 166 114
GOODWILL AND OTHER INTANGIBLE ASSETS........................ -- 23 2,070
OTHER NON-CURRENT ASSETS.................................... 38 41 148
PROPERTY AND EQUIPMENT, net................................. 485 1,428 2,037
------ ------- -------
Total assets...................................... $9,357 $13,226 $22,161
====== ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 353 $ 428 $ 1,213
Accounts payable and accrued expenses..................... 3,921 3,682 9,070
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,143 1,733 1,835
Other current liabilities................................. 197 716 886
------ ------- -------
Total current liabilities......................... 5,614 6,559 13,004
LONG-TERM DEBT, net of current maturities................... 634 1,295 1,139
OTHER NON-CURRENT LIABILITIES............................... 5 21 1,189
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $5 par value, 500,000 shares authorized,
59,000 shares issued and 20,000 shares outstanding..... 295 295 295
Additional paid-in capital................................ 112 112 112
Retained earnings......................................... 3,022 6,069 7,547
Treasury stock, 29,000 and 39,000 shares, at cost,
respectively........................................... (325) (1,125) (1,125)
------ ------- -------
Total stockholder's equity........................ 3,104 5,351 6,829
------ ------- -------
Total liabilities and stockholder's equity........ $9,357 $13,226 $22,161
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 79
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
(SEE NOTE 1)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $48,001 $54,082 $70,493 $35,299 $37,508
COST OF SERVICES (including depreciation).... 42,163 46,712 57,662 29,162 30,098
------- ------- ------- ------- -------
Gross profit....................... 5,838 7,370 12,831 6,137 7,410
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................... 5,319 6,027 7,810 2,730 4,982
------- ------- ------- ------- -------
Income from operations............. 519 1,343 5,021 3,407 2,428
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense........................... (137) (254) (134) (67) (82)
Other...................................... 66 58 94 28 74
------- ------- ------- ------- -------
Other income (expense), net........ (71) (196) (40) (39) (8)
------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES..... 448 1,147 4,981 3,368 2,420
PROVISION FOR INCOME TAXES................... 186 416 1,934 1,213 942
------- ------- ------- ------- -------
NET INCOME................................... $ 262 $ 731 $ 3,047 $ 2,155 $ 1,478
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 80
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
(SEE NOTE 1)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 262 $ 731 $ 3,047 $ 2,155 $ 1,478
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation and amortization...................... 55 76 133 51 105
Loss (gain) on sale of property and equipment...... (29) (5) 2 -- (13)
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable........................... (1,725) (625) (1,237) (2,975) (1,663)
Inventories................................... (331) 315 (9) -- (843)
Costs and estimated earnings in excess of
billings on uncompleted contracts........... (298) 850 12 112 (160)
Prepaid expenses and other current assets..... (31) 156 (85) 35 143
Increase (decrease) in --
Accounts payable and accrued expenses......... 367 617 (239) 650 1,789
Billings in excess of costs and estimated
earnings on uncompleted contracts........... 281 637 590 723 102
Other current liabilities..................... 68 157 505 798 184
Other, net......................................... 28 (29) (4) 4 (149)
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities......................................... (1,353) 2,880 2,715 1,553 973
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment......... 48 49 12 -- 18
Additions of property and equipment.................. (64) (145) (642) (216) (194)
Advances to affiliates............................... -- -- -- -- (76)
Collections of notes receivable...................... -- -- -- -- 6
------- ------- ------- ------- -------
Net cash used in investing activities................ (16) (96) (630) (216) (246)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt......................... 3,146 405 2,875 2,375 3,358
Payments of long-term debt........................... (1,543) (2,397) (3,326) (2,602) (3,120)
Distributions to stockholders........................ -- (15) -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities......................................... 1,603 (2,007) (451) (227) 238
------- ------- ------- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 234 777 1,634 1,110 965
CASH AND CASH EQUIVALENTS, beginning of period......... 37 271 1,048 1,048 2,682
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period............... $ 271 $ 1,048 $ 2,682 $ 2,158 $ 3,647
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest........................................... $ 137 $ 254 $ 134 $ 67 $ 82
Income taxes....................................... 104 225 1,482 209 804
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 81
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
(SEE NOTE 1)
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED TREASURY STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993......... 59,000 $295 $112 $2,044 $ (325) $2,126
Distributions to stockholders.... -- -- -- (15) -- (15)
Net income....................... -- -- -- 262 -- 262
------ ---- ---- ------ ------- ------
BALANCE, December 31, 1994......... 59,000 295 112 2,291 (325) 2,373
Distributions to stockholders.... -- -- -- -- -- --
Net income....................... -- -- -- 731 -- 731
------ ---- ---- ------ ------- ------
BALANCE, December 31, 1995......... 59,000 295 112 3,022 (325) 3,104
Purchase of treasury stock....... -- -- -- -- (800) (800)
Net income....................... -- -- -- 3,047 -- 3,047
------ ---- ---- ------ ------- ------
BALANCE, December 31, 1996......... 59,000 295 112 6,069 (1,125) 5,351
Net income (unaudited)........... -- -- -- 1,478 -- 1,478
------ ---- ---- ------ ------- ------
BALANCE, June 30, 1997
(unaudited)...................... 59,000 $295 $112 $7,547 $(1,125) $6,829
====== ==== ==== ====== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 82
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION AND BASIS OF PRESENTATION:
Houston-Stafford Electric, Inc. (the Company), a Texas corporation, focuses
on providing electrical system installation and repair services primarily for
residential and mid-sized to large commercial facilities. Work on new structures
is performed primarily under fixed-price contracts. The Company performs the
majority of its contract work under fixed-price contracts with contract terms
ranging from six to 18 months. The Company performs the majority of its work in
Texas and has operations in other states.
In April 1997, the Company indirectly acquired an electrical supply company
from a third party for cash. The purchase of such electrical supply company has
been reflected as a purchase business combination. Consequently, the
accompanying financial statements reflect the consolidated results of operations
and financial position of the Company and the acquired electrical supply company
for periods subsequent to April 1997. All significant intercompany transactions
and balances have been eliminated for those periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Supplemental Cash Flow Information (in thousands)
The Company had the following noncash investing and financing activities
for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Treasury stock purchased.................................... -- -- $800
Debt assumed in treasury stock purchase transaction......... -- -- 800
Purchase price of real property............................. -- -- 496
Debt assumed in connection with purchase of property........ -- -- 368
Receivables reduced in connection with purchase of
property.................................................. -- -- 79
</TABLE>
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued by the Company at the lower of cost or market
using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation expense was
$55,000, $76,000 and $133,000 for the years ended December 31, 1994, 1995 and
1996, respectively.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
F-16
<PAGE> 83
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
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. Provisions for total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income. The
effects of these revisions 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 balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for the first year after
installation of new electrical systems. The Company generally warrants labor for
30 days after servicing of existing electrical systems. A reserve for warranty
costs is recorded based upon the historical level of warranty claims and
management's estimate of future costs.
Accounts Receivable and Provision for Doubtful Accounts
Accounts receivable at December 31, 1995 and 1996, include approved claims
and change orders which were expected to be collected within the fiscal year.
The Company provides an allowance for doubtful accounts based on a
specified percentage of outstanding receivables and the specific identification
of accounts receivable where collection is no longer probable.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred assets and liabilities are recorded for future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities, and are measured using enacted tax rates
and laws.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this footnote and Note 11 for discussion of
significant estimates reflected in the Company's financial statements.
F-17
<PAGE> 84
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Pronouncement
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if an impairment of such property is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such property and its carrying value. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -----------------
IN YEARS 1995 1996
------------ ------- -------
<S> <C> <C> <C>
Land.................................................. N/A $ 236 $ 461
Buildings............................................. 5-32 144 439
Transportation equipment.............................. 5 1,432 615
Machinery and equipment............................... 3-10 329 370
Computer and telephone equipment...................... 5-7 180 129
Building and Leasehold improvements................... 5-32 185 251
Furniture and fixtures................................ 5-7 198 207
------- -------
2,704 2,472
Less -- Accumulated depreciation and amortization..... (2,219) (1,044)
------- -------
Property and equipment, net................. $ 485 $ 1,428
======= =======
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
----- ----
<S> <C> <C>
Balance at beginning of period.............................. $ 395 $220
Additions to costs and expenses............................. 49 58
Deductions for uncollectible receivables written off and
recoveries................................................ (224) (14)
----- ----
Balance at end of period.................................... $ 220 $264
===== ====
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------ ------
<S> <C> <C>
Accounts payable, trade..................................... $2,210 $1,748
Accrued compensation and other expenses..................... 1,711 1,934
------ ------
$3,921 $3,682
====== ======
</TABLE>
F-18
<PAGE> 85
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Electrical system installation contracts in progress are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 15,370 $ 22,926
Estimated earnings.......................................... 2,193 4,269
-------- --------
17,563 27,195
Less -- Billings to date.................................... (18,447) (28,681)
-------- --------
$ (884) $ (1,486)
======== ========
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 259 $ 247
Less -- Billings in excess of costs and estimated earnings
on uncompleted contracts............................... (1,143) (1,733)
-------- --------
$ (884) $ (1,486)
======== ========
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
----- ------
<S> <C> <C>
Note payable to an officer, dated August 1996, payable in
monthly payments of $12 including interest at a rate of
8%, maturing August 2003 and secured by treasury stock.... $ -- $ 766
Note payable to a bank, dated October 1994, payable in
monthly payments of $21 plus interest at prime plus .75%,
maturing October 1998 and secured by trade receivables,
inventory and equipment................................... 729 458
Mortgage payable to an officer, dated April 1996, payable in
monthly installments of $4 including interest at 10%,
maturing April 2001 and secured by certain real
property.................................................. -- 186
Mortgage payable to an individual, dated September 1996,
payable in monthly installments of $3 including interest
at 9%, maturing October 2001 and secured by certain real
property.................................................. -- 130
Mortgage payable to a financial institution, dated December
1995, payable in monthly installments of $1 including
interest at 7.426%, maturing October 2112 and secured by
certain real property..................................... 113 110
Mortgage payable to a bank, renewed January 1996, payable in
monthly installments of $2 plus interest at 9.25%,
maturing January 1999 and secured by certain real
property.................................................. 70 48
Mortgage payable to a bank, assumed December 1996, payable
in monthly installments of $.5 including interest at
9.875%, maturing October 2006 and secured by certain real
property.................................................. -- 25
Other....................................................... 75 --
----- ------
987 1,723
Less -- Current maturities.................................. (353) (428)
----- ------
Total long-term debt.............................. $ 634 $1,295
===== ======
</TABLE>
F-19
<PAGE> 86
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Principal payments due on long-term debt for each of the five years
subsequent to December 31, 1996, are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 428
1998........................................................ 400
1999........................................................ 186
2000........................................................ 200
2001........................................................ 174
Thereafter.................................................. 335
------
Total............................................. $1,723
======
</TABLE>
The Company has a line of credit with a bank in the amount of $2,500,000.
The line of credit note bears interest at prime plus 1/2 percent and matures
July 1998. The Company did not have any borrowings outstanding at December 31,
1996 under the line of credit. The line of credit note is secured by the
Company's trade receivables, inventory and equipment. Prime was 8.25 percent as
of December 31, 1996.
6. LEASES:
The Company leases various facilities, at which it conducts some of its
operations, under operating leases from third parties. Lease expiration dates
and approximate lease payments for the years ending December 31, 1995 and 1996,
are as follows (in thousands):
<TABLE>
<CAPTION>
LOCATION EXPIRATION 1995 1996
-------- ---------- ---- ----
<S> <C> <C> <C>
Austin............................................ October 31, 1997 $ 7 $ 2
S.A. Com.......................................... August 15, 1999 -- 3
Fort Worth........................................ September 21, 2000 14 14
Acworth........................................... November 30, 2002 7 7
Duluth............................................ February 28, 1998 18 18
Nevada............................................ January 31, 1998 -- 13
Polaris........................................... December 31, 1997 -- 6
--- ---
$46 $63
=== ===
</TABLE>
Future minimum lease payments under these noncancelable operating leases
are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31 --
1997................................................. $ 97
1998................................................. 95
1999................................................. 76
2000................................................. 51
2001................................................. 24
Thereafter........................................... 23
----
$366
====
</TABLE>
For a discussion of leases with certain related parties, see Note 8.
F-20
<PAGE> 87
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES (IN THOUSANDS):
Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -------
<S> <C> <C> <C>
Federal --
Current................................................... $158 $372 $1,455
Deferred.................................................. 28 (9) 235
State --
Current................................................... -- 54 210
Deferred.................................................. -- (1) 34
---- ---- ------
$186 $416 $1,934
==== ==== ======
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to income
before provision for income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -------
<S> <C> <C> <C>
Provision at the statutory rate............................. $157 $401 $1,743
Increase resulting from --
Non-deductible expenses................................... 29 (19) 32
State income tax, net of benefit for federal deduction.... -- 34 159
---- ---- ------
$186 $416 $1,934
==== ==== ======
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
----- -----
<S> <C> <C>
Deferred income tax assets --
Bad debts................................................. $ 148 $ 137
Reserves and accrued expenses............................. 386 365
Other..................................................... 1 --
----- -----
Total deferred income tax asset................... 535 502
Deferred income tax liabilities --
Property and equipment.................................... $ -- $ (21)
Deferred contract revenue................................. (138) (353)
----- -----
Total deferred income tax liability............... $(138) $(374)
----- -----
Net deferred income tax asset..................... $ 397 $ 128
===== =====
</TABLE>
F-21
<PAGE> 88
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
----- -----
<S> <C> <C>
Deferred tax assets --
Current................................................... $ 535 $ 502
Long-term................................................. -- --
----- -----
Total............................................. 535 502
----- -----
Deferred tax liabilities --
Current................................................... (138) (21)
Long-term................................................. -- (353)
----- -----
Total............................................. $(138) $(374)
===== =====
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
The Company is owned by Roy D. Brown and conducts business with the
following affiliated entities:
<TABLE>
<S> <C>
Houston-Stafford Plumbing, Inc. T and R Development
Key Electrical Supply, Inc. Ten Ninety Two, Ltd.
HSC Building Co., Inc. Lite Management
Brown-Mueller Joint Venture Hospital Solutions, Inc.
</TABLE>
At December 31, 1996, the Company was due $24,361 from Key Electrical
Supply, Inc., and the Company owed $13,163 to Houston-Stafford Plumbing, Inc.
The Company was due $23,000 and $25,000 from Lite Management and Hospital
Solutions, Inc., respectively.
The Company has advanced funds in the amount of $106,638 to T and R
Development (a partnership co-owned by Roy Brown). The principal of the Company
had an outstanding balance of $84,840 due the Company at December 31, 1996. Ben
Mueller, an officer of the Company, owed $25,943 to the Company at December 31,
1996.
The Company leases certain real properties from Brown-Mueller Joint Venture
(co-owned by Roy Brown) for use as electrical shops. These leases are open
without binding contracts. The annual rentals for 1996 and 1995, approximated
$243,000 and $62,000, respectively. Brown-Mueller Joint Venture owed the Company
$2,457 at December 31, 1996.
The Company received two pieces of real property in exchange for the
elimination of a balance due from HSC Building Co., Inc., of $79,449 and the
assumption of a note due by HSC Building Co., Inc., of $25,376.
As of December 31, 1996, the Company did not have a balance due to or from
HSC Building Co., Inc.
In May 1996, the Company acquired a building and land at a cost of
$220,115. The financing for the acquisition was provided by an officer of the
Company, Ben Mueller. An installment promissory note of $208,123 was signed by
the Company. The note is payable over five years at 10 percent interest.
In August 1996, the Company negotiated the purchase of the stock of Ben
Mueller, a principal who had a one-third interest. The selling price of the
shares totaled $800,000. The Company has signed an installment promissory note
which will provide for the payout of $800,000 over seven years at 8 percent
interest and is secured by the purchased stock.
Certain costs incurred by the Company are allocated to other affiliated
companies on the basis of gross payroll dollars.
F-22
<PAGE> 89
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the acquisition of the electrical supply company, the
Company assumed two non-compete agreements with certain related parties. The
total amount due under these lease agreements at June 30, 1997 is $1,139,500.
9. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution benefit plan. The Company may make
discretionary contributions. Through December 31, 1996, the Company has made no
contributions to the plan.
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, receivables from related parties, other receivables,
accounts payable, a line of credit, notes payable and long-term debt. The
Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company also
carries employment practices liability coverage. The Company has not incurred
significant uninsured losses on any of these items.
Additionally, the Company provides workers' compensation coverage. The
policy has no deductible and provides coverage in the amount of $500,000 per
accident.
During 1997, a general contractor with which the Company does business
acquired a line of credit from a bank on which the Company agreed to act as 2nd
guarantor. This guaranty expires in October of 1997 and is in the amount of
$750,000.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales of approximately 15 percent and 11 percent of total
sales to one major customer during the years ended December 31, 1995 and 1996,
respectively.
In addition, the Company grants credit, generally without collateral, to
its customers, which are general contractors and home builders, located
primarily in Texas. Consequently, the Company is subject to potential credit
risk related to changes in business and economic factors within the Texas
construction and home-building market. However, management believes that its
contract acceptance, billing and collection policies are adequate to minimize
any potential credit risk.
The Company routinely maintains cash balances in financial institutions in
excess of federally insured limits.
F-23
<PAGE> 90
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of an initial
public offering (the Offering) of additional common stock by IES. In addition,
the key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.
F-24
<PAGE> 91
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Integrated Electrical Services, Inc.:
We have audited the accompanying balance sheet of Integrated Electrical
Services, Inc., a Delaware corporation, as of June 30, 1997, and the related
statements of operations, cash flows and stockholders' equity for the period
from inception (June 26, 1997) through June 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 audit.
We conducted our audit 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 audit provides 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 Integrated Electrical
Services, Inc., as of June 30, 1997, and the results of its operations and its
cash flows for the period from inception (June 26, 1997) through June 30, 1997,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 15, 1997
F-25
<PAGE> 92
INTEGRATED ELECTRICAL SERVICES, INC.
BALANCE SHEET -- JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS................................... $--
RECEIVABLE FROM STOCKHOLDERS................................ 22
DEFERRED OFFERING COSTS..................................... 4
---
Total assets...................................... $26
===
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE TO STOCKHOLDER.......... $ 3
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 authorized,
none issued and outstanding............................ --
Common stock, $.01 par value, 100,000,000 shares
authorized, 2,329,569 shares issued and outstanding.... 23
Additional paid-in capital................................ --
Retained deficit.......................................... --
---
Total stockholders' equity........................ 23
---
Total liabilities and stockholders' equity........ $26
===
</TABLE>
Reflects a 2,329.6-for-one stock split effected in October 1997.
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 93
INTEGRATED ELECTRICAL SERVICES, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
(JUNE 26, 1997) THROUGH JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES.................................................... $ --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ --
-------
LOSS BEFORE INCOME TAXES.................................... --
PROVISION FOR INCOME TAXES.................................. --
-------
NET LOSS.................................................... $ --
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 94
INTEGRATED ELECTRICAL SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION
(JUNE 26, 1997) THROUGH JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $--
Adjustments to reconcile net loss to net cash used in
operating activities --
Changes in assets and liabilities --
Increase in deferred offering costs.................. (4)
Increase in accrued liabilities and amounts due to
stockholder......................................... 3
---
Net cash used in operating activities............. (1)
---
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial capitalization.................................... 1
---
Net cash provided by financing activities......... 1
---
NET INCREASE IN CASH AND CASH EQUIVALENTS................... --
CASH AND CASH EQUIVALENTS, beginning of period.............. --
---
CASH AND CASH EQUIVALENTS, end of period.................... $--
===
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 95
INTEGRATED ELECTRICAL SERVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION
(JUNE 26, 1997) THROUGH JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION, June 26, 1997... 2,329,569 $23 $-- $-- $23
NET INCOME (LOSS)....................... -- -- -- -- --
--------- --- --- --- ---
BALANCE, June 30, 1997.................. 2,329,569 $23 $-- $-- $23
========= === === === ===
</TABLE>
- ---------------
Reflects a 2,329.6-for-one stock split effected in October 1997.
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 96
INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Integrated Electrical Services, Inc., a Delaware corporation (IES or the
Company), was founded in June 1997 to create a leading national provider of
electrical contracting and maintenance services, focusing primarily on the
residential, commercial and industrial markets. IES intends to acquire certain
U.S. businesses (the Acquisitions), complete an initial public offering (the
Offering) of its common stock and, subsequent to the Offering, continue to
acquire through merger or purchase similar companies to expand its national and
regional operations.
IES has not conducted any operations, and all activities to date have
related to the Offering and the Acquisitions. All expenditures of the Company to
date have been funded by its current primary stockholder, on behalf of the
Company. The Company's primary stockholder has also committed to fund future
organization expenses and offering costs. As of June 30, 1997, costs of
approximately $4,000 have been incurred in connection with the Offering, and
such costs will be treated as a reduction of the proceeds from the Offering. IES
has treated these costs as deferred offering costs in the accompanying balance
sheet. IES is dependent upon the Offering to execute the pending Acquisitions
and to repay its current primary stockholder for funding deferred offering
costs. There is no assurance that the pending Acquisitions will be completed.
The ability of IES to generate future operating revenues is dependent upon the
ability of the Company to manage the effect on the combined companies of changes
in demand for commercial and residential construction, the effect of business
growth, including the availability of electricians, and the need for other key
personnel. These risk factors are discussed in more detail in "Risk Factors".
2. STOCKHOLDERS' EQUITY:
Common Stock and Preferred Stock
In connection with the organization and initial capitalization of IES, the
Company issued 2,329,569 shares (as restated for the 2,329.6-for-one stock split
discussed in Note 4) of common stock at $.01 par value (Common Stock).
Subsequent to June 30, 1997, IES issued another 1,722,742 shares (as restated
for the 2,329.6-for-one stock split discussed in Note 4) of Common Stock at $.01
par value to the founder of IES and certain management of IES. Consequently, as
of September 30, 1997, and as restated for the 2,329.6-for-one stock split
discussed in Note 4, the Company had issued 2,655,709 shares to its founder and
an aggregate of 1,396,602 shares to the executive management of the Company. As
a result of the issuance of shares to management, the Company recorded in
September 1997 for financial statement presentation purposes, a nonrecurring,
noncash compensation charge of $12.7 million, which is calculated based on the
estimated initial public offering price.
Stock Plan
In October 1997, the Company's board of directors and stockholders approved
the Company's 1997 Stock Plan (the Plan), which provides for the granting or
awarding of incentive or nonqualified stock options, stock appreciation rights,
restricted or phantom stock, and other incentive awards to directors, officers,
key employees and consultants of the Company. The number of shares authorized
and reserved for issuance under the Plan is the greater of 3.5 million shares or
15% of the aggregate number of shares of Common Stock outstanding. The terms of
the option awards will be established by the Compensation Committee of the
Company's board of directors. The Company intends to file a registration
statement on Form S-8 under the Securities Act registering the issuance of
shares upon exercise of options granted under this Plan. The Company expects to
grant nonqualified stock options to purchase a total of approximately 2.1
million shares of Common Stock to key employees of the Company at the initial
public offering price upon consummation of the Offering. These options will vest
at the rate of 20 percent per year, commencing on the first anniversary of the
grant date and will expire ten years from the date of grant, three months
following termination of
F-30
<PAGE> 97
INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
employment due to death or disability, or one year following termination of
employment by means other than death or disability.
Directors' Stock Plan
In October 1997, the Company's board of directors and stockholders approved
the 1997 Directors' Stock Plan (the Directors' Plan), which provides for the
granting or awarding of stock options to nonemployees. The number of shares
authorized and reserved for issuance under the Directors' Plan is 250,000
shares. The Directors' Plan provides for the automatic grant of options to
purchase 5,000 shares to each nonemployee director serving in such capacity at
the commencement of the Offering.
Each nonemployee director will be granted options to purchase an additional
5,000 shares at the time of an initial election of such director. In addition,
each director will be automatically granted options to purchase 5,000 shares
annually at each September 30 on which such director remains a director. All
options will have an exercise price based on the fair market value at the date
of grant and have vesting terms similar to options granted under the Stock Plan
discussed above.
The Directors' Plan allows nonemployee directors to receive additional
option grants in amounts and at terms as deemed appropriate by the Company's
board of directors.
3. STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," allows entities to choose between a new fair value
method of accounting for employee stock options or similar equity instruments
and the current method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25 under which compensation expense is recorded to the extent
that the fair market value of the related stock is in excess of the options
exercise price at date of grant. Entities electing to remain with the accounting
in APB Opinion No. 25 must make pro forma disclosures of net income and earnings
per share as if the fair value method of accounting prescribed in SFAS No. 123
had been applied. The Company will measure compensation expense attributable to
stock options based on the method prescribed in APB Opinion No. 25 and will
provide the required pro forma disclosure of net income and earnings per share,
as applicable, in the notes to future consolidated annual financial statements.
F-31
<PAGE> 98
INTEGRATED ELECTRICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. EVENTS SUBSEQUENT TO THE DATE OF AUDITORS' REPORT (UNAUDITED):
IES effected a 2,329.6-for-one stock split in October 1997, for each share
of common stock of the Company then outstanding. In addition, the Company
increased the number of authorized shares of Common Stock to 100,000,000 and
increased the number of authorized shares of $.01 par value preferred stock to
10,000,000. The effects of the Common Stock split and the increase in the shares
of authorized Common Stock have been retroactively reflected on the balance
sheet, statement of stockholders' equity and in the accompanying notes.
Additionally, the difference between the initial capitalization and the par
value of Common Stock outstanding subsequent to the stock split has been
reflected as a receivable from stockholders in the accompanying balance sheet.
The 2,655,709 shares of Common Stock held by the founder of IES were
converted into 2,655,709 shares of restricted common stock. The shares of
restricted common stock have rights similar to shares of Common Stock, except
that such shares are entitled to elect one member of the board of directors and
are entitled to one-half of one vote for each share held on all other matters.
Each share of restricted common stock will convert into Common Stock (i) upon
disposition by the holder of such shares, (ii) in the event that any person
acquires, or offers to acquire, 15% or more of the total outstanding shares of
Common Stock, or (iii) at the discretion of the Company's board of directors
after January 1, 2000.
IES has signed definitive agreements to acquire the following entities (the
Founding Companies) to be effective contemporaneously with the Offering. The
entities to be acquired are:
Ace Electric, Inc.
Amber Electric, Inc.
BW Consolidated, Inc. and Subsidiaries
Daniel Electrical Contractors, Inc. and Daniel Electrical of Treasure
Coast, Inc.
Hatfield Electric, Inc.
Haymaker Electric, Ltd.
Houston-Stafford Electric, Inc. and Stark Investments, Inc.
Mills Electrical Contractors, Inc. and Subsidiaries
Muth Electric, Inc.
Pollock Electric, Inc.
Reynolds Electric Corp.
Rodgers Electric Co., Inc.
Summit Electric of Texas, Inc.
Thomas Popp & Co., Inc.
Thurman & O'Connell Corp.
The aggregate consideration that will be paid by IES to acquire the
Founding Companies is approximately $57.5 million in cash and 12.3 million
shares of Common Stock.
In addition, the Company has entered into employment agreements with
certain key executives of the Founding Companies and the executive officers of
IES. These employment agreements generally prohibit such individuals from
disclosing confidential information and trade secrets, and restrict such
individuals from competing with the Company for a period of two years following
termination of employment. The initial term of these employment agreements is
five years with provisions for annual extensions at the end of the initial term.
On October 24, 1997, IES filed a registration statement on Form S-1 for the
sale of its Common Stock.
F-32
<PAGE> 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mills Electrical Contractors, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Mills
Electrical Contractors, Inc., a Texas corporation, and Subsidiary as of December
31, 1995 and 1996, and the related consolidated statements of operations, cash
flows and stockholders' equity for each of the three years in the period ended
December 31, 1996. 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 Mills Electrical
Contractors, Inc. and Subsidiary as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 15, 1997
F-33
<PAGE> 100
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,808 $ 5,239 $ 2,021
Accounts receivable --
Trade, net of allowance of $148, $252 and $311,
respectively......................................... 6,251 10,121 11,885
Retainage, net of allowance of $20, $74 and $39,
respectively......................................... 796 2,669 1,538
Related parties........................................ 3 208 260
Other receivables...................................... 307 1,055 8
Inventories, net.......................................... 69 49 76
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 131 329 1,563
Prepaid expenses and other current assets................. 29 118 67
------- ------- -------
Total current assets.............................. 9,394 19,788 17,418
PROPERTY AND EQUIPMENT, net................................. 912 1,675 2,145
GOODWILL, net............................................... -- 180 175
OTHER ASSETS................................................ 340 394 407
------- ------- -------
Total assets...................................... $10,646 $22,037 $20,145
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 131 $ 294 $ 249
Accounts payable and accrued expenses --
Trade.................................................. 4,439 8,886 6,768
Related parties........................................ 23 633 14
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,746 4,523 2,996
Unearned revenue and other current liabilities............ 98 -- --
------- ------- -------
Total current liabilities......................... 6,437 14,336 10,027
LONG-TERM DEBT, net of current maturities................... 260 333 235
MINORITY INTEREST........................................... -- 3 5
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 1,000 shares authorized, 855
shares issued and 727 shares outstanding............... 1 1 1
Additional paid-in capital................................ 175 175 175
Retained earnings......................................... 3,824 7,240 9,753
Treasury stock, 128 shares, at cost....................... (51) (51) (51)
------- ------- -------
Total stockholders' equity........................ 3,949 7,365 9,878
------- ------- -------
Total liabilities and stockholders' equity........ $10,646 $22,037 $20,145
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 101
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $25,544 $35,250 $65,439 $27,902 $35,613
COST OF SERVICES (including depreciation and
amortization).............................. 20,937 27,372 50,535 22,089 29,636
------- ------- ------- ------- -------
Gross profit....................... 4,607 7,878 14,904 5,813 5,977
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................... 3,391 4,741 7,643 2,236 3,355
------- ------- ------- ------- -------
Income from operations............. 1,216 3,137 7,261 3,577 2,622
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense........................... (22) (56) (61) (22) (18)
Other...................................... 92 195 215 78 159
------- ------- ------- ------- -------
Other income (expense), net........ 70 139 154 56 141
------- ------- ------- ------- -------
INCOME BEFORE MINORITY INTEREST AND PROVISION
FOR STATE INCOME TAXES..................... 1,286 3,276 7,415 3,633 2,763
Minority interest in net income of
subsidiary................................. -- -- (3) -- (2)
------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR STATE INCOME
TAXES...................................... 1,286 3,276 7,412 3,633 2,761
Provision for state income taxes............. 52 131 309 129 116
------- ------- ------- ------- -------
NET INCOME................................... $ 1,234 $ 3,145 $ 7,103 $ 3,504 $ 2,645
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 102
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 1,234 $ 3,145 $ 7,103 $ 3,504 $ 2,645
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation and amortization...................... 179 253 385 192 282
Loss (gain) on sale of property and equipment...... (2) -- (20) (9) 1
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable........................... (2,107) (1,894) (6,997) (3,632) 362
Inventories, net.............................. 10 1 20 (4) (27)
Costs and estimated earnings in excess of
billings on uncompleted contracts........... (402) 386 (198) (2,358) (1,234)
Prepaid expenses and other current assets..... (46) 105 (89) (24) 51
Increase (decrease) in --
Accounts payable and accrued expenses......... 1,780 1,178 5,057 1,918 (2,737)
Billings in excess of costs and estimated
earnings on uncompleted contracts........... (353) 1,159 2,777 1,636 (1,527)
Unearned revenue and other current
liabilities................................. -- 98 (98) -- --
Other, net......................................... (64) (29) (52) (114) (12)
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities....................................... 229 4,402 7,888 1,109 (2,196)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable......................... (12) (291) (75) -- --
Collection of notes receivable....................... 140 141 377 365 --
Proceeds from sale of property and equipment......... 8 15 44 16 8
Additions of property and equipment.................. (279) (255) (912) (427) (755)
------- ------- ------- ------- -------
Net cash used in investing activities......... (143) (390) (566) (46) (747)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt......................... -- -- -- -- --
Payments of long-term debt........................... (19) (136) (204) (45) (143)
Distributions to stockholders........................ (147) (2,216) (3,687) (253) (132)
Sale of treasury stock............................... 181 -- -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities.................................. 15 (2,352) (3,891) (298) (275)
------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 101 1,660 3,431 765 (3,218)
CASH AND CASH EQUIVALENTS, beginning of period......... 47 148 1,808 1,808 5,239
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period............... $ 148 $ 1,808 $ 5,239 $ 2,573 $ 2,021
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest........................................... $ 22 $ 56 $ 61 $ 22 $ 18
Income Taxes....................................... $ -- $ 55 $ 93 $ 84 $ 105
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE> 103
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.......... 855 $ 1 $ 11 $ 1,808 $(68) $ 1,752
Sale of 42 shares of treasury
stock........................ -- -- 164 -- 17 181
Distributions to
stockholders................. -- -- -- (147) -- (147)
Net income..................... -- -- -- 1,234 -- 1,234
--- --- ---- ------- ---- -------
BALANCE, December 31, 1994.......... 855 1 175 2,895 (51) 3,020
Distributions to
stockholders................. -- -- -- (2,216) -- (2,216)
Net income..................... -- -- -- 3,145 -- 3,145
--- --- ---- ------- ---- -------
BALANCE, December 31, 1995.......... 855 1 175 3,824 (51) 3,949
Distributions to
stockholders................. -- -- -- (3,687) -- (3,687)
Net income..................... -- -- -- 7,103 -- 7,103
--- --- ---- ------- ---- -------
BALANCE, December 31, 1996.......... 855 1 175 7,240 (51) 7,365
Distributions to stockholders
(unaudited).................. -- -- -- (132) -- (132)
Net income (unaudited)......... -- -- -- 2,645 -- 2,645
--- --- ---- ------- ---- -------
BALANCE, June 30, 1997 (unaudited).. 855 $ 1 $175 $ 9,753 $(51) $ 9,878
=== === ==== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 104
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The accompanying consolidated financial statements include the accounts of
Mills Electrical Contractors, Inc. (Mills), a Texas corporation, and its 99
percent owned subsidiary, Fort Worth Regional Electrical Systems, L.L.C. (RES),
a Texas limited liability company (collectively, the Company). The subsidiary
was formed during 1996. In September 1997, Mills sold 10% of the capital stock
of RES to an officer of RES at net book value per share resulting in proceeds to
the Company of $71,000. Financial statements prior to 1996 reflect only the
accounts of Mills, Inc. All significant intercompany transactions have been
eliminated in consolidation.
The Company focuses on providing electrical system installation and repair
services primarily for mid-sized to large commercial facilities as well as
residential facilities. The Company performs the majority of its contract work
under fixed price contracts, with contract terms generally ranging from 12 to 36
months. The Company performs the majority of its work in the Dallas-Fort Worth,
Texas, area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Supplemental Cash Flow Information (in thousands)
The Company had the following noncash investing and financing activities
for the years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Property acquired in capital lease transactions........... $290 $195 $254
Goodwill recognized in purchase transactions.............. $ -- $ -- $185
</TABLE>
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost, net of an allowance for
obsolescence, or market using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation and
amortization expense was $179,000, $253,000 and $379,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-38
<PAGE> 105
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1996, RES agreed to purchase a business, consisting of equipment in
a capital lease transaction and an agreement to lease a building under an
operating lease, as well as purchased the rights to the name "Regional Electric
Systems" from an individual who became an officer of RES. The acquired assets
were recorded at their estimated fair market value using the purchase method of
accounting. The transaction resulted in the recognition of goodwill of
approximately $185,000 which is being amortized over a 20 year period.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools
and repairs. Provisions for the total estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects 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 balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for the first year after
installation of new electrical systems. The Company generally warrants labor for
30 days after servicing of existing electrical systems. A reserve for warranty
costs is recorded based upon the historical level of warranty claims and
management's estimate of future costs.
Accounts Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable and a general reserve based upon the total trade and retainage accounts
receivable balances.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company itself is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of the
Company's taxable earnings or losses in their personal tax returns.
Consequently, the accompanying financial statements of the Company include only
a provision for state income taxes and do not
F-39
<PAGE> 106
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
include a provision for current or deferred federal income taxes. The Company
intends to terminate its S Corporation status concurrently with the effective
date of the Offering.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this footnote and Note 11 for discussion of
significant estimates reflected in the Company's financial statements.
New Accounting Pronouncement
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such property is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
property and its carrying value. Adoption of this standard did not have a
material effect on the financial position or results of operations of the
Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ------------------
IN YEARS 1995 1996
------------ ------- -------
<S> <C> <C> <C>
Transportation equipment............................ 3-5 $ 788 $ 1,031
Machinery and equipment............................. 5 785 1,071
Leasehold improvements.............................. 5-10 170 330
Furniture and fixtures.............................. 5 591 901
Less -- Accumulated depreciation and amortization... (1,422) (1,658)
------- -------
Property and equipment, net............... $ 912 $ 1,675
======= =======
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period.............................. $ 77 $128 $168
Additions to costs and expenses............................. 51 40 158
---- ---- ----
Balance at end of period.................................... $128 $168 $326
==== ==== ====
</TABLE>
Included as a component of other receivables at December 31, 1995, is a
note receivable from a corporation of $291,000 with interest at 10 percent per
annum. This note was collected during 1996.
F-40
<PAGE> 107
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses, trade consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Accounts payable, trade..................................... $2,236 $4,922
Accrued compensation and benefits........................... 1,608 3,423
Other accrued expenses...................................... 595 541
------ ------
$4,439 $8,886
====== ======
</TABLE>
Electrical system installation contracts in progress are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Costs incurred on contracts in progress..................... $33,016 $55,954
Estimated earnings, net of losses........................... 7,090 15,879
------- -------
40,106 71,833
Less -- Billings to date.................................... (41,721) (76,027)
------- -------
$(1,615) $(4,194)
======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 131 $ 329
Less -- Billings in excess of costs and estimated earnings
on uncompleted contracts............................... (1,746) (4,523)
------- -------
$(1,615) $(4,194)
======= =======
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consists primarily of capital leases for the purchase of
vehicles and construction equipment as discussed in Note 6.
The Company has a $2,000,000 line-of-credit agreement with a bank to be
drawn upon as needed, with variable interest at the bank's prime rate, as
defined, secured by accounts receivable, furniture, fixtures and equipment, an
assignment of a $500,000 life insurance policy on the president and the
president's personal guaranty. In June 1997, the line-of-credit agreement was
extended to June of 1999. At December 31, 1995 and 1996, there were no
outstanding draws against this line of credit.
The line-of-credit agreement with the bank contains various covenants
pertaining to working capital, certain financial ratios and net worth. At
December 31, 1996, the Company was in compliance with all such covenants.
The Company has a term note payable with a bank, secured by a Company
vehicle. The principal is payable monthly in the amount of $1,000 plus interest
at 9.75 percent. At December 31, 1996, a balance of $5,000 was due and payable
within one year.
The Company has an obligation to a related party for the purchase of the
rights to the name "Regional Electric Systems" requiring monthly payments of
principal and interest, at 8.25 percent, of $6,000 through May 1999. At December
31, 1996, a balance of $60,000 was due and payable within one year.
F-41
<PAGE> 108
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The maturities of long-term debt as of December 31, 1996, are as follows
(in thousands):
<TABLE>
<S> <C>
Year ending December 31 --
1997................................................... $294
1998................................................... 238
1999................................................... 93
2000................................................... 2
----
$627
====
</TABLE>
6. LEASES:
Obligations Under Capital Leases
The Company leases certain vehicles and construction equipment under leases
classified as capital leases. The construction equipment lease is with an
officer of the Company. The following is a schedule showing the future minimum
lease payments under capital leases by years and the present value of the
minimum lease payments as of December 31, 1996 (in thousands):
<TABLE>
<S> <C>
Year ending December 31 --
1997...................................................... $260
1998...................................................... 189
1999...................................................... 68
2000...................................................... 2
----
Total minimum lease payments...................... 519
Less -- Amounts representing interest....................... 50
----
Present value of minimum lease payments........... $469
====
</TABLE>
Operating Leases
The Company leases a building which is owned by the principal stockholder
of the Company. The lease is classified as an operating lease and expires on
October 31, 1997. The rent paid under this related-party lease was approximately
$--, $26,000 and $156,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. The Company also leases a building which is owned by an officer of
the Company. This lease commenced during 1996. The lease is classified as an
operating lease and expires on May 31, 1999. The Company has an option to renew
the lease for one additional two-year term at a reduced lease rate. The rent
paid under this related-party lease was approximately $35,000 for the year ended
December 31, 1996. The Company also rents certain office equipment and warehouse
space under several operating lease agreements which vary in length and terms.
The rent paid under these lease agreements was approximately $3,000, $8,000 and
$45,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
Future minimum lease payments under these noncancelable operating leases
are as follows (in thousands):
<TABLE>
<S> <C>
Year Ended December 31 --
1997................................................... $231
1998................................................... 83
1999................................................... 26
Thereafter............................................. --
----
$340
====
</TABLE>
F-42
<PAGE> 109
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED-PARTY TRANSACTIONS:
The Company has entered into operating and capital lease transactions with
related parties as discussed in Note 6.
CIMA Services, Inc. (CIMA) and RES are related parties due to the ownership
by the Company's president of 49% and 1%, respectively, of these companies'
capital stock.
The related-party transactions and balances are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------ ------
<S> <C> <C>
Accounts receivable from CIMA............................... $ 2 $ 208
Interest receivable from CIMA and officer................... 1 --
Accounts payable to CIMA.................................... 23 633
Contract revenues from CIMA................................. 1,116 1,257
Material purchases from CIMA................................ 812 1,080
Interest income received from CIMA and officers............. 38 14
Minority interest in net income of RES...................... -- 3
Liability attributable to minority interest................. -- 3
Capital lease obligation to an officer of RES............... -- 116
Payments under capital lease obligation with an officer of
RES....................................................... -- 31
Payments under operating leases with officers of the
Company................................................... 26 232
</TABLE>
Additionally, the Company has guaranteed an officer note at a bank with an
outstanding balance of approximately $298,000 at December 31, 1996. The
Company's property and equipment has been cross-pledged as collateral.
8. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution profit-sharing plan that covers all
employees meeting certain age and service requirements. Company contributions to
the plan are at the discretion of the board of directors. Contributions to the
plan charged to operations in 1994, 1995 and 1996 were $186,000, $450,000 and
$789,000, respectively.
9. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, a line of credit, notes payable and
long-term debt. The Company believes that the carrying values of these
instruments on the accompanying balance sheets approximates their fair values.
10. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including workers'
compensation, business auto liability, commercial general liability, property
and an umbrella policy. The Company has not incurred significant uninsured
losses on any of these items.
F-43
<PAGE> 110
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales greater than 10 percent of total sales to three major
customers (comprising approximately 20%, 12% and 11% of total sales), two major
customers (comprising approximately 15% and 13% of total sales) and two major
customers (comprising approximately 20% and 18% of total sales) during the years
ended December 31, 1994, 1995 and 1996, respectively.
In addition, the Company grants credit, generally without collateral, to
its customers, which are usually general contractors located primarily in the
Dallas-Fort Worth, Texas area. Consequently, the Company is subject to potential
credit risk related to changes in business and economic factors within the
Dallas-Fort Worth, Texas, area. However, management believes that its contract
acceptance, billing and collection policies are adequate to minimize the
potential credit risk.
Cash and Cash Equivalents
The Company routinely maintains cash balances in financial institutions in
excess of federally insured limits.
12. BACKCHARGE CLAIMS:
It is the Company's policy to recognize income from backcharge claims only
when a definitive agreement has been reached and collection is reasonably
assured. In December 1996, the Company reached a settlement on one of its
backcharge claims related to prior periods for approximately $856,000 which is
reflected in the accompanying consolidated statement of operations for the year
ended December 31, 1996, as an increase in revenues and as a component of other
receivables in the accompanying consolidated balance sheet at December 31, 1996.
13. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of an initial
public offering (the Offering) of additional common stock by IES. In addition,
the key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.
F-44
<PAGE> 111
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BW Consolidated, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of BW
Consolidated, Inc., a Texas corporation, and Subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of operations, cash flows
and stockholders' equity for each of the three years in the period ended
December 31, 1996. 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 BW Consolidated, Inc. and
Subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 15, 1997
F-45
<PAGE> 112
BW CONSOLIDATED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,180 $ 507 $ 782
Accounts receivable --
Trade, net of allowance of $82, $119 and $120,
respectively......................................... 3,178 4,718 4,761
Retainage.............................................. 471 768 695
Other receivables...................................... 62 53 65
Notes receivable from stockholders........................ 42 -- 394
Inventories............................................... 461 557 728
Costs and estimated earnings in excess of billings........ 186 182 122
Prepaid expenses and other current assets................. 5 10 36
------- ------- -------
Total current assets.............................. 5,585 6,795 7,583
PROPERTY AND EQUIPMENT, net................................. 3,925 4,609 5,266
NOTE RECEIVABLE FROM STOCKHOLDERS, net of current portion... 470 -- --
OTHER ASSETS................................................ 21 27 45
------- ------- -------
Total assets...................................... $10,001 $11,431 $12,894
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 214 $ 94 $ 108
Advances outstanding under lines of credit................ -- -- 340
Accounts payable and accrued expenses..................... 2,318 2,131 2,436
Income taxes payable...................................... 130 166 --
Billings in excess of costs and estimated earnings........ 606 749 963
------- ------- -------
Total current liabilities......................... 3,268 3,140 3,847
LONG-TERM DEBT, net of current maturities................... 951 861 973
DEFERRED TAXES.............................................. 180 -- --
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY................ -- 209 426
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 2,000,000, 500,000 and 500,000
shares authorized, respectively; 31,598, 20,000 and
20,000 shares issued and outstanding, respectively..... 32 20 20
Additional paid-in capital................................ 566 205 205
Retained earnings......................................... 5,965 6,996 7,423
Treasury stock, 5,088 shares, at cost..................... (961) -- --
------- ------- -------
Total stockholders' equity........................ 5,602 7,221 7,648
------- ------- -------
Total liabilities and stockholders' equity........ $10,001 $11,431 $12,894
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE> 113
BW CONSOLIDATED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $23,168 $27,730 $33,023 $16,680 $16,311
COST OF SERVICES (including depreciation).... 17,967 20,964 25,017 12,602 12,717
------- ------- ------- ------- -------
Gross profit....................... 5,201 6,766 8,006 4,078 3,594
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................... 3,091 3,637 3,686 1,816 1,859
------- ------- ------- ------- -------
Income from operations............. 2,110 3,129 4,320 2,262 1,735
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense........................... (135) (120) (97) (49) (56)
Other...................................... 97 263 174 107 96
------- ------- ------- ------- -------
Other income (expense), net........ (38) 143 77 58 40
------- ------- ------- ------- -------
NET INCOME BEFORE INCOME TAX AND MINORITY
INTEREST................................... 2,072 3,272 4,397 2,320 1,775
INCOME TAX EXPENSE (BENEFIT)................. 772 1,238 (28) (103) 33
------- ------- ------- ------- -------
NET INCOME BEFORE MINORITY INTEREST.......... 1,300 2,034 4,425 2,423 1,742
MINORITY INTEREST EXPENSE.................... -- -- 250 151 197
------- ------- ------- ------- -------
NET INCOME................................... $ 1,300 $ 2,034 $ 4,175 $ 2,272 $ 1,545
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-47
<PAGE> 114
BW CONSOLIDATED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- -----------------
1994 1995 1996 1996 1997
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $1,300 $ 2,034 $ 4,175 $ 2,272 $ 1,545
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization........................... 292 329 426 191 265
Loss (gain) on sale of property and equipment........... 9 (54) (17) (18) (9)
Deferred tax benefit.................................... -- -- (180) (180) --
Minority interest expense............................... -- -- 250 151 197
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable................................... (459) (244) (1,828) (1,255) 18
Inventories........................................... (7) 131 (96) (294) (171)
Costs and estimated earnings in excess of billings on
uncompleted contracts.............................. 80 (13) 4 (20) 60
Prepaid expenses and other current assets............. (2) 1 (11) (6) (26)
Increase (decrease) in --
Accounts payable and accrued expenses................. (153) 141 (187) 550 306
Billings in excess of costs and estimated earnings on
uncompleted contracts.............................. (51) 282 143 33 214
Unearned revenue and other current liabilities........ 34 41 36 (51) (166)
------ ------- ------- ------- -------
Net cash provided by operating activities.......... 1,043 2,648 2,715 1,373 2,233
------ ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 4 141 66 60 18
Stockholder receivable.................................... -- (512) 512 512 (394)
Other assets.............................................. -- -- -- -- (20)
Additions of property and equipment....................... (485) (1,001) (1,160) (861) (788)
------ ------- ------- ------- -------
Net cash used in investing activities.............. (481) (1,372) (582) (289) (1,184)
------ ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of short-term debt............................. 643 515 1,832 517 570
Borrowings of long-term debt.............................. -- -- 10 -- 39
Repayments of short-term debt............................. (643) (515) (1,832) (302) (230)
Repayments of long-term debt.............................. (377) (310) (219) (135) (55)
Stockholder distributions................................. -- (32) (2,556) (1,503) (1,118)
Minority interest contributions........................... -- -- 85 85 85
Minority interest distributions........................... -- -- (126) (41) (65)
Purchase of treasury stock................................ -- (961) -- -- --
------ ------- ------- ------- -------
Net cash used in financing activities.............. (377) (1,303) (2,806) (1,379) (774)
------ ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 185 (27) (673) (295) 275
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,022 1,207 1,180 1,180 507
------ ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $1,207 $ 1,180 $ 507 $ 885 $ 782
====== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest................................................ $ 137 $ 119 $ 97 $ 49 $ 56
Income taxes............................................ 744 1,197 132 -- 198
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-48
<PAGE> 115
BW CONSOLIDATED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------- ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........ 31,151 $ 31 $ 512 $ 2,663 $ -- $ 3,206
Sale of common stock............ 261 1 30 -- -- 31
Net income...................... -- -- -- 1,300 -- 1,300
------- ---- ----- ------- ----- -------
BALANCE, December 31, 1994........ 31,412 32 542 3,963 -- 4,537
Sale of common stock............ 186 -- 24 -- -- 24
Net income...................... -- -- -- 2,034 -- 2,034
Dividends paid.................. -- -- -- (32) -- (32)
Purchase of treasury stock...... -- -- -- -- (961) (961)
------- ---- ----- ------- ----- -------
BALANCE, December 31, 1995........ 31,598 32 566 5,965 (961) 5,602
Shares retired upon merger...... (26,510) (27) 154 (127) -- --
Treasury stock canceled......... (5,088) (5) (515) (441) 961 --
Shares issued................... 1,000 10 -- (10) -- --
Stock split 20 to 1 and
recapitalization (Note 1).... 19,000 10 -- (10) -- --
Distributions to stockholders... -- -- -- (2,556) -- (2,556)
Net income...................... -- -- -- 4,175 -- 4,175
------- ---- ----- ------- ----- -------
BALANCE, December 31, 1996........ 20,000 20 205 6,996 -- 7,221
Distributions to stockholders
(unaudited).................. -- -- -- (1,118) -- (1,118)
Net income (unaudited).......... -- -- -- 1,545 -- 1,545
------- ---- ----- ------- ----- -------
BALANCE, June 30, 1997
(unaudited)..................... 20,000 $ 20 $ 205 $ 7,423 $ -- $ 7,648
======= ==== ===== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-49
<PAGE> 116
BW CONSOLIDATED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
BW Consolidated, Inc. (the Company), a Nevada S Corporation, and
Subsidiaries, two of which are Texas limited partnerships, focuses on providing
electrical system installation and repair services primarily for residential and
mid-sized to large commercial facilities. The Company performs the majority of
its contract work under fixed price contracts with contract terms generally
ranging from three to 24 months. The Company performs the majority of its work
in Texas.
In January 1996, the original parent company, Bexar Enterprises, Inc., a
Nevada C Corporation, was merged with BW Investments, Inc., Bexar Electric
Company, Inc., and Calhoun Electric Company, Inc., all wholly owned
subsidiaries. The survivor of the merger was Calhoun Electric Company, Inc., a
Texas S Corporation, and its 90 percent owned subsidiary, Bexar Electric
Company, Ltd. (BEC), a Texas limited partnership. The 10 percent minority
interest in the partnership was purchased by employees of Bexar Electric
Company, Ltd. An additional 10 percent minority interest in Bexar Electric
Company, Ltd. (a Texas limited partnership), was purchased by employees of the
Company in January 1997.
In May 1997, Calhoun Electric Company, Inc., a Texas S Corporation,
transferred its assets and liabilities to Calhoun Electric Company, Ltd. (CEC),
a Texas limited partnership. Subsequent to this transfer, Calhoun Electric
Company, Inc., a Texas S Corporation, reorganized as a Nevada S Corporation and
changed its name to BW Consolidated, Inc.
The accompanying financial statements present BW Consolidated, Inc. (and
its predecessors), together with its majority-owned subsidiaries on a
consolidated basis. All significant intercompany activity has been eliminated in
consolidation. Additionally, minority interests in subsidiaries of BW
Consolidated, Inc. have been reflected as "Minority Interest" in the
accompanying consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less when purchased to be cash equivalents.
Supplemental Cash Flow Information (in thousands)
The Company had the following noncash investing and financing activities
for the years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Property and equipment purchased with direct financing...... $-- $25 $--
Like-kind exchange of equipment............................. $-- $15 $ 6
Employee Stock Option Plan contribution through stock
distribution.............................................. $30 $25 $--
</TABLE>
F-50
<PAGE> 117
BW CONSOLIDATED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
average cost method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the consolidated statements of operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
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. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
their effects 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 balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts,"' represents billings in excess of revenues
recognized.
Warranty Costs
The Company warrants labor for the first year after installation of new
electrical systems and servicing of existing electrical systems. A reserve for
warranty costs is recorded based upon the historical level of warranty claims
and management's estimate of future costs.
Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.
Income Taxes
The Company has elected S Corporation status effective January 1, 1996, as
defined by the Internal Revenue Code, whereby the Company itself is not subject
to taxation for federal purposes. Under
F-51
<PAGE> 118
BW CONSOLIDATED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
S Corporation status, the stockholders report their share of the Company's
taxable earnings or losses in their personal tax returns. Consequently, the
accompanying financial statements of the Company do not include a provision for
current or deferred income taxes (see Note 4). The Company intends to terminate
its S Corporation status concurrently with the effective date of the Offering
(see Note 1).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this footnote and Note 10 for discussion of
significant estimates reflected in the Company's financial statements.
New Accounting Pronouncements
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such property is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
property and its carrying value. Adoption of this standard did not have a
material effect on the financial position or results of operations of the
Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ---------------
IN YEARS 1995 1996
------------ ------ ------
<S> <C> <C> <C>
Transportation equipment................................ 10 $2,783 $3,446
Machinery and equipment................................. 5-10 709 673
Land and buildings...................................... 40 2,592 2,592
Furniture, fixtures and office equipment................ 3-15 680 926
------ ------
6,764 7,637
Less -- Accumulated depreciation and amortization....... (2,839) (3,028)
------ ------
Property and equipment, net................... $3,925 $4,609
====== ======
</TABLE>
4. DETAIL OF CERTAIN CONSOLIDATED BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Balance at beginning of period.............................. $ 80 $ 82
Additions to costs and expenses............................. 27 127
Deductions for uncollectible receivables written off and
recoveries................................................ (25) (90)
---- ----
Balance at end of period.................................. $ 82 $119
==== ====
</TABLE>
F-52
<PAGE> 119
BW CONSOLIDATED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Accounts payable, trade..................................... $ 1,134 $ 1,191
Wages....................................................... 700 407
Insurance................................................... 238 146
Contract costs.............................................. 141 207
Warranty reserve............................................ 83 99
Other....................................................... 22 81
------- -------
Total accounts payable and accrued expenses....... $ 2,318 $ 2,131
======= =======
</TABLE>
Electrical system installation contracts in progress are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Amended contract amount..................................... $15,945 $18,918
Revenue recognized to date.................................. 7,953 11,105
------- -------
Unearned contract amount, backlog........................... $ 7,992 $ 7,813
======= =======
Costs incurred on uncompleted contracts..................... $ 5,647 $ 8,298
Estimated earnings.......................................... 2,306 2,807
------- -------
Total contract revenue earned to date............. 7,953 11,105
Less -- Billings to date.................................... 8,403 11,711
------- -------
Net overbilled open contracts............................... (450) (606)
Unbilled completed contracts................................ 30 39
------- -------
$ (420) $ (567)
======= =======
Costs and estimated earnings in excess of billings.......... $ 186 $ 182
Billings in excess of costs and estimated earnings.......... (606) (749)
------- -------
$ (420) $ (567)
======= =======
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
----- ----
<S> <C> <C>
Note payable to a bank, interest at prime plus .75 percent
(prime rate at 8.25 percent at December 31, 1996),
principal and interest due monthly of $10 maturing in
March 2004, secured by certain real estate................ $ 678 $632
Note payable to a corporation, interest at 7 percent,
principal and interest due monthly of $2 maturing in July
2004, secured by certain real estate...................... 140 128
Note payable to a bank, interest at prime, principal and
interest due monthly of $3, maturing in November 2003,
secured by certain real estate............................ 205 190
Notes payable to manufacturers, interest at 7.9 percent,
principal and interest due monthly of $3, maturing in
December 1996 and May 1997, secured by certain
equipment................................................. 43 5
Notes payable to a bank, interest at 8.25 percent, principal
and interest due monthly of $6, maturing in July and
October 1996, secured by certain vehicles and equipment... 50 --
Various notes payable to a bank, interest ranging from 7.9
percent to 8.25 percent, principal and interest due
monthly of $7, maturing in July through November 1996,
secured by certain vehicles, machinery and office
equipment................................................. 49 --
----- ----
Total debt........................................ 1,165 955
Less -- current maturities.................................. 214 94
----- ----
Long-term debt less current maturities...................... $ 951 $861
===== ====
</TABLE>
F-53
<PAGE> 120
BW CONSOLIDATED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The maturities of long-term debt at December 31, 1996, are as follows (in
thousands):
<TABLE>
<S> <C>
1997........................................................ $ 94
1998........................................................ 98
1999........................................................ 106
2000........................................................ 116
2001........................................................ 127
Thereafter.................................................. 414
----
$955
====
</TABLE>
The Company currently has two lines of credit established. The first line
of credit for $750,000, secured by BEC accounts receivable and inventory,
requires monthly payments of interest at 1 percent over the prime rate. At
December 31, 1995 and 1996, respectively, there were no advances outstanding
against the line and the full $750,000 was available. The note maturity date is
May 1997. The second line of credit for $300,000, secured by CEC accounts
receivable, inventory, equipment and trucks, requires monthly payments of
interest at percent over the prime rate. At December 31, 1995 and 1996,
respectively, there were no advances outstanding against the line and the full
$300,000 was available. The note maturity date is March 1997.
The Company has an irrevocable letter of credit from a bank in the amount
of $199,000 in favor of the Company's workers' compensation carrier. The
expiration date is July 1, 1997. Security for this letter of credit consists of
the assignment of $125,000 in certificates of deposit, a second lien on real
estate and "rolling stock"' of the Company, and the personal guarantee of the
major stockholder.
6. LEASES:
The Company leases undeveloped property from the majority stockholder for
storage of equipment and trailers. The lease was entered into on July 1, 1994,
and expired on June 30, 1997, and is currently on a month-to-month basis. The
consideration for this lease was $8,000, $17,000 and $19,000 in 1994, 1995 and
1996, respectively. The future minimum lease payments under these noncancelable
operating leases for the year ended December 31, 1997, are $10,000.
7. INCOME TAXES (IN THOUSANDS):
Federal and State income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994 1995
---- ------
<S> <C> <C>
Federal --
Current.................................................. $663 $1,118
Deferred................................................. 26 (45)
State --
Current.................................................. 83 157
Deferred................................................. -- 8
---- ------
$772 $1,238
==== ======
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 34% to income before
provision for income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994 1995
---- ------
<S> <C> <C>
Provision at the statutory rate............................ $704 $1,112
State income tax, net of benefit for federal deduction..... 54 107
Other...................................................... 14 19
---- ------
$772 $1,238
==== ======
</TABLE>
F-54
<PAGE> 121
BW CONSOLIDATED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred income tax assets --
Allowance for Bad Debt.................................... $ 4
Accrued Liabilities and Expenses.......................... 122
------
Total deferred income tax asset................... 126
Deferred income tax liabilities --
Property and equipment.................................... (306)
Total deferred income tax liability............... (306)
------
Net deferred income tax liability................. $ (180)
======
</TABLE>
The net deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred tax assets --
Current................................................... $ 126
Long-term................................................. --
-----
Total............................................. $ 126
=====
Deferred tax liabilities --
Current................................................... --
Long-term................................................. (306)
-----
Total............................................. $(306)
=====
</TABLE>
Effective January 1, 1996, the Company elected S Corporation status for
Calhoun Electric and partnership status for Bexar Electric. The Company will no
longer be directly responsible for any deferred tax liability which might exist.
The removal of the deferred tax liability which existed as of December 31, 1995,
is recognized in the 1996 consolidated statement of operations (see Note 2).
8. RELATED-PARTY TRANSACTIONS:
Notes receivable from a stockholder consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Note receivable, secured by a second lien on real estate,
interest at 7.5 percent, payable in 60 quarterly
installments of $3........................................ $107 $ --
Note receivable, unsecured, interest at 7.45 percent,
payments due annually in January of 15 percent of
principal plus accrued interest, balance due in January
2000...................................................... 405 --
---- ----
Total notes receivable from a stockholder......... 512 --
Current portion............................................. 42 --
---- ----
Noncurrent portion.......................................... $470 $ --
==== ====
</TABLE>
The Company recognized interest income from a stockholder of $--, $30,000
and $13,000 in 1994, 1995 and 1996, respectively.
F-55
<PAGE> 122
BW CONSOLIDATED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EQUITY:
In 1991, the Company adopted an employee stock ownership plan (ESOP) for
the benefit of the Company's employees. The plan covered substantially all
employees of the Company. The Company's contributions to the plan are at the
discretion of the board of directors, but may not exceed the maximum allowable
deduction permitted under the Internal Revenue Code at the time of the
contribution. Under this ESOP plan, employees cannot make contributions to the
plan. The Company made a contribution of $35,000 and $25,000 in 1994 and 1995,
respectively. Effective December 8, 1995, the Company has requested and received
approval from the Internal Revenue Service to terminate the ESOP plan. In
accordance with the termination of the ESOP, the Company repurchased as treasury
stock 5,088 shares for $961,000.
In 1996, the Company sold a minority interest in the limited partnership of
Bexar Electric to certain employees of the Company. The minority interest is
considered a limited partner; the minority interest held 10 percent and 20
percent (unaudited) at December 31, 1996, and June 30, 1997, respectively.
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, notes receivable from stockholders, accounts payable, a
line of credit, notes payable and long-term debt. The Company believes that the
carrying value of these instruments on the accompanying balance sheets
approximates their fair value.
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant uninsured losses on any of these items.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales of approximately 11 percent of total sales to one
major customer during the year ended December 31, 1996.
The Company had accounts receivable balances of approximately 15 percent
and 14 percent of total accounts receivable from two major customers as of
December 31, 1996.
The Company had cash and cash equivalents in financial institutions which
exceeded the federally insured limits by $911,000, $269,000 and $437,000
(unaudited) at December 31, 1995 and 1996, and June 30, 1997, respectively.
In addition, the Company grants credit, generally without collateral, to
its customers, which are primarily general contractors, located in Central and
South Texas. Consequently, the Company is subject to potential credit risk
related to changes in business and economic factors within the state of Texas.
However, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk.
F-56
<PAGE> 123
BW CONSOLIDATED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of an initial
public offering (the Offering) of additional common stock by IES. In addition,
the key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment. Additionally, in October 1997, the majority shareholder of the
Company transferred 15 percent of its interest in CEC to a former shareholder of
Calhoun Electric Company, Inc. and current employer of CEC.
F-57
<PAGE> 124
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Muth Electric, Inc.:
We have audited the accompanying balance sheets of Muth Electric, Inc., a
South Dakota corporation, as of December 31, 1995 and 1996, and the related
statements of operations, cash flows and stockholder's equity for each of the
three years in the period ended December 31, 1996. 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 Muth Electric, Inc., as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 15, 1997
F-58
<PAGE> 125
MUTH ELECTRIC, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 53 $ 82 $ 9
Accounts receivable --
Trade, net of allowance of $55, $63 and 80,
respectively......................................... 1,718 2,556 2,524
Retainage.............................................. 417 212 459
Related party.......................................... -- 74 74
Inventories............................................... 750 820 919
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 545 436 582
Prepaid expenses and other current assets................. 150 140 159
------ ------ ------
Total current assets.............................. 3,633 4,320 4,726
PROPERTY AND EQUIPMENT, net................................. 946 1,140 1,080
------ ------ ------
Total assets...................................... $4,579 $5,460 $5,806
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable............................................. $ -- $ 530 $ 363
Accounts payable and accrued expenses..................... 1,621 1,680 2,055
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 305 180 481
------ ------ ------
Total current liabilities......................... 1,926 2,390 2,899
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $100 par value, 3,000 shares authorized, 737
shares issued and outstanding.......................... 74 74 74
Retained earnings......................................... 2,579 2,996 2,833
------ ------ ------
Total stockholder's equity........................ 2,653 3,070 2,907
------ ------ ------
Total liabilities and stockholder's equity........ $4,579 $5,460 $5,806
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 126
MUTH ELECTRIC, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------------- ---------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES....................................... $13,466 $16,012 $16,830 $8,065 $8,308
COST OF SERVICES (including depreciation)...... 9,805 12,189 12,834 6,134 6,660
------- ------- ------- ------ ------
Gross profit......................... 3,661 3,823 3,996 1,931 1,648
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES... 2,678 2,923 2,957 1,455 1,567
------- ------- ------- ------ ------
Income from operations............... 983 900 1,039 476 81
------- ------- ------- ------ ------
OTHER INCOME (EXPENSE):
Interest income (expense).................... 6 11 (24) (13) (14)
Other........................................ (79) (95) 27 18 20
------- ------- ------- ------ ------
Other income (expense), net.......... (73) (84) 3 5 6
------- ------- ------- ------ ------
NET INCOME..................................... $ 910 $ 816 $ 1,042 $ 481 $ 87
======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE> 127
MUTH ELECTRIC, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------ --------------
1994 1995 1996 1996 1997
----- ----- ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $ 910 $ 816 $1,042 $ 481 $ 87
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities --
Depreciation and amortization............. 142 185 224 107 117
Loss (gain) on sale of property and
equipment............................... (6) 16 (28) (16) (13)
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable.................. (260) 70 (674) (592) (544)
Inventories.......................... 31 (38) (70) (63) (99)
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... 579 (291) 70 96 180
Prepaid expenses and other current
assets............................. (41) 5 10 10 (19)
Increase (decrease) in --
Accounts payable and accrued
expenses........................... (478) 525 59 (82) 375
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (252) (95) (119) 41 304
----- ----- ------ ----- -----
Net cash provided by (used in)
operating activities............... 625 1,193 514 (18) 388
----- ----- ------ ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment................................. 11 5 53 21 21
Additions of property and equipment.......... (201) (560) (443) (257) (65)
----- ----- ------ ----- -----
Net cash used in investing
activities......................... (190) (555) (390) (236) (44)
----- ----- ------ ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of line of credit................. -- -- -- 460 --
Payments of long-term loan receivable........ 390 -- 530 -- (167)
Distributions to stockholders................ (715) (722) (625) (250) (250)
----- ----- ------ ----- -----
Net cash provided by (used in)
financing activities............... (325) (722) (95) 210 (417)
----- ----- ------ ----- -----
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 110 (84) 29 (44) (73)
CASH AND CASH EQUIVALENTS, beginning of
period....................................... 27 137 53 53 82
----- ----- ------ ----- -----
CASH AND CASH EQUIVALENTS, end of period....... $ 137 $ 53 $ 82 $ 9 $ 9
===== ===== ====== ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest.................................. $ 9 $ 4 $ 33 $ 15 $ 21
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE> 128
MUTH ELECTRIC, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993......................... 737 $74 $2,290 $2,364
Distributions to stockholders.................... -- -- (715) (715)
Net income....................................... -- -- 910 910
--- --- ------ ------
BALANCE, December 31, 1994......................... 737 74 2,485 2,559
Distributions to stockholders.................... -- -- (722) (722)
Net income....................................... -- -- 816 816
--- --- ------ ------
BALANCE, December 31, 1995......................... 737 74 2,579 2,653
Distributions to stockholders.................... -- -- (625) (625)
Net income....................................... -- -- 1,042 1,042
--- --- ------ ------
BALANCE, December 31, 1996......................... 737 74 2,996 3,070
Distributions to stockholders (unaudited)........ -- -- (250) (250)
Net income (unaudited)........................... -- -- 87 87
--- --- ------ ------
BALANCE, June 30, 1997 (unaudited)................. 737 $74 $2,833 $2,907
=== === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE> 129
MUTH ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Muth Electric, Inc. (the Company), a South Dakota corporation, focuses on
providing electrical system installation and repair services primarily for
residential and commercial facilities. The Company performs the majority of its
contract work under fixed-price contracts with contract terms generally ranging
from one to 12 months. The Company performs the majority of its work in South
Dakota and surrounding states.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the estimated useful
life of the asset. Depreciation expense was approximately $185,000 and $224,000
for the years ended December 31, 1995 and 1996, respectively.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor and depreciation
costs. Provisions for the total estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects 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.
F-63
<PAGE> 130
MUTH ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
The Company warrants labor and materials for the first year after
installation of new electrical systems. A reserve for warranty costs is recorded
based upon the historical level of warranty claims and management's estimate of
future costs.
Accounts Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable, as well as provides a general reserve for potential unknown
adjustments.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company itself is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of the
Company's taxable earnings or losses in their personal tax returns.
Consequently, the accompanying financial statements of the Company do not
include a provision for current or deferred income taxes. The Company intends to
terminate its S Corporation status concurrently with the effective date of the
Offering.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this footnote and Note 9 for discussion of
significant estimates reflected in the Company's financial statements.
New Accounting Pronouncement
Effective November 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if an impairment of such property is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such property and its carrying value. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
F-64
<PAGE> 131
MUTH ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -----------------
IN YEARS 1995 1996
------------ ------- -------
<S> <C> <C> <C>
Transportation equipment.............................. 5 $ 806 $ 868
Machinery and equipment............................... 7 466 635
Leasehold improvements................................ 40 409 479
Furniture and fixtures................................ 5 403 425
------- -------
2,084 2,407
Less -- Accumulated depreciation and amortization..... (1,138) (1,267)
------- -------
Property and equipment, net................. $ 946 $ 1,140
======= =======
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
---- ----
<S> <C> <C>
Balance at beginning of period.............................. $60 $55
Additions (deductions) to costs and expenses................ (5) 8
--- ---
Balance at end of period.................................... $55 $63
=== ===
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Accounts payable, trade..................................... $ 819 $ 757
Accrued compensation and benefits........................... 290 353
Other accrued expenses...................................... 512 570
------ ------
$1,621 $1,680
====== ======
</TABLE>
F-65
<PAGE> 132
MUTH ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Electrical system installation contracts in progress are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- -------
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 9,215 $ 7,159
Estimated earnings, net of losses........................... 1,914 1,277
-------- -------
11,129 8,436
Less -- Billings to date.................................... (10,889) (8,180)
-------- -------
$ 240 $ 256
======== =======
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 545 $ 436
Less: Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (305) (180)
-------- -------
$ 240 $ 256
======== =======
</TABLE>
5. LINE OF CREDIT:
The Company has three lines of credit with a bank totaling $1,140,000 of
available credit. The line of credit expires January 1998 and bears interest at
9 percent. The line of credit is unsecured.
6. EMPLOYEE BENEFIT PLAN:
The Company has a defined 401(k) contribution profit-sharing plan. The Plan
provides for the Company to match one-half of the first 5 percent contributed by
each employee. Total contributions by the Company under the plan were
approximately $83,000 and $93,000 for the years ending December 31, 1995 and
1996, respectively. The Company may also make discretionary contributions. The
Company declared discretionary contributions of $70,000 and $65,000 for the
years ended December 31, 1995 and 1996, respectively, and had accrued
approximately $74,000 at December 31, 1996, relating to all contributions to be
funded in the subsequent fiscal year.
7. RELATED-PARTY TRANSACTIONS:
The Company periodically will obtain loans from the stockholder to meet
current cash needs. The Company will also loan out excess funds to the
stockholder. Loans neither to nor from the stockholder are charged interest. A
total of $93,000 was payable to a stockholder at June 30, 1997.
The Company has an outstanding trade receivable in the amount of $74,000 to
a company owned by a member of the stockholder's family.
The Company also provides real estate management services to a company
owned by the stockholder.
The Company leases facilities from the Company's stockholder. The leases
expire annually. The rent paid under these related-party leases was
approximately $95,000 and $118,000 for the years ended December 31, 1995 and
1996, respectively.
8. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, lines of credit, notes payable and
long-term debt. The Company believes that the carrying value of these
instruments on the accompanying balance sheets approximates their fair value.
F-66
<PAGE> 133
MUTH ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, workers compensation and an umbrella policy.
The Company has not incurred significant uninsured losses on any of these items.
The Company is self-insured for medical claims up to $20,000 per year per
covered individual. Claims in excess of these amounts are covered by a stop-loss
policy. The Company has recorded reserves for its portion of self-insured claims
based on estimated claims incurred through December 31, 1995 and 1996.
10. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company did not have sales greater than 10 percent of total sales to
any one customer during the years ended December 31, 1994, 1995 and 1996.
In addition, the Company grants credit, generally without collateral, to
its customers located primarily in the Midwest region. Consequently, the Company
is subject to potential credit risk related to changes in business and economic
factors within the Midwest. However, management believes that its contract
acceptance, billing and collection policies are adequate to minimize the
potential credit risk.
11. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of an initial
public offering (the Offering) of additional common stock by IES. In addition,
the key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.
F-67
<PAGE> 134
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pollock Electric Inc.:
We have audited the accompanying balance sheets of Pollock Electric Inc., a
Texas Corporation, as of October 31, 1995 and 1996, and the related statements
of operations, cash flows and stockholder's equity for the years then ended.
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 Pollock Electric Inc., as of
October 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 15, 1997
F-68
<PAGE> 135
POLLOCK ELECTRIC INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 302 $ 222 $ 15
Accounts receivable --
Trade, net of allowance of $96, $178 and $188,
respectively......................................... 2,204 4,030 3,703
Retainage.............................................. 99 566 439
Other receivables...................................... 40 4 10
Inventories............................................... -- -- 18
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 399 202 491
Deferred tax asset........................................ 161 263 303
Prepaid expenses and other current assets................. 49 115 236
------ ------ ------
Total current assets.............................. 3,254 5,402 5,215
PROPERTY AND EQUIPMENT, net................................. 280 341 379
------ ------ ------
Total assets...................................... $3,534 $5,743 $5,594
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable and capital lease obligations............... $ 28 $ 67 $ 219
Advances outstanding under line of credit................. 625 1,350 1,385
Accounts payable and accrued expenses..................... 1,378 3,013 2,664
Income taxes payable...................................... 354 181 151
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 234 317 442
Unearned revenue and other current liabilities............ 14 13 25
------ ------ ------
Total current liabilities......................... 2,633 4,941 4,886
CAPITAL LEASE OBLIGATIONS, net of current portion........... 75 75 73
DEFERRED TAX LIABILITY...................................... 20 20 21
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 1,000,000 shares authorized,
1,000 shares issued and outstanding.................... 1 1 1
Additional paid-in capital................................ 9 9 9
Retained earnings......................................... 796 697 604
------ ------ ------
Total stockholder's equity........................ 806 707 614
------ ------ ------
Total liabilities and stockholder's equity........ $3,534 $5,743 $5,594
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE> 136
POLLOCK ELECTRIC INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
OCTOBER 31, ENDED JUNE 30,
------------------ -----------------
1995 1996 1996 1997
------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................................. $13,002 $15,816 $8,160 $11,273
COST OF SERVICES (including depreciation)............ 10,602 13,534 7,242 9,480
------- ------- ------ -------
Gross profit............................... 2,400 2,282 918 1,793
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 2,149 2,463 1,536 1,817
------- ------- ------ -------
Income (loss) from operations.............. 251 (181) (618) (24)
------- ------- ------ -------
OTHER INCOME (EXPENSE):
Interest expense................................... (77) (104) (61) (108)
Other.............................................. -- 156 5 --
------- ------- ------ -------
Other income (expense), net................ (77) 52 (56) (108)
------- ------- ------ -------
INCOME (LOSS) BEFORE INCOME TAXES.................... 174 (129) (674) (132)
PROVISION (BENEFIT) FOR INCOME TAXES................. 82 (30) (242) (39)
------- ------- ------ -------
NET INCOME (LOSS).................................... $ 92 $ (99) $ (432) $ (93)
======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE> 137
POLLOCK ELECTRIC INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
OCTOBER 31, ENDED JUNE 30,
--------------- ---------------
1995 1996 1996 1997
----- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 92 $ (99) $(432) $ (93)
Adjustments to reconcile net income to net cash used in
operating activities --
Depreciation and amortization......................... 64 107 51 77
Deferred income taxes................................. (141) (103) (103) (39)
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable.............................. 577 (2,257) (255) 448
Inventories...................................... -- -- -- (18)
Costs and estimated earnings in excess of
billings on uncompleted contracts.............. (164) 197 130 (289)
Prepaid expenses and other current assets........ (30) (41) (31) (121)
Increase (decrease) in --
Accounts payable and accrued expenses............ (546) 1,635 (154) (349)
Income taxes payable............................. 170 (172) (344) (31)
Billings in excess of costs and estimated
earnings on uncompleted contracts.............. 9 83 221 125
Unearned revenue and other current liabilities... (31) (1) 60 13
----- ------- ----- -----
Net cash used in operating activities............ -- (651) (857) (277)
----- ------- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment...................... (77) (154) (121) (102)
----- ------- ----- -----
Net cash used in investing activities............ (77) (154) (121) (102)
----- ------- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit...................... 241 725 710 172
----- ------- ----- -----
Net cash provided by financing activities........ 241 725 710 172
----- ------- ----- -----
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 164 (80) (268) (207)
CASH AND CASH EQUIVALENTS, beginning of period............. 138 302 302 222
----- ------- ----- -----
CASH AND CASH EQUIVALENTS, end of period................... $ 302 $ 222 $ 34 $ 15
===== ======= ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest.............................................. $ 77 $ 104 $ 108 $ 62
Income taxes.......................................... 21 245 204 30
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE> 138
POLLOCK ELECTRIC INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, October 31, 1994.................... 1,000 $ 1 $ 9 $704 $714
Net income................................. -- -- -- 92 92
----- --- --- ---- ----
BALANCE, October 31, 1995.................... 1,000 1 9 796 806
Net income................................. -- -- -- (99) (99)
----- --- --- ---- ----
BALANCE, October 31, 1996.................... 1,000 1 9 697 707
Net income (unaudited)..................... -- -- -- (93) (93)
----- --- --- ---- ----
BALANCE, June 30, 1997 (unaudited)........... 1,000 $ 1 $ 9 $604 $614
===== === === ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE> 139
POLLOCK ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Pollock Electric Inc., a Texas corporation (the Company), provides
electrical system installation, data and fiber optic cabling installation and
repair services primarily for mid-sized to large commercial facilities. The
Company performs the majority of its contract work under fixed price contracts,
with contract terms generally ranging from one to 12 months. The Company
performs the majority of its work in the commercial and industrial markets in
Harris County, Texas, and surrounding areas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of June 30, 1997, and for the eight
months ended June 30, 1996 and 1997, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation expense was
$64,144 and $107,242 for the years ended October 31, 1995 and 1996,
respectively.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
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. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
their effects 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 reasonably
estimated.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's
F-73
<PAGE> 140
POLLOCK ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
experience with similar contracts in recent years, the retention balance at each
balance sheet date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor and materials for the
first year after installation of new electrical systems. The Company generally
warrants labor for one year after servicing existing electrical systems. A
reserve for warranty costs is recorded based upon the historical level of
warranty claims and management's estimate of future costs.
Accounts Receivable and Provision for Doubtful Accounts
Accounts receivable at October 31, 1995 and 1996, include immaterial
amounts of claims and unapproved change orders, however, the Company generally
does not recognize change orders until they are approved.
The Company provides an allowance for doubtful accounts based upon a
percentage of gross sales revenue. In addition, the Company reserves for
specific accounts when collection of such accounts is no longer probable.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred tax assets and liabilities are recorded for
future tax consequences of temporary differences between the financial reporting
and tax bases of assets and liabilities, and are measured using the enacted tax
rates and laws.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this footnote and Note 11 for discussion of
significant estimates reflected in the Company's financial statements.
New Accounting Pronouncement
Effective November 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if an impairment of such property is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such property and its carrying value. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
F-74
<PAGE> 141
POLLOCK ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED OCTOBER 31,
USEFUL LIVES --------------
IN YEARS 1995 1996
------------ ----- -----
<S> <C> <C> <C>
Transportation equipment............................... 4-5 $ 95 $ 132
Machinery and equipment................................ 5-7 221 267
Computer and telephone equipment....................... 5 161 201
Leasehold improvements................................. 5-39 71 107
Furniture and fixtures................................. 5-7 15 24
----- -----
563 731
Less -- Accumulated depreciation and amortization...... (283) (390)
----- -----
Property and equipment, net.................. $ 280 $ 341
===== =====
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Balance at beginning of period.............................. $ 68 $ 96
Additions to costs and expenses............................. 59 108
Deductions for uncollectible receivables written off and
recoveries................................................ (31) (26)
---- ----
Balance at end of period.......................... $ 96 $178
==== ====
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Accounts payable, trade..................................... $ 944 $2,553
Accrued compensation and benefits........................... 301 344
Other accrued expenses...................................... 133 116
------ ------
$1,378 $3,013
====== ======
</TABLE>
F-75
<PAGE> 142
POLLOCK ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Electrical system installation contracts in progress are as follows (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 1,300 $ 6,592
Estimated earnings, net of losses........................... 239 742
------- -------
1,539 7,334
Less -- Billings to date.................................... (1,374) (7,449)
------- -------
$ 165 $ (115)
======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 399 $ 202
Less -- Billings in excess of costs and estimated earnings
on uncompleted contracts.................................. (234) (317)
------- -------
$ 165 $ (115)
======= =======
</TABLE>
5. LINE OF CREDIT:
The Company has a $2,500,000 line of credit with a bank. At October 31,
1995 and 1996, unpaid borrowings were $625,000 and $1,350,000, respectively. The
line of credit expires February 28, 1998, and bears interest at the bank's prime
lending rate plus 1 percent. The line of credit is personally guaranteed by Jon
Pollock, sole stockholder and president of the Company, and is secured by all
accounts, contract rights, chattel paper, instruments, general intangibles,
rights to payments of any kind, all interest of the Company in any goods, and a
blanket lien of all property and equipment. The borrowing base is limited to 75
percent of eligible accounts receivable that are outstanding less than 60 days
from the invoice date.
Interest is computed monthly on the unpaid balance and is payable monthly.
The Company has restrictive and various financial covenants with which the
Company was in compliance at October 31, 1996.
6. LEASES:
The Company leases its office space from its sole stockholder and president
under a lease agreement with a primary lease term of one year beginning November
15, 1991. At the expiration of the primary lease term, the Company exercised its
option to extend the lease for an additional five-year period. Effective
November 1, 1995, the lease agreement was modified to include additional office
space. The basic rent was increased to $3,000 per month, and the expiration date
was extended to November 30, 1998.
In addition to the basic lease cost, the Company must pay insurance, actual
taxes, maintenance and other operating costs. The rent paid under this
related-party lease was $20,161 and $36,000 for the years ended October 31, 1995
and 1996, respectively.
Future minimum lease payments under this noncancelable operating lease are
as follows (in thousands):
<TABLE>
<S> <C>
Year ending October 31 --
1997...................................................... $36
1998...................................................... 36
1999...................................................... 3
Thereafter................................................ --
---
$75
===
</TABLE>
F-76
<PAGE> 143
POLLOCK ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Certain vehicles and equipment have been leased under terms that constitute
capital leases. Accordingly, the costs of the assets (the lower of the cash
purchase price or the present value of the future minimum lease payments) were
recorded as an addition to property and the related liabilities were recorded as
lease obligations. The assets are amortized using the straight-line method, and
interest expense is recorded on the basis of the outstanding lease obligation.
The net present value of future minimum lease payments under the capital
leases as recorded in short-term and long-term debt at October 31, 1996, are as
follows (in thousands):
<TABLE>
<S> <C>
Year ending October 31 --
1997...................................................... $ 54
1998...................................................... 51
1999...................................................... 32
Thereafter................................................ --
----
$137
====
</TABLE>
7. INCOME TAXES (IN THOUSANDS):
Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Federal --
Current................................................... $259 $ 72
Deferred.................................................. (187) (99)
State --
Current................................................... 35 10
Deferred.................................................. (25) (13)
---- ----
$ 82 $(30)
==== ====
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to income
(loss) for income taxes as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Income tax expense (recovery) at the statutory rate......... $61 $(45)
Increase (decrease) resulting from --
State income taxes, net of related tax effect............. 6 (2)
Nondeductible expenses.................................... 15 17
--- ----
$82 $(30)
=== ====
</TABLE>
F-77
<PAGE> 144
POLLOCK ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences in the recognition
of income and expenses for financial reporting purposes and for tax purposes.
The tax effects of these temporary differences, representing deferred tax assets
and liabilities, result principally from the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------
1995 1996
----- -----
<S> <C> <C>
Deferred income tax assets --
Bad Debt Reserve.......................................... $ 42 $ 51
Warranty Reserve.......................................... 28 44
Contracts................................................. 51 50
Accrued Expenses.......................................... 40 118
----- -----
Total deferred income tax assets.................. 161 263
----- -----
Deferred income tax liabilities --
Property & Equipment...................................... (17) (17)
State Taxes............................................... (1) (4)
Contracts................................................. (116) (103)
----- -----
Total deferred income tax liabilities............. (134) (124)
----- -----
Total deferred income tax assets.................. $ 27 $ 139
===== =====
</TABLE>
The net deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------
1995 1996
----- -----
<S> <C> <C>
Deferred tax assets --
Current................................................... $ 161 $ 263
Long-term................................................. -- --
----- -----
Total............................................. 161 263
----- -----
Deferred tax liabilities --
Current................................................... (114) (104)
Long-term................................................. (20) (20)
----- -----
Total............................................. (134) (124)
----- -----
Net deferred income tax assets.................... $ 27 $ 139
===== =====
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
The Company leases its office space from its sole stockholder and
president. Total payments made under this lease agreement were $20,161 and
$36,000 for the years ended October 31, 1995 and 1996, respectively (see Note
6).
In 1995, the Company encouraged its employees to purchase personal
computers by making the down payments for the purchases. The employees are
repaying the Company through payroll deductions. The outstanding amounts are
classified as accounts receivable, other in the accompanying balance sheets.
9. EMPLOYEE BENEFIT PLANS:
Stock Appreciation Plan
On May 4, 1994, the Company adopted a stock appreciation rights plan titled
the Stock Unit Plan (the Plan). Under the Plan, stock rights or units were
awarded to employees valued at the book value of the
F-78
<PAGE> 145
POLLOCK ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's stock at that date. Subsequent increases in the book value of the
stock accrue to the benefit of the officer or employee, while decreases in the
book value reduce accrued benefits. Payments of amounts accrued under the Plan
are payable at retirement or resignation from the Company, except for cases of
termination with cause, at which time the units and benefits are forfeited.
Deferred compensation liability accrued under the Plan totaled $11,500 and
$17,435 at October 31, 1995 and 1996, respectively. The change in the value of
the stock appreciation rights under the Plan are recorded as compensation
expense as the Company's net book value fluctuates.
Stock Purchase Agreement
The Company has entered into various agreements with certain of its
officers to provide for business continuity in the event of the death of the
Company's president and sole stockholder. The agreements provide for the
purchase of life insurance on the Company's president through split-dollar
arrangements and term insurance to provide funds for the officers of the Company
to acquire the president's stock in the event of his death. All amounts advanced
by the Company to pay premiums that are not subject to reimbursement from the
officers shall be collectible by the Company from the net equity of the
insurance policy or from the proceeds paid thereon.
Profit-Sharing and 401(k) Plan
Effective November 1, 1994, the Company established a defined contribution
plan for its employees. Employees over the age of 21 are eligible to participate
after one year of service with the Company. Under this plan, employees may elect
to defer up to 15 percent of their salary, subject to Internal Revenue Code
limits. The Company may make a discretionary match as well as a discretionary
profit-sharing contribution. The Company's contribution for the years ended
October 31, 1995 and 1996, totaled $16,970 and $22,466, respectively, and the
Company has accrued approximately $22,466 at October 31, 1996, for contributions
to be funded in the subsequent fiscal year.
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, a line of credit and notes payable. The
Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, workers' compensation, general liability and an umbrella policy.
The Company has not incurred significant uninsured losses on any of these items.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales of approximately 16 percent of total sales to one
major customer during the years ended October 31, 1995 and 1996.
F-79
<PAGE> 146
POLLOCK ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company grants credit, generally without collateral, to
its customers, which are general contractors located primarily in Harris County,
Texas, and surrounding areas. Consequently, the Company is subject to potential
credit risk related to changes in business and economic factors within the
commercial and industrial markets in this geographic region. However, management
believes that its contract acceptance, billing and collection policies are
adequate to minimize the potential credit risk.
13. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of an initial
public offering (the Offering) of additional common stock by IES. In addition,
the key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.
F-80
<PAGE> 147
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Haymaker Electric, Ltd.:
We have audited the accompanying balance sheet of Haymaker Electric, Ltd.,
an Alabama limited partnership, as of December 31, 1996, and the related
statements of operations, cash flows and partners' capital for the year then
ended. 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 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 audit provides 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 Haymaker Electric, Ltd., as
of December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 15, 1997
F-81
<PAGE> 148
HAYMAKER ELECTRIC, LTD.
(AN ALABAMA LIMITED PARTNERSHIP)
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997
1996 (UNAUDITED)
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1 $ 13
Accounts receivable --
Trade, net of allowance of $42 and $65, respectively... 1,186 2,002
Retainage.............................................. 444 531
Notes receivable, related party........................... 54 62
Costs and estimated earnings in excess of billings on
uncompleted
contracts.............................................. 167 578
Prepaid expenses and other current assets................. 3 4
------ ------
Total current assets.............................. 1,855 3,190
PROPERTY AND EQUIPMENT, net................................. 40 60
------ ------
Total assets...................................... $1,895 $3,250
====== ======
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Short-term borrowings..................................... $ -- $ 230
Accounts payable and accrued expenses..................... 1,052 1,581
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 66 420
------ ------
Total current liabilities......................... 1,118 2,231
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL........................................... 777 1,019
------ ------
Total liabilities and partners' capital........... $1,895 $3,250
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE> 149
HAYMAKER ELECTRIC, LTD.
(AN ALABAMA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE
DECEMBER 31, 30,
------------ ---------------
1996 1996 1996
------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES.................................................... $7,560 $3,187 $5,841
COST OF SERVICES (including depreciation)................... 6,412 2,824 5,052
------ ------ ------
Gross profit...................................... 1,148 363 789
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 713 258 548
------ ------ ------
Income from operations............................ 435 105 241
------ ------ ------
OTHER INCOME (EXPENSE):
Other..................................................... 8 3 1
------ ------ ------
Other income (expense), net....................... 8 3 1
------ ------ ------
NET INCOME.................................................. $ 443 $ 108 $ 242
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE> 150
HAYMAKER ELECTRIC, LTD.
(AN ALABAMA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, ---------------
1996 1996 1997
------------ ----- ------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 443 $ 108 $ 242
Adjustments to reconcile net income to net cash provided
by (used in) operating activities --
Depreciation and amortization.......................... 16 8 9
Loss (gain) on sale of property and equipment.......... -- (1) --
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable............................... (774) (257) (903)
Costs and estimated earnings in excess of billings
on uncompleted contracts........................ (15) (41) (411)
Prepaid expenses and other current assets......... 1 (1) (1)
Increase (decrease) in --
Accounts payable and accrued expenses............. 411 (30) 529
Billings in excess of costs and estimated earnings
on uncompleted contracts........................ 51 130 354
----- ----- ------
Net cash provided by (used in) operating
activities...................................... 133 (84) (181)
----- ----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable, related party and other, net............ 1 7 (8)
Additions of property and equipment....................... (22) (12) (29)
Proceeds from sale of property and equipment.............. -- 1 --
----- ----- ------
Net cash used in investing activities............. (21) (4) (37)
----- ----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings..................................... -- -- 230
Distributions to partners................................. (210) (10) --
----- ----- ------
Net cash provided by (used in) financing
activities...................................... (210) (10) 230
----- ----- ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (98) (98) 12
CASH AND CASH EQUIVALENTS, beginning of period.............. 99 99 1
----- ----- ------
CASH AND CASH EQUIVALENTS, end of period.................... $ 1 $ 1 $ 13
===== ===== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................... $ 75 $ 32 $ 10
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE> 151
HAYMAKER ELECTRIC, LTD.
(AN ALABAMA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
TOTAL
LIMITED GENERAL PARTNERS'
PARTNER PARTNER CAPITAL
------- ------- ---------
<S> <C> <C> <C>
BALANCE, December 31, 1995.................................. $490 $ 54 $ 544
Distributions to partners................................. (209) (1) (210)
Net income................................................ 398 45 443
---- ---- ------
BALANCE, December 31, 1996.................................. 679 98 777
Net income (unaudited).................................... 218 24 242
---- ---- ------
BALANCE, June 30, 1997 (unaudited).......................... $897 $122 $1,019
==== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE> 152
HAYMAKER ELECTRIC, LTD.
(AN ALABAMA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Haymaker Electric, Ltd. (the Company), an Alabama limited partnership,
focuses on providing electrical system installation and repair services
primarily for mid-sized to large commercial facilities. The Company performs the
majority of its contract work under cost-plus-fee contracts and fixed price
contracts, with contract terms generally ranging from two to 18 months. The
Company performs the majority of its work in the state of Alabama.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation expense was
$16,000 for the year ended December 31, 1996.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
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. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
their effects 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 balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's
F-86
<PAGE> 153
HAYMAKER ELECTRIC, LTD.
(AN ALABAMA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
experience with similar contracts in recent years, the retention balance at each
balance sheet date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for the first year after
installation of new electrical systems. The Company generally warrants labor for
30 days after servicing of existing electrical systems. A reserve for warranty
costs is recorded based upon the historical level of warranty claims and
management's estimate of future costs.
Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.
Income Taxes
The Company is an Alabama limited partnership and is not subject to federal
income tax. The earnings of the Company are taxable to the individual partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this footnote and Note 10 for discussion of
significant estimates reflected in the Company's financial statements.
New Accounting Pronouncement
Effective November 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such property is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
property and its carrying value. Adoption of this standard did not have a
material effect on the financial position or results of operations of the
Company.
F-87
<PAGE> 154
HAYMAKER ELECTRIC, LTD.
(AN ALABAMA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1996
------------ ------------
<S> <C> <C>
Transportation equipment.................................... 5-6 $ 52
Machinery and equipment..................................... 5-10 33
Leasehold improvements...................................... 40 2
Furniture and fixtures...................................... 3-10 83
----
170
Less -- Accumulated depreciation and amortization........... (130)
----
Property and equipment, net....................... $ 40
====
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Balance at beginning of period.............................. $22
Additions to costs and expenses............................. 20
---
Balance at end of period.................................... $42
===
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Accounts payable, trade..................................... $ 685
Accrued compensation and benefits........................... 175
Other accrued expenses...................................... 192
------
$1,052
======
</TABLE>
Electrical system installation contracts in progress are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Costs incurred on contracts in progress..................... $4,304
Estimated earnings, net of losses........................... 546
------
4,850
Less -- Billings to date.................................... (4,749)
------
$ 101
======
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 167
Less -- Billings in excess of costs and estimated earnings
on uncompleted contracts.................................. (66)
------
$ 101
======
</TABLE>
F-88
<PAGE> 155
HAYMAKER ELECTRIC, LTD.
(AN ALABAMA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT:
The Company has a $650,000 line of credit with a bank. The line of credit
expires June 30, 1998, and bears interest at 1 percent over the prime lending
rate. The line of credit is secured by a stockholder of a partner corporation.
6. LEASES:
The Company leases a facility from a company which is owned by one of the
Company's partners. The lease expires on December 31, 1997. The rent paid under
this related-party lease was approximately $34,000 for the year ended December
31, 1996.
Future minimum lease payments under these noncancelable operating leases
are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31 --
1997.............................................. $35
===
</TABLE>
7. RELATED-PARTY TRANSACTIONS:
Notes receivable at December 31, 1996, includes amounts due from the
partner corporations totaling $37,000 and a note for $17,000 due from the sole
stockholder of a partner corporation.
The Company rents its facilities from a partner corporation (see Note 6).
8. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution profit-sharing plan. The plan
provides for the Company to match 3 percent of the gross salary of each employee
subject to certain limitations. All participants are immediately fully vested.
Total contributions by the Company under the plan were approximately $51,000 for
the year ending December 31, 1996.
9. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, notes receivable, accounts payable, a line of credit and
short-term borrowings. The Company believes that the carrying value of these
instruments on the accompanying balance sheets approximates their fair value.
10. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant uninsured losses on any of these items.
11. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales comprising approximately 10%, 11% and 11% of total
sales to three major customers during the year ended December 31, 1996.
F-89
<PAGE> 156
HAYMAKER ELECTRIC, LTD.
(AN ALABAMA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of an initial
public offering (the Offering) of additional common stock by IES. In addition,
the key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.
F-90
<PAGE> 157
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Amber Electric, Inc.:
We have audited the accompanying balance sheets of Amber Electric, Inc., a
Florida corporation, as of December 31, 1995 and 1996, and the related
statements of operations, cash flows and stockholder's equity for the years then
ended. 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 Amber Electric, Inc., as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 15, 1997
F-91
<PAGE> 158
AMBER ELECTRIC, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 83 $ 565 $ 759
Accounts receivable --
Trade, net of allowance of $28, $40 and $47,
respectively......................................... 1,159 1,382 2,036
Retainage.............................................. 468 518 546
Inventories............................................... 39 28 20
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 25 151 62
Employee advances (Note 8)................................ 2 29 52
Deferred tax asset........................................ 36 65 134
Prepaid expenses and other current assets................. 22 -- 42
------ ------ ------
Total current assets.............................. 1,834 2,738 3,651
PROPERTY AND EQUIPMENT, net................................. 284 380 498
NOTE RECEIVABLE, related party (Note 8)..................... 37 58 67
------ ------ ------
Total assets...................................... $2,155 $3,176 $4,216
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 96 $ 133 $ 173
Line of credit............................................ 101 -- --
Accounts payable and accrued expenses..................... 696 1,157 1,162
Income taxes payable...................................... 3 244 534
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 355 408 475
Note payable, related party (Note 8)...................... -- 100 --
Deferred tax liability.................................... 129 97 81
------ ------ ------
Total current liabilities......................... 1,380 2,139 2,425
LONG-TERM DEBT, net of current maturities................... 573 538 553
DEFERRED TAX LIABILITY...................................... 38 45 52
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 7,500 shares authorized, 1,100
shares issued and outstanding.......................... 1 1 1
Retained earnings......................................... 597 887 1,619
Treasury stock, 539 shares, at cost....................... (434) (434) (434)
------ ------ ------
Total stockholder's equity........................ 164 454 1,186
------ ------ ------
Total liabilities and stockholder's equity........ $2,155 $3,176 $4,216
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-92
<PAGE> 159
AMBER ELECTRIC, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- ----------------
1995 1996 1996 1997
------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES.............................................. $9,728 $13,878 $6,881 $7,910
COST OF SERVICES (including depreciation)............. 8,635 12,215 5,564 5,765
------ ------- ------ ------
Gross profit................................ 1,093 1,663 1,317 2,145
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 957 1,160 889 946
------ ------- ------ ------
Income from operations...................... 136 503 428 1,199
------ ------- ------ ------
OTHER INCOME (EXPENSE):
Interest expense.................................... (65) (51) (38) (31)
Other............................................... 24 36 8 32
------ ------- ------ ------
Other income (expense), net................. (41) (15) (30) 1
------ ------- ------ ------
INCOME BEFORE PROVISION FOR
INCOME TAXES........................................ 95 488 398 1,200
PROVISION FOR INCOME TAXES............................ 36 198 158 468
------ ------- ------ ------
NET INCOME............................................ $ 59 $ 290 $ 240 $ 732
====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE> 160
AMBER ELECTRIC, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------- ---------------
1995 1996 1996 1997
----- ----- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 59 $ 290 $ 240 $ 732
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization.......................... 62 87 40 42
Bad debt expense....................................... 17 35 6 12
Loss on sale of property and equipment................. -- 5 1 --
Increase in cash surrender value of life insurance
policy............................................... (14) -- -- --
Deferred income taxes.................................. (41) 24 (6) (78)
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable............................... (299) (308) (397) (689)
Inventories....................................... 15 11 17 8
Costs and estimated earnings in excess of billings
on uncompleted contracts........................ (6) (126) (83) 89
Employee advances................................. 14 (27) (9) (23)
Prepaid expenses and other current assets......... (7) 22 14 (42)
Note receivable, related party.................... -- (21) (11) (9)
Increase (decrease) in --
Accounts payable and accrued expenses............. 20 461 251 5
Billings in excess of costs and estimated earnings
on uncompleted contracts........................ 304 53 333 67
Income taxes payable.............................. 49 163 156 290
Other, net............................................. 4 1 (12) (3)
----- ----- ----- -----
Net cash provided by operating activities............ 177 670 540 401
----- ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 5 2 1 --
Additions of property and equipment....................... (155) (190) (69) (162)
----- ----- ----- -----
Net cash used in investing activities............. (150) (188) (68) (162)
----- ----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable, related party............................... -- 100 -- (100)
Borrowings of line of credit.............................. 101 -- -- --
Payments of line of credit................................ (125) (101) (101) --
Borrowings of long-term debt.............................. 104 131 58 128
Payments of long-term debt................................ (74) (130) (45) (73)
----- ----- ----- -----
Net cash provided by (used in) financing
activities...................................... 6 -- (88) (45)
----- ----- ----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 33 482 384 194
CASH AND CASH EQUIVALENTS, beginning of period.............. 50 83 83 565
----- ----- ----- -----
CASH AND CASH EQUIVALENTS, end of period.................... $ 83 $ 565 $ 467 $ 759
===== ===== ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................... $ 65 $ 51 $ 38 $ 31
Income taxes........................................... 27 10 8 257
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE> 161
AMBER ELECTRIC, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- RETAINED TREASURY STOCKHOLDER'S
SHARES AMOUNT EARNINGS STOCK EQUITY
------ ------ -------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994..................... 1,100 $1 $ 538 $(434) $ 105
Net income................................... -- -- 59 -- 59
----- -- ------ ----- ------
BALANCE, December 31, 1995..................... 1,100 1 597 (434) 164
Net income................................... -- -- 290 -- 290
----- -- ------ ----- ------
BALANCE, December 31, 1996..................... 1,100 1 887 (434) 454
Net income (unaudited)....................... -- -- 732 -- 732
----- -- ------ ----- ------
BALANCE, June 30, 1997 (unaudited)............. 1,100 $1 $1,619 $(434) $1,186
===== == ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-95
<PAGE> 162
AMBER ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Amber Electric, Inc. (the Company), a Florida corporation, focuses on
providing electrical system installation and repair services primarily for
residential and mid-sized to large commercial facilities. The Company performs
the majority of its contract work under fixed price contracts, with contract
terms generally ranging from two to 12 months. The Company performs the majority
of its work in central Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line and declining-balance methods over the estimated useful
lives of the related assets. Leasehold improvements are capitalized and
amortized over the estimated useful life of the asset. Depreciation and
amortization expense was approximately $62,000 and $87,000 for the years ended
December 31, 1995 and 1996, respectively.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
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. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
their effects 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.
F-96
<PAGE> 163
AMBER ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for the first year after
installation of new electrical systems. The Company generally warrants labor for
one year after servicing of existing electrical systems.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred assets and liabilities are recorded for future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities, and are measured using enacted tax rates
and laws.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this footnote for discussion of significant
estimates reflected in the Company's financial statements.
New Accounting Pronouncement
Effective November 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if an impairment of such property is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such property and its carrying value. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
F-97
<PAGE> 164
AMBER ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------
IN YEARS 1995 1996
------------ ----- -----
<S> <C> <C> <C>
Transportation equipment............................... 3-7 $ 430 $ 541
Machinery and equipment................................ 3-7 101 78
Leasehold improvements................................. 5-39 76 74
Furniture and fixtures................................. 3-7 121 91
----- -----
728 784
Less - Accumulated depreciation and amortization....... (444) (404)
----- -----
Property and equipment, net.................. $ 284 $ 380
===== =====
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Balance at beginning of period.............................. $ 17 $ 28
Additions to costs and expenses............................. 17 35
Deductions for uncollectible receivables written off and
recoveries................................................ (6) (23)
------- -------
Balance at end of period.................................... $ 28 $ 40
======= =======
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Accounts payable, trade..................................... $ 537 $ 882
Accrued compensation and benefits........................... 84 110
Other accrued expenses...................................... 75 165
------- -------
$ 696 $ 1,157
======= =======
</TABLE>
Electrical system installation contracts in progress are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 1,912 $ 2,100
Estimated earnings, net of losses........................... 333 258
------- -------
2,245 2,358
Less -- Billings to date.................................... (2,575) (2,615)
------- -------
$ (330) $ (257)
======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 25 $ 151
Less -- Billings in excess of costs and estimated
earnings on uncompleted contracts..................... (355) (408)
------- -------
$ (330) $ (257)
======= =======
</TABLE>
F-98
<PAGE> 165
AMBER ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT:
Long-term debt consists of notes payable to various banks. The debt is
secured by certain equipment. The notes are payable in monthly installments
including interest at rates ranging from 8 percent to 10.9 percent.
The Company has a note payable to a former stockholder payable in monthly
installments of $4,333, including interest at 7.5 percent, due August 2004. The
debt is guaranteed by the majority stockholder. The balance of such debt was
approximately $330,000 and $302,000 at December 31, 1995 and 1996, respectively.
The Company also has a note payable outstanding to an individual with a 5
percent stated interest rate and an 8.12 percent imputed interest rate. The note
is payable in monthly installments of principal and interest of $1,893,
collateralized by equipment and inventories, and is due February 2005. The
balance of the note was approximately $168,000 and $153,000 at December 31, 1995
and 1996, respectively.
The maturities of long-term debt as of December 31, 1996, are as follows
(in thousands):
<TABLE>
<S> <C>
Year ending December 31 --
1997................................................... $133
1998................................................... 137
1999................................................... 86
2000................................................... 59
2001................................................... 60
Thereafter............................................. 196
----
$671
====
</TABLE>
At December 31, 1996, the Company had a $500,000 line of credit with a
bank, collateralized by accounts receivable and certain other assets. Interest
is payable monthly at the bank's prime rate (8.25 percent at December 31, 1996)
plus 0.75 percent. The agreement stipulates a minimum interest rate of 8
percent. Any amounts available are limited to 75 percent of eligible accounts
receivable, as defined. At December 31, 1996, the entire amount of the line
remains available to be borrowed. The line of credit is subject to a continuing
guarantee by the Company's majority stockholder. The line of credit was renewed
and is due on demand, but in no event no later than July 5, 1998. The new line
of credit carries interest at the bank's prime rate.
At December 31, 1995, the maximum amount available under such line of
credit was approximately $99,000 as the Company had a $200,000 line of credit
with the bank.
6. LEASES:
The Company leases office space from the majority stockholder under a
month-to-month operating lease. Rent expense incurred under this related-party
lease was approximately $67,000 and $81,000 for the years ended December 31,
1995 and 1996, respectively.
There are no future minimum lease payments under this operating lease.
F-99
<PAGE> 166
AMBER ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES (IN THOUSANDS):
Federal income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Federal --
Current................................................... $ 1 $224
Deferred.................................................. 30 (54)
---- ----
$ 31 $170
==== ====
State --
Current................................................... $ -- $ 27
Deferred.................................................. 5 1
---- ----
$ 36 $198
==== ====
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to income
before provision for income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Provision at the statutory rate............................. $33 $171
Increase resulting from --
State income taxes, net of related federal benefit........ 3 19
Permanent differences, primarily meals and
entertainment.......................................... -- 8
--- ----
$36 $198
=== ====
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
----- -----
<S> <C> <C>
Deferred tax assets --
Allowance for doubtful accounts........................... 11 17
Other accrued expenses not deducted for tax purposes...... 25 48
----- -----
Total............................................. $ 36 $ 65
===== =====
Deferred tax liabilities --
Accounting for long-term contracts........................ $(129) $ (97)
Bases differences on property and equipment and capital
lease accounting....................................... (38) (45)
----- -----
Total............................................. (167) (142)
----- -----
Net deferred income tax liabilities............... (131) (77)
===== =====
</TABLE>
F-100
<PAGE> 167
AMBER ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
----- ----
<S> <C> <C>
Deferred tax assets --
Current................................................... $ 36 $ 65
Long-term................................................. -- --
----- ----
Total............................................. 36 65
----- ----
Deferred tax liabilities --
Current................................................... (129) (97)
Long-term................................................. (38) (45)
----- ----
Total............................................. (167) (142)
----- ----
Net deferred tax liability........................ $(131) $(77)
===== ====
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
During 1995, the Company transferred its interest in the cash surrender
value of life insurance policies in exchange for a note receivable bearing
annual interest of 4 percent to a partnership controlled by the majority
stockholder of the Company. The entire principal and accrued interest is due
August 2005. The Company continues to pay premiums for this policy, also
increasing the receivable.
The Company had a note payable to the majority stockholder at December 31,
1996, which represented a bonus to the stockholder and was loaned to the Company
without interest attached. The balance was subsequently paid to the stockholder.
The Company will advance money to employees on occasion. Advanced amounts
are based on certain levels of employment and are repaid to the Company based on
a variety of repayment plans.
9. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution profit-sharing plan. The plan
provides for the Company to match, on a discretionary basis, one-half of the
first 4 percent contributed by each employee. Total contributions by the Company
under the plan were approximately $31,000 and $44,000 for the years ending
December 31, 1995 and 1996, respectively. The Company had accrued approximately
$24,000 at December 31, 1996, for contributions to be funded in the subsequent
fiscal year.
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, employee advances, notes receivable, a line of credit,
accounts payable, notes payable and long-term debt. The Company believes that
the carrying value of these instruments on the accompanying balance sheets
approximates their fair value.
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
F-101
<PAGE> 168
AMBER ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant uninsured losses on any of these items.
The Company provides for workers' compensation insurance through a
partially self-insured plan whereby the Company is responsible for certain
incurred losses with a maximum of 125 percent of standard state-rated workers'
compensation premiums. Estimated claims incurred during the years ended December
31, 1995 and 1996, were not material. Accordingly, the Company has not recorded
any reserves for its portion of self-insurance claims. During 1997, the Company
enrolled in a secured individual preferred dividend safety incentive program for
workers' compensation with a maximum premium of 100 percent of the total normal
state-rated premium. Employee health insurance is provided for under a fully
insured medical plan consisting of HMO and POS programs.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales of approximately 16 percent of total sales to one
major customer for the year ended December 31, 1995, and sales of approximately
15 and 13 percent of total sales to two major customers for the year ended
December 31, 1996.
In addition, the Company grants credit, generally without collateral, to
its customers, which are real estate operations, general contractors, etc.,
located primarily in central Florida. Consequently, the Company is subject to
potential credit risk related to changes in business and economic factors within
the central Florida region. However, management believes that its contract
acceptance, billing and collection policies are adequate to minimize the
potential credit risk.
The Company routinely maintains cash balances in financial institutions in
excess of federally insured limits.
13. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of an initial
public offering (the Offering) of additional common stock by IES. In addition,
the key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.
F-102
<PAGE> 169
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Daniel Electrical Contractors, Inc. and
Daniel Electrical of Treasure Coast, Inc.:
We have audited the accompanying combined balance sheets of Daniel
Electrical Contractors, Inc., a Florida corporation, and Daniel Electrical of
Treasure Coast, Inc., a Florida corporation, as of December 31, 1995 and 1996,
and the related combined statements of operations, cash flows and stockholder's
equity for the years then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Daniel
Electrical Contractors, Inc. and Daniel Electrical of Treasure Coast, Inc., as
of December 31, 1995 and 1996, and the combined results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 15, 1997
F-103
<PAGE> 170
DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 62 $ 411 $ 343
Investments............................................... 393 694 858
Accounts receivable --
Trade, net of allowance of $68, $69 and $102,
respectively......................................... 1,819 1,444 3,429
Retainage, net of allowance of $ -- , $12 and $12,
respectively......................................... 815 1,353 1,500
Employee receivables (Note 7).......................... 8 17 26
Inventories............................................... 103 84 68
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 119 719 565
Prepaid expenses and other current assets................. 24 35 36
------ ------ ------
Total current assets.............................. 3,343 4,757 6,825
PROPERTY AND EQUIPMENT, net................................. 322 371 527
------ ------ ------
Total assets...................................... $3,665 $5,128 $7,352
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 46 $ 34 $ 53
Accounts payable and accrued expenses..................... 1,325 946 2,110
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 121 752 858
Deposit on contract in progress........................... -- 500 --
Other current liabilities (Note 7)........................ 477 114 81
------ ------ ------
Total current liabilities......................... 1,969 2,346 3,102
LONG-TERM DEBT, net of current maturities................... 42 52 89
OTHER LONG-TERM LIABILITIES (Note 7)........................ 483 483 483
COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 7,600 shares authorized, 7,600
shares issued and outstanding at December 31, 1995 and
1996, and
June 30, 1997.......................................... 8 8 8
Retained earnings......................................... 1,110 2,111 3,416
Unrealized gain on securities............................. 53 128 254
------ ------ ------
Total stockholder's equity........................ 1,171 2,247 3,678
------ ------ ------
Total liabilities and stockholder's equity........ $3,665 $5,128 $7,352
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-104
<PAGE> 171
DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------ ----------------
1995 1996 1996 1997
------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES.............................................. $12,049 $12,585 $5,134 $9,259
COST OF SERVICES (including depreciation)............. 11,725 9,713 3,979 6,294
------- ------- ------ ------
Gross profit................................ 324 2,872 1,155 2,965
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 1,502 1,884 874 1,267
------- ------- ------ ------
Income (loss) from operations............... (1,178) 988 281 1,698
------- ------- ------ ------
OTHER INCOME (EXPENSE):
Interest expense.................................... (46) (73) (43) (46)
Other............................................... 71 86 49 48
------- ------- ------ ------
Other income (expense), net................. 25 13 6 2
------- ------- ------ ------
NET INCOME (LOSS)..................................... $(1,153) $ 1,001 $ 287 $1,700
======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE> 172
DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------- ---------------
1995 1996 1996 1997
------- ------ ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $(1,153) $1,001 $ 287 $1,700
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation and amortization..................... 113 125 61 73
Provision for bad debts........................... 29 205 46 33
Loss on abandonment of leasehold improvements..... -- -- -- 34
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable.......................... 423 (185) (118) (2,174)
Inventories.................................. 14 19 (50) 16
Costs and estimated earnings in excess of
billings on uncompleted contracts.......... 733 (600) (1) 154
Prepaid expenses and other current assets.... 25 (11) (6) (1)
Increase (decrease) in --
Accounts payable and accrued expenses........ (567) (379) (470) 1,164
Deposits on contracts in progress............ -- 500 500 (500)
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... (92) 631 511 106
Other current liabilities.................... (42) (87) (7) (20)
------- ------ ----- ------
Net cash provided by (used in) operating
activities................................. (517) 1,219 753 585
------- ------ ----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments.............................. (31) (306) (3) (5)
Additions of property and equipment.................. (97) (175) (73) (294)
------- ------ ----- ------
Net cash used in investing activities........ (128) (481) (76) (299)
------- ------ ----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt......................... 350 17 17 117
Payments of long-term debt........................... (44) (406) (324) (76)
Distributions to stockholders........................ -- -- -- (395)
------- ------ ----- ------
Net cash provided by (used in) financing
activities................................. 306 (389) (307) (354)
------- ------ ----- ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (339) 349 370 (68)
CASH AND CASH EQUIVALENTS, beginning of period......... 401 62 62 411
------- ------ ----- ------
CASH AND CASH EQUIVALENTS, end of period............... $ 62 $ 411 $ 432 $ 343
------- ------ ----- ------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................. $ 20 $ 113 $ 17 $ 4
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE> 173
DANIEL ELECTRICAL CONTRACTORS INC. AND
DANIEL ELECTRICAL OF TREASURE COAST, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL GAIN (LOSS) TOTAL
--------------- PAID-IN RETAINED ON STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS SECURITIES EQUITY
------ ------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994....... 7,500 $8 $-- $ 2,263 $(13) $ 2,258
Issuance of stock in Daniel
Electrical of Treasure
Coast, Inc. ................ 100 -- -- -- -- --
Change in unrealized gain on
securities.................. -- -- -- -- 66 66
Net (loss)..................... -- -- -- (1,153) -- (1,153)
----- -- --- ------- ---- -------
BALANCE, December 31, 1995....... 7,600 8 -- 1,110 53 1,171
Change in unrealized gain on
securities.................. -- -- -- -- 75 75
Net income..................... -- -- -- 1,001 -- 1,001
----- -- --- ------- ---- -------
BALANCE, December 31, 1996....... 7,600 8 -- 2,111 128 2,247
Distributions to stockholders
(unaudited)................. -- -- -- (395) -- (395)
Change in unrealized gain on
securities (unaudited)...... -- -- -- -- 126 126
Net income (unaudited)......... -- -- -- 1,700 -- 1,700
----- -- --- ------- ---- -------
BALANCE, June 30, 1997
(unaudited).................... 7,600 $8 $-- $ 3,416 $254 $ 3,678
===== == === ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE> 174
DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Daniel Electrical Contractors, Inc. and Daniel Electrical of Treasure
Coast, Inc., (collectively, the Company), both Florida corporations focuses on
providing electrical system installation and repair services primarily for
residential and mid-sized to large commercial facilities. The Company performs
the majority of its contract work under fixed price contracts with contract
terms generally ranging from six to 18 months. The Company performs the majority
of its work in Dade County, Florida.
The combined financial statements include the accounts of Daniel Electrical
Contractors, Inc. and Daniel Electrical of Treasure Coast, Inc. These entities
are related by virtue of common ownership. All material intercompany balances
have been eliminated in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Investments
Investments in securities are classified as securities available for sale
and consist of equity securities. Unrealized holding gains and losses on
securities available for sale are reported on a net amount as a separate
component of stockholder's equity.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation and
amortization expense was $113,000 and $125,000 for the years ended December 31,
1995 and 1996, respectively.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
F-108
<PAGE> 175
DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes revenue when services are performed, except when
work is being performed under a construction contract. Revenues from
construction contracts are recognized on the percentage-of-completion method
measured by the percentage of costs incurred to date to total estimated costs
for each contract. 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. Provisions for the total
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, estimated
profitability and final contract settlements may result in revisions to costs
and income and their effects 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 balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for the first year after
installation of new electrical systems. The Company generally warrants labor for
30 days after servicing existing electrical systems. A reserve for warranty
costs is recorded based upon the historical level of warranty claims and
management's estimate of future costs.
Accounts Receivable and Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company itself is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of the
Company's taxable earnings or losses in their personal tax returns.
Consequently, the accompanying financial statements of the Company do not
include a provision for current or deferred income taxes. The Company intends to
terminate its S Corporation status concurrently with the effective date of the
Offering.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this footnote and Note 10 for discussion of
significant estimates reflected in the Company's financial statements.
F-109
<PAGE> 176
DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Pronouncement
Effective November 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such property is necessary. The effect of any
impairments would be to expense the difference between the fair value of such
property and its carrying value. Adoption of this standard did not have a
material effect on the financial position or results of operations of the
Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------
IN YEARS 1995 1996
------------ ----- -----
<S> <C> <C> <C>
Transportation equipment............................... 5 $ 446 $ 517
Machinery and equipment................................ 5 120 134
Computer and telephone equipment....................... 5 92 114
Leasehold improvements................................. 5 116 144
Furniture and fixtures................................. 5 26 29
----- -----
800 938
Less -- Accumulated depreciation and amortization...... (478) (567)
----- -----
Property and equipment, net.................. $ 322 $ 371
===== =====
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
---- -----
<S> <C> <C>
Balance at beginning of period.............................. $47 $ 68
Additions to costs and expenses............................. 29 205
Deductions for uncollectible receivables written off and
recoveries................................................ (8) (192)
--- -----
Balance at end of period.......................... $68 $ 81
=== =====
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ----
<S> <C> <C>
Accounts payable, trade..................................... $1,009 $686
Accrued compensation and benefits........................... 76 28
Other accrued expenses...................................... 240 232
------ ----
$1,325 $946
====== ====
</TABLE>
F-110
<PAGE> 177
DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Electrical system installation contracts in progress are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------ -------
<S> <C> <C>
Costs incurred on contracts in progress..................... $6,197 $ 8,381
Estimated earnings, net of losses........................... 1,238 2,993
------ -------
7,435 11,374
Less -- Billings to date.................................... (7,437) (11,407)
------ -------
$ (2) $ (33)
====== =======
Costs and estimated earnings in excess of billings on
uncompleted
contracts................................................. $ 119 $ 719
Less -- Billings in excess of costs and estimated earnings
on uncompleted contracts.................................. (121) (752)
------ -------
$ (2) $ (33)
====== =======
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consists of installment obligations collateralized by
certain transportation and computer equipment, and due in various monthly
installments, including interest ranging from 6 percent to 11 percent.
The maturities of long-term debt at December 31, 1996, are as follows (in
thousands):
<TABLE>
<S> <C>
1997........................................................ $34
1998........................................................ 51
1999........................................................ 1
---
$86
===
</TABLE>
The Company has a $400,000 open line of credit with a bank. The line of
credit bears interest based upon the prime lending rate, which was 8.25% at
December 31, 1996. The line of credit is secured by the Company's investment in
securities and borrowings under such line of credit are due on demand.
6. LEASES:
In February of 1997, the Company leased its Miami facility from a Limited
Partnership which is controlled by the Company's stockholder. Prior to February
1997, the Company leased office space from a third party, and such lease expired
January 1997. The rent paid under this lease was approximately $71,000 for
December 31, 1996. The Company leases its Vero Beach facility from a company
which is owned by the Company's stockholder and is leased on a month-to-month
basis.
7. RELATED-PARTY TRANSACTIONS:
Related-Party Notes Payable
The Company has a $483,000 subordinated long-term note payable to the
president of the Company at December 31, 1995 and 1996. The Company also has a
$175,000 and $115,000 note payable due on demand to the president of the
Company.
F-111
<PAGE> 178
DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Related-Party Accounts Receivable
The Company has an $8,000 account receivable due from the president of the
Company at December 31, 1995 and 1996. The Company also has a $9,000 employee
receivable at December 31, 1995.
Related-Party Entertainment Expense
Costs related to related-party entertainment expense amounted to $8,000 and
$15,000 for the years ended December 31, 1996 and 1995 respectively.
Related-Party Compensation
The Company paid $72,000 and $58,000 for the years ended December 31, 1996
and 1995 respectively to a related-party company for compensation.
8. EMPLOYEE BENEFIT PLAN:
The Company has a nonqualifying discriminatory pension plan for certain key
executives. Contributions are subject to management's discretion. Total
contributions by the Company under the plan were approximately $9,000 and
$14,000 for the years ended December 31, 1995 and 1996, respectively.
9. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
investments, accounts receivable, accounts payable, a line of credit, notes
payable and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximates their fair
value.
10. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant uninsured losses on any of these items.
The Company is self-insured for medical claims up to $14,000 per year in
total for all covered individuals. Additionally, the Company is part of the
state's workers' compensation plan and is responsible for claims up to $100,000
per accident with a maximum aggregate exposure for 24 months of $500,000. Claims
in excess of these amounts are covered by a stop-loss policy. Under the state's
policy, the Company has a $305,000 letter of credit which expires April 1, 1998.
The Company has recorded reserves for its portion of self-insured claims based
on estimated claims incurred through March 31, 1995 and 1996, and December 31,
1996.
11. INVESTMENTS AVAILABLE FOR SALE:
Investments in securities consist of equity securities and mutual funds
with an aggregate market value of $393,000, $694,000 and $858,000 at December
31, 1995 and 1996, and June 30, 1997, respectively, and unrealized holding gains
of $66,000, $75,000 and $126,000 for the respective periods.
F-112
<PAGE> 179
DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales of approximately 32 percent and 21 percent of total
sales to two major customers during the year ended December 31, 1995, and sales
of approximately 29 percent and 25 percent of total sales to two major customers
during the year ended December 31, 1996.
In addition, the Company grants credit, generally without collateral, to
its customers, which are general contractors located primarily in southern
Florida. Consequently, the Company is subject to potential credit risk related
to changes in business and economic factors within the southern Florida region.
However, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk.
The Company routinely maintains cash balances in financial institutions in
excess of federally insured limits.
13. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of an initial
public offering (the Offering) of additional common stock by IES. In addition,
the key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.
F-113
<PAGE> 180
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Summit Electric of Texas, Inc.:
We have audited the accompanying balance sheet of Summit Electric of Texas,
Inc., a Texas corporation as of March 31, 1997, and the related statement of
operations, cash flows and stockholder's equity for the year then ended. 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 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 audit provides 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 Summit Electric of Texas,
Inc. as of March 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 15, 1997
F-114
<PAGE> 181
SUMMIT ELECTRIC OF TEXAS, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
--------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 57 $ 32
Accounts receivable --
Trade, net of allowance of $112 and $122,
respectively.......................................... 2,270 2,582
Retainage.............................................. 128 152
Receivable from stockholder............................ -- 63
Other receivables...................................... 6 9
Deferred tax asset........................................ 69 73
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 239 356
Prepaid expenses and other current assets................. 25 42
------ ------
Total current assets.............................. 2,794 3,309
NOTES RECEIVABLE FROM RELATED PARTIES....................... 270 269
PROPERTY AND EQUIPMENT, net................................. 223 202
OTHER ASSETS................................................ 49 49
------ ------
Total assets...................................... $3,336 $3,829
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term debt, including current maturities of long-term
debt................................................... $ 819 $ 962
Accounts payable and accrued expenses..................... 974 1,368
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 436 384
Other current liabilities................................. 3 1
------ ------
Total current liabilities......................... 2,232 2,715
LONG-TERM DEBT, net of current maturities................... 101 101
DEFERRED TAX LIABILITY...................................... 11 11
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 10,000 shares authorized,
1,000 shares issued and outstanding.................... 1 1
Retained earnings......................................... 991 1,001
------ ------
Total stockholder's equity........................ 992 1,002
------ ------
Total liabilities and stockholder's equity........ $3,336 $3,829
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-115
<PAGE> 182
SUMMIT ELECTRIC OF TEXAS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED JUNE 30,
MARCH 31, ----------------
1997 1996 1997
---------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES.................................................... $10,565 $3,136 $3,043
COST OF SERVICES (including depreciation)................... 9,157 2,637 2,605
------- ------ ------
Gross profit...................................... 1,408 499 438
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 1,340 330 399
------- ------ ------
Income from operations............................ 68 169 39
------- ------ ------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (56) (10) (22)
Other..................................................... 25 6 4
------- ------ ------
Other expense, net................................ (31) (4) (18)
------- ------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 37 165 21
PROVISION FOR INCOME TAXES.................................. 23 63 11
------- ------ ------
NET INCOME.................................................. $ 14 $ 102 $ 10
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-116
<PAGE> 183
SUMMIT ELECTRIC OF TEXAS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED JUNE 30,
MARCH 31, --------------
1997 1996 1997
---------- ----- -----
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 14 $ 102 $ 10
Adjustments to reconcile net income to net cash provided
by (used in) operating activities --
Depreciation and amortization.......................... 72 15 20
Provision for doubtful accounts........................ -- -- 10
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable............................... 316 464 (322)
Receivable from stockholder....................... 56 15 (63)
Other receivables................................. 32 (32) (27)
Costs and estimated earnings in excess of billings
on uncompleted contracts........................ (105) (86) (117)
Prepaid expenses and other current assets......... (23) 31 (16)
Increase (decrease) in --
Accounts payable and accrued expenses............. (498) (299) 394
Billings in excess of costs and estimated earnings
on uncompleted contracts........................ 48 (133) (52)
Other, net............................................. 3 10 (5)
----- ----- -----
Net cash provided by (used in) operating
activities...................................... (85) 87 (168)
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on notes receivable from related parties......... 3 1 1
Additions of property and equipment....................... (191) (30) --
----- ----- -----
Net cash provided by (used in) investing
activities...................................... (188) (29) 1
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt and notes payable............ 238 (107) 148
Payments of long-term debt................................ (19) 5 (6)
----- ----- -----
Net cash provided by (used in) financing
activities...................................... 219 (102) 142
----- ----- -----
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (54) (44) (25)
CASH AND CASH EQUIVALENTS, beginning of period.............. 111 110 57
----- ----- -----
CASH AND CASH EQUIVALENTS, end of period.................... $ 57 $ 66 $ 32
===== ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................... $ 56 $ 10 $ 22
Income taxes........................................... 16 16 6
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-117
<PAGE> 184
SUMMIT ELECTRIC OF TEXAS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, March 31, 1996 (unaudited)................ 1,000 $1 $ 977 $ 978
Net income....................................... -- -- 14 14
----- -- ------ ------
BALANCE, March 31, 1997............................ 1,000 1 991 992
Net income (unaudited)........................... -- -- 10 10
----- -- ------ ------
BALANCE, June 30, 1997 (unaudited)................. 1,000 $1 $1,001 $1,002
===== == ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-118
<PAGE> 185
SUMMIT ELECTRIC OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Summit Electric of Texas, Inc. (the Company), a Texas corporation, focuses
on providing electrical system installation and repair services primarily for
mid-sized to large commercial facilities. The Company performs the majority of
its contract work under fixed price contracts, with contract duration generally
ranging from two to eight months. The Company performs the majority of its work
primarily in Houston, Texas.
On a limited basis, the Company provides auto repair and restoration
services to its sole stockholder (the Stockholder) and third parties. The
revenues and cost of services related to such activities have not been removed
from the Company's results of operations for the year ended March 31, 1997, as
such amounts are not material.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of June 30, 1997, and for the three
months ended June 30, 1996 and 1997, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using an accelerated method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation expense was
$72,101 for the year ended March 31, 1997.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
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. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income, and
their effects 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.
F-119
<PAGE> 186
SUMMIT ELECTRIC OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for the first year after
installation of new electrical systems. The Company generally warrants labor for
30 days after servicing of existing electrical systems. A reserve for warranty
costs is recorded based upon the historical level of warranty claims and
management's estimate of future costs.
Accounts Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred assets and liabilities are recorded for future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates and
laws.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this footnote and Note 11 for discussion of
significant estimates reflected in the Company's financial statements.
New Accounting Pronouncement
Effective April 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if an impairment of such property is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such property and its carrying value. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
F-120
<PAGE> 187
SUMMIT ELECTRIC OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES MARCH 31,
IN YEARS 1997
------------ ---------
<S> <C> <C>
Transportation equipment.................................... 5 $ 450
Machinery and equipment..................................... 7 11
Computer and telephone equipment............................ 5 84
Leasehold improvements...................................... 31.5 52
Furniture and fixtures...................................... 7 43
-----
640
Less -- Accumulated depreciation and amortization........... (417)
-----
Property and equipment, net....................... $ 223
=====
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Balance at beginning of period.............................. $112
Additions to costs and expenses............................. --
Deductions for uncollectible receivables written off and
recoveries................................................ --
----
Balance at end of period.................................... $112
====
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Accounts payable, trade..................................... $696
Other accrued expenses...................................... 278
----
$974
====
</TABLE>
Electrical system installation contracts in progress are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Costs incurred on contracts in progress..................... $ 6,482
Estimated earnings, net of losses........................... 2,122
-------
8,604
Less -- Billings to date.................................... (8,801)
-------
$ (197)
=======
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 239
Less -- Billings in excess of costs and estimated earnings
on
uncompleted contracts.................................. (436)
-------
Net liability..................................... $ (197)
=======
</TABLE>
F-121
<PAGE> 188
SUMMIT ELECTRIC OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Note payable to bank bearing interest at 9.15%, payable in
monthly installments of principal and interest of $2,612
through October 2001, secured by transportation
equipment................................................. $117
Note payable to a financing company bearing interest at
7.9%, payable in monthly installments of principal and
interest of $557 through January 1999, secured by
transportation equipment.................................. 11
----
128
Less -- Current portion..................................... (27)
----
Long-term debt............................................ $101
====
</TABLE>
The maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
Year Ended March --
1998................................................... $ 27
1999................................................... 29
2000................................................... 26
2001................................................... 28
2002................................................... 18
----
$128
====
</TABLE>
The Company has a $1,000,000 line of credit with a bank. The line of credit
expires September 30, 1997, and bears interest at 1 percent above the prime
lending rate. The weighted average interest rate under this line of credit was
9.25 percent for fiscal 1997. The line of credit is secured by contracts
receivable, equipment, furniture and fixtures, and the personal guarantee of the
Stockholder. Outstanding borrowings under this line of credit at March 31, 1997,
total $788,142.
The bank line of credit requires the Company to maintain certain net worth
and profitability covenants. At March 31, 1997, the Company was in compliance
with its line-of-credit covenants, as amended.
On September 30, 1997, the Company negotiated an amendment to its existing
bank line of credit (the Amended Line of Credit). The Amended Line of Credit has
a $1,500,000 borrowing base and is due October 3, 1998. The Amended Line of
Credit bears interest at 1 percent above the prime lending rate.
6. LEASES:
The Company leases a facility from a company which is owned by the
Company's stockholder. The lease expires on November 30, 1998. The rent paid
under this related-party lease was approximately $96,000 for the year ended
March 31, 1997. The Company also leases two facilities from third parties. The
rent paid under these leases was approximately $7,144 for the year ended March
31, 1997.
F-122
<PAGE> 189
SUMMIT ELECTRIC OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under these noncancelable operating leases
are as follows (in thousands):
<TABLE>
<S> <C>
Year Ended March 31 --
1998................................................... $ 99
1999................................................... 66
2000................................................... 1
Thereafter............................................. --
----
$166
====
</TABLE>
7. INCOME TAXES:
Federal income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1997
----------
<S> <C>
Current --
Federal................................................... $17
State..................................................... 6
---
$23
===
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the blended U.S. federal and state statutory corporate rate of 28
percent to income before provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1997
----------
<S> <C>
Provision at the statutory rate............................. $10
Increase resulting from --
Permanent differences, mainly meals and entertainment..... 9
State income tax, net of benefit for federal deduction.... 4
---
$23
===
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities result principally from the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Allowance for doubtful accounts............................. $40
Warranty and contract allowances............................ 29
Bases difference on property and equipment.................. (15)
---
Deferred tax assets............................... $54
===
</TABLE>
F-123
<PAGE> 190
SUMMIT ELECTRIC OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1997
----------
<S> <C>
Deferred tax assets --
Current................................................... $ 69
Long-term................................................. --
----
Deferred tax assets............................... $ 69
====
Deferred tax liabilities --
Current................................................... $ (4)
Long-term................................................. (11)
----
Deferred tax liability...................................... (15)
====
Net deferred tax assets..................................... $ 54
====
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
Notes receivable from related parties consist of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Note receivable from the Stockholder, bearing an interest
rate of 7.07%, requiring monthly payments of interest,
maturing November 1998.................................... $250
Note receivable from the spouse of the Stockholder, bearing
an interest rate of 8%, requiring monthly installments of
principal and interest of $480, maturing April 2001....... 20
----
$270
====
</TABLE>
The Company provides auto repair and restoration services to the
Stockholder. During fiscal 1997, the Stockholder reimbursed the Company $81,161
for such services.
9. EMPLOYEE BENEFIT PLAN:
The Company adopted a 401(k) savings and investment plan approved by the
Internal Revenue Service effective January 1, 1996, covering all eligible
Company employees. Contributions may be made to the plan by an employee at a
percentage of salary but cannot exceed the maximum allowed by the Internal
Revenue Code and may be matched by a discretionary Company contribution.
The Company's contributions to the plan for the year ended March 31, 1997,
totaled $24,747.
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, notes receivable, accounts payable, and short and long-term
debt. The Company believes that the carrying values of these instruments on the
accompanying balance sheets approximate their fair values.
F-124
<PAGE> 191
SUMMIT ELECTRIC OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation and an umbrella policy.
The Company has not incurred significant uninsured losses on any of these items.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
For the year ended March 31, 1997, revenues from no one individual customer
exceeded 10 percent of total revenues.
In addition, the Company grants credit, generally without collateral, to
its customers, which are primarily general contractors located in Houston,
Texas. Consequently, the Company is subject to potential credit risk related to
changes in business and economic factors within Houston, Texas. However,
management believes that its contract acceptance, billing and collection
policies are adequate to minimize the potential credit risk.
13. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of an initial
public offering (the Offering) of additional common stock by IES. In addition,
the key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.
F-125
<PAGE> 192
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thurman & O'Connell Corporation:
We have audited the accompanying balance sheets of Thurman & O'Connell
Corporation, a Kentucky corporation, as of December 31, 1995 and 1996, and the
related statements of operations, cash flows and stockholders' equity for the
years then ended. 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 Thurman & O'Connell
Corporation as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 15, 1997
F-126
<PAGE> 193
THURMAN & O'CONNELL CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 860 $1,488 $1,480
Accounts receivable --
Trade, net of allowance of $37, $10 and $14,
respectively......................................... 1,078 315 367
Retainage.............................................. 348 78 181
Other receivables...................................... 12 17 5
Inventories............................................... 1,072 273 178
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. -- 22 22
Prepaid expenses and other current assets................. 4 13 7
------ ------ ------
Total current assets.............................. 3,374 2,206 2,240
PROPERTY AND EQUIPMENT, net................................. 342 306 317
------ ------ ------
Total assets...................................... $3,716 $2,512 $2,557
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 13 $ 6 $ 6
Accounts payable and accrued expenses..................... 663 242 278
Dividends payable to stockholders......................... 160 200 --
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,652 479 583
------ ------ ------
Total current liabilities......................... 2,488 927 867
LONG-TERM DEBT, net of current maturities................... 96 93 90
STOCKHOLDERS' EQUITY:
Common stock, no par value, 2,000 shares authorized, 200
shares issued and outstanding.......................... 300 300 300
Retained earnings......................................... 832 1,192 1,300
------ ------ ------
Total stockholders' equity........................ 1,132 1,492 1,600
------ ------ ------
Total liabilities and stockholders' equity........ $3,716 $2,512 $2,557
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-127
<PAGE> 194
THURMAN & O'CONNELL CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------- ----------------
1995 1996 1996 1997
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................................... $4,729 $4,551 $2,842 $2,254
COST OF SERVICES....................................... 3,309 3,059 1,973 1,073
------ ------ ------ ------
Gross profit................................. 1,420 1,492 869 1,181
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 512 503 239 271
------ ------ ------ ------
Income from operations....................... 908 989 630 910
------ ------ ------ ------
OTHER INCOME (EXPENSE):
Interest expense..................................... (13) (8) (5) (4)
Other................................................ 36 65 28 34
------ ------ ------ ------
Other income (expense), net.................. 23 57 23 30
------ ------ ------ ------
INCOME BEFORE INCOME TAX EXPENSE....................... 931 1,046 653 940
------ ------ ------ ------
INCOME TAX EXPENSE..................................... 19 36 17 32
------ ------ ------ ------
NET INCOME............................................. $ 912 $1,010 $ 636 $ 908
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-128
<PAGE> 195
THURMAN & O'CONNELL CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------- ---------------
1995 1996 1996 1997
------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 912 $ 1,010 $ 636 $ 908
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization.......................... 53 49 25 25
Provision to (reduction in) allowance for doubtful
accounts............................................. 13 10 (15) 4
Loss (gain) on sale of property and equipment.......... (1) -- -- 1
Changes in operating assets and liabilities --
(Increase) decrease in --
Receivables.......................................... (506) 1,018 605 (147)
Inventories.......................................... (405) 799 634 95
Costs and estimated earnings in excess of billings on
uncompleted contracts............................. 68 (22) (8) --
Prepaid expenses and other current assets............ 25 (9) (2) 6
Increase (decrease) in --
Accounts payable and accrued expenses................ (1) (421) (277) (164)
Billings in excess of costs and estimated earnings on
uncompleted contracts............................. 916 (1,173) (636) 104
------ ------- ------ ------
Net cash provided by operating activities......... 1,074 1,261 962 832
------ ------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 1 -- -- 19
Additions of property and equipment....................... (42) (13) (2) (56)
------ ------- ------ ------
Net cash used in investing activities............. (41) (13) (2) (37)
------ ------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.............................. -- 103 103 --
Payments of long-term debt................................ (63) (113) (109) (3)
Distributions to stockholders............................. (620) (610) (460) (800)
------ ------- ------ ------
Net cash used in financing activities............. (683) (620) (466) (803)
------ ------- ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 350 628 494 (8)
CASH AND CASH EQUIVALENTS, beginning of period.............. 510 860 860 1,488
------ ------- ------ ------
CASH AND CASH EQUIVALENTS, end of period.................... $ 860 $ 1,488 $1,354 $1,480
====== ======= ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................. $ 10 $ 8 $ 8 $ 7
Taxes................................................ $ 6 $ 26 $ 8 $ 15
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-129
<PAGE> 196
THURMAN & O'CONNELL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994.......................... 200 $300 $ 580 $ 880
Distributions to stockholders..................... -- -- (660) (660)
Net income........................................ -- -- 912 912
--- ---- ------ ------
BALANCE, December 31, 1995.......................... 200 300 832 1,132
Distributions to stockholders..................... -- -- (650) (650)
Net income........................................ -- -- 1,010 1,010
--- ---- ------ ------
BALANCE, December 31, 1996.......................... 200 300 1,192 1,492
Distributions to stockholders (unaudited)......... -- -- (800) (800)
Net income (unaudited)............................ -- -- 908 908
--- ---- ------ ------
BALANCE, June 30, 1997 (unaudited).................. 200 $300 $1,300 $1,600
=== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-130
<PAGE> 197
THURMAN & O'CONNELL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Thurman & O'Connell Corp. (the Company), a Kentucky corporation, focuses on
providing electrical system installation and repair services primarily to large
commercial facilities. The Company performs the majority of its contract work
under fixed price contracts, with contract terms generally ranging from 12 to 24
months. The Company performs the majority of its work in Kentucky.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
maintains its principal cash balances in one financial institution. The balances
are insured by the Federal Deposit Insurance Corporation up to $100,000.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Depreciation expense was approximately $53,000 and $49,000 for the years ended
December 31, 1995 and 1996, respectively.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
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. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
their effects are recognized in the period in which the revisions are
determined.
F-131
<PAGE> 198
THURMAN & O'CONNELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for the first year after
installation of new electrical systems. The Company generally warrants labor for
30 days after servicing of existing electrical systems.
Income Taxes
The stockholders of the Company have elected S Corporation status as
defined by the Internal Revenue Code, whereby the Company itself is not subject
to taxation for federal purposes. Under S Corporation status, the stockholders
report their share of the Company's taxable earnings or losses in their personal
tax returns. The provision for income taxes in the accompanying financial
statements relates to income and other taxes incurred by the Company in those
localities that do not permit the Company to report its net income with that of
its stockholders (S Corporation treatment). The Company intends to terminate its
S Corporation status concurrently with the effective date of the Offering (as
defined in Note 13).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this footnote for discussion of significant
estimates reflected in the Company's financial statements.
New Accounting Pronouncement
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such property is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
property and its carrying value. Adoption of this standard did not have a
material effect on the financial position or results of operations of the
Company.
F-132
<PAGE> 199
THURMAN & O'CONNELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------
IN YEARS 1995 1996
------------ ----- -----
<S> <C> <C> <C>
Land................................................... -- $ 25 $ 25
Building............................................... 30 206 206
Machinery and equipment................................ 7 39 39
Transportation equipment............................... 5 239 241
Computer and telephone equipment....................... 7 19 24
Furniture and fixtures................................. 7 20 23
----- -----
548 558
Less -- Accumulated depreciation and amortization...... (206) (252)
----- -----
$ 342 $ 306
===== =====
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Balance at beginning of period.............................. $24 $ 37
Additions to costs and expenses............................. 13 10
Deductions for uncollectible receivables written off and
recoveries................................................ -- (37)
--- ----
Balance at end of period.................................... $37 $ 10
=== ====
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Accounts payable, trade..................................... $516 $130
Accrued compensation and benefits........................... 50 60
Accrued cost overruns....................................... 78 21
Accrued warranty costs...................................... 10 10
Other accrued expenses...................................... 9 21
---- ----
$663 $242
==== ====
</TABLE>
F-133
<PAGE> 200
THURMAN & O'CONNELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Electrical system installation contracts in progress are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 2,159 $ 623
Estimated earnings, net of losses........................... 721 229
------- -------
2,880 852
Less -- Billings to date.................................... (4,532) (1,309)
------- -------
$(1,652) $ (457)
======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ -- $ 22
Less -- Billings in excess of costs and estimated earnings
on uncompleted contracts............................... (1,652) (479)
------- -------
$(1,652) $ (457)
======= =======
</TABLE>
5. LONG-TERM DEBT:
During 1996, the Company refinanced the note payable to a bank which was in
place at December 31, 1995, with a variable rate note payable. The note is
payable in monthly principal and interest payments of $1,051 through October
2004, at which time any unpaid principal and interest is due. The note is
collateralized by a cash account at the bank, and the Company has agreed not to
pay dividends in excess of the Company's net income for any fiscal year.
Interest is based upon a variable rate of 1% above the rate being offered on the
sweep account (6% as of December 31, 1996).
At December 31, 1995, the Company had a note payable to a bank which
required monthly principal payments of $1,051 plus interest at the prime rate
(8.25% at December 31, 1995) through July 2008. Under the agreement, the Company
agreed not to pay dividends in excess of the Company's net income for the year.
The note was collateralized by the Company's land and building.
The approximate aggregate maturities of long-term debt as of December 31,
1996, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 --
- --------------------------
<S> <C>
1997................................................... $ 6
1998................................................... 7
1999................................................... 8
2000................................................... 8
2001................................................... 9
Thereafter............................................. 61
---
$99
===
</TABLE>
The Company has a $1,000,000 line of credit with a bank. The line of credit
expires in April 1998 and bears interest at the prime lending rate. All
receivables are pledged as collateral under the agreement, and the Company has
agreed not to pay dividends in excess of net income for the year and to maintain
its deposit accounts with the bank. There were no borrowings under this
agreement at December 31, 1996. In 1995, the Company had a $500,000 unsecured
line of credit at prime with a bank, which expired in April 1996. There were no
borrowings under this agreement during 1995 or 1996.
F-134
<PAGE> 201
THURMAN & O'CONNELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. RELATED-PARTY TRANSACTIONS:
The Company earned revenue for electrical contracting services from
companies owned by a stockholder of approximately $47,000 and $40,000 as of
December 31, 1995 and 1996, respectively, with approximately $1,000 and $2,000
of the revenue being recorded as receivables at the respective balance sheet
dates. In addition, the Company has a receivable from another stockholder in the
amount of approximately $1,000 and $2,000 as of December 31, 1995 and 1996,
respectively, related to travel expense advances.
7. EMPLOYEE BENEFIT PLAN:
During 1995, the Company adopted a defined contribution 401(k) savings plan
covering employees meeting certain minimum service and age requirements, as
defined. The plan provides for discretionary contributions on the part of the
Company. For the years ended December 31, 1995 and 1996, the Company elected to
match 100% of the first 2 percent contributed by each employee. The
contributions paid by the Company totaled approximately $9,000 and $12,000 for
the years ended December 31, 1995 and 1996, respectively.
8. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, a line of credit, and long-term debt. The
Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.
9. STOCKHOLDERS' AGREEMENT:
The Company has a first right of refusal on any stock voluntarily offered
for sale by a stockholder subject to certain terms and conditions. The
redemption price shall be as determined by the stockholders on an annual basis
or by formula which is contained in the agreement if a value has not been
established by the stockholders. Such redemption price is payable in not more
than 10 equal quarterly installments with interest at the prime rate. As of
December 31, 1996, the redemption price was determined to be $5.141 per share.
Upon the death of any stockholder, the Company shall redeem the stock held
by such stockholder provided that the redemption is requested in writing by the
personal representative of the deceased stockholder within two months of the
appointment of such representative or the Company elects to redeem such stock
within the same two-month period. The redemption price pursuant to this
paragraph is the same as described above. Such redemption price may be paid in
full at the closing or in installments, the down payment being the greater of
one-fifth of redemption price or any life insurance proceeds received by the
Company resulting from the death of the stockholder with the balance payable in
quarterly installments over not more than five years with interest at the prime
rate. Coverage under the key-man term life insurance purchased by the Company
totaled $1,000,000 as of December 31, 1996.
10. DIVIDENDS:
As long as the election made by the stockholders to report the operations
of the Company on their individual federal and state income tax returns remains
in effect, the board of directors of the Company is required to declare a
dividend, subsequent to the close of the Company's tax year and prior to the
date when payment of individual income taxes is required, to provide the
stockholders sufficient cash to pay any applicable individual income taxes
resulting from the inclusion of the Company's taxable income on their individual
income tax returns. In addition, at the discretion of the Company's board of
directors, an additional minimum dividend shall be authorized which, when
combined with the dividend required to meet the tax obligations of the
shareholders, shall equal not less than 50 percent of the net pretax income of
the Company.
F-135
<PAGE> 202
THURMAN & O'CONNELL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is not currently involved in any significant disputes or legal
actions, however, such actions could arise in the ordinary course of business.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant uninsured losses on any of these items.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales of approximately 25, 18, 12, 12 and 11 percent of
total sales to five major customers during 1995 and sales of approximately 48,
11 and 10 percent of total sales to three major customers during 1996.
In addition, the Company grants credit, generally without collateral, to
its customers, which are general contractors in the commercial and industrial
construction markets in Kentucky. Consequently, the Company is subject to
potential credit risk related to changes in business and economic factors within
the commercial and industrial construction markets in this state. However,
management believes that its contract acceptance, billing and collection
policies are adequate to minimize the potential credit risk.
13. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of an initial
public offering (the Offering) of additional common stock by IES. In addition,
the key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.
F-136
<PAGE> 203
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................
Risk Factors..........................
The Company...........................
Use of Proceeds.......................
Dividend Policy.......................
Capitalization........................
Dilution..............................
Selected Financial Data...............
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Management............................
Certain Transactions..................
Principal Stockholders................
Description of Capital Stock..........
Shares Eligible for Future Sale.......
Underwriting..........................
Legal Matters.........................
Experts...............................
Additional Information................
Index to Financial Statements.........
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
7,000,000 SHARES
INTEGRATED ELECTRICAL
SERVICES, INC.
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
EQUITABLE SECURITIES CORPORATION
SANDERS MORRIS MUNDY
, 1997
======================================================
<PAGE> 204
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(A)
<TABLE>
<S> <C>
SEC Registration Fee........................................ $36,591
NASD Filing Fee............................................. 12,575
Listing Fee................................................. *
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing Expenses........................................... *
Transfer Agent's Fees....................................... *
Miscellaneous
-------
Total..................................................... $ *
=======
</TABLE>
- ---------------
(a) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of section 145 of the General Corporation Law of the State
of Delaware empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section 145
in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided for by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers the
II-1
<PAGE> 205
corporation to purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
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 Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit.
Article Eighth of the Company's Amended and Restated Certificate of
Incorporation states that:
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article Eighth
shall not eliminate or limit the liability of a director to the extent provided
by applicable law (i) for any breach of the director's duty of loyalty to the
Corporation 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 an improper personal benefit. No amendment to or repeal of this Article
Eighth shall apply to, or have any effect on, the liability or alleged liability
of any director of the Corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal. If the DGCL is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended.
In addition, Article VI of the Company's Bylaws further provides that the
Company shall indemnify its officers, directors and employees to the fullest
extent permitted by law.
The Company intends to enter into indemnification agreements with each of
its executive officers and directors.
Under Section of the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under certain
conditions, the Company, its officers and directors, and persons who control the
Company within the meaning of the Securities Act of 1933, as amended, against
certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information concerning all sales of securities
by the Company during the past three years that were not registered under the
Securities Act of 1933. The description presented below gives effect to the
Company's recent 2,329.6-for-one stock split effected in October, 1997.
(a) On June 26, 1997, the Company issued 2,329,600 shares of its
Common Stock at an aggregate price of $1,000 to C. Byron Snyder, the Snyder
Children's Trust and D. Merril Cummings.
(b) On September 5, 1997, the Company issued 1,672,711 shares of its
Common Stock to C. Byron Snyder, the Snyder Children's Trust, and to
certain executive officers and key employees at an aggregate price of $718.
(c) On September 15, 1997, the Company issued 50,000 shares of its
Common Stock to certain executive officers and key employees at an
aggregate price of $21.
(d) See "Certain Transactions" for a discussion of the issuance of
shares of Common Stock in connection with the Acquisitions.
These transactions were completed without registration under the Securities
Act of 1933 in reliance on the exemption provided by Section 4(2) of the
Securities Act of 1933.
II-2
<PAGE> 206
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
2.1 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Ace
Electric, Inc., and all of the Stockholders of Ace
Electric, Inc.
2.2 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Amber
Electric, Inc., and all of the Stockholders of Amber
Electric, Inc.
2.3 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., BW
Consolidated, Inc., all of the Stockholders of BW
Consolidated, Inc., Bexar Electric Company, Ltd., Calhoun
Electric Company, Ltd. and the Employment Partners of
such partnerships.
2.4 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Daniel
Electrical Contractors, Inc., Daniel Electrical of
Treasure Coast, Inc. and all of the Stockholders of
Daniel Electrical Contractors, Inc. and Daniel Electrical
of Treasure Coast, Inc.
2.5 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Stark
Investments, Inc., and all of the Stockholders of Stark
Investments, Inc.
2.6 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Hatfield
Electric, Inc., and all of the Stockholders of Hatfield
Electric, Inc.
2.7 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., General
Partner, Inc., Charles P. Bagby Company, Inc. and all of
the Stockholders of General Partner, Inc., Charles P.
Bagby Company, Inc.
2.8 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc.,
Houston-Stafford Electric, Inc., and all of the
Stockholders of Houston-Stafford Electric, Inc.
2.9 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Mills
Electrical Contractors, Inc., and all of the Stockholders
of Mills Electrical Contractors, Inc.
2.10 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Muth
Electric, Inc., and all of the Stockholders of Muth
Electric, Inc.
2.11 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Pollock
Electric Inc., and all of the Stockholders of Pollock
Electric Inc.
2.12 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Thomas
Popp & Company and all of the Stockholders of Thomas Popp
& Company.
2.13 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Reynolds
Electric Corp., and all of the Stockholders of Reynolds
Electric Corp.
2.14 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Rodgers
Electric Company, Inc., and all of the Stockholders of
Rodgers Electric Company, Inc.
2.15 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Summit
Electric of Texas, Incorporated, and all of the
Stockholders of Summit Electric of Texas, Incorporated.
</TABLE>
II-3
<PAGE> 207
<TABLE>
<C> <S>
2.16 -- Stock Purchase Agreement dated as of October 21, 1997 by and among Integrated
Electrical Services, Inc., Thurman & O'Connell Corporation, and all of the
Stockholders of Thurman & O'Connell Corporation.
*3.1 -- Amended and Restated Certificate of Incorporation.
*3.2 -- Bylaws.
*4.1 -- Specimen Common Stock Certificate.
*5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality of the securities being
registered.
*10.1 -- Form of Employment and Non-Competition Agreement.
*10.2 -- Form of Officer and Director Indemnification Agreement.
*10.3 -- Integrated Electrical Services, Inc. 1997 Stock Option and Incentive Plan.
*10.4 -- Non-employee Director Stock Option Plan.
*23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
24.1 -- Powers of Attorney (included in signature page set forth on page II-5).
27 -- Financial Data Schedule.
99.1 -- Consents of Directors to serve.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial statement schedules
None.
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:
(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
II-4
<PAGE> 208
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON OCTOBER 24, 1997.
Integrated Electrical Services, Inc.
By: /s/ C. BYRON SNYDER
----------------------------------
C. Byron Snyder
President and Chairman
of the Board of Directors
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints C. Byron Snyder and Jim P. Wise, and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any subsequent registration statements filed
by the Registrant pursuant to Rule 462(b) of the Securities Act of 1933, which
relates to this Registration Statement, and to file same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his or their substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON OCTOBER 24, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<C> <S> <C>
/s/ C. BYRON SNYDER President and Chairman of the
- ----------------------------------------------------- Board of Directors
C. Byron Snyder (Principal Executive
Officer)
/s/ JIM P. WISE Senior Vice President and
- ----------------------------------------------------- Chief Financial Officer
Jim P. Wise (Principal Financial
Officer)
/s/ J. PAUL WITHROW Vice President and Chief
- ----------------------------------------------------- Accounting Officer
J. Paul Withrow (Principal Accounting
Officer)
</TABLE>
II-5
<PAGE> 209
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
2.1 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Ace
Electric, Inc., and all of the Stockholders of Ace
Electric, Inc.
2.2 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Amber
Electric, Inc., and all of the Stockholders of Amber
Electric, Inc.
2.3 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., BW
Consolidated, Inc., all of the Stockholders of BW
Consolidated, Inc., Bexar Electric Company, Ltd., Calhoun
Electric Company, Ltd. and the Employment Partners of
such partnerships.
2.4 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Daniel
Electrical Contractors, Inc., Daniel Electrical of
Treasure Coast, Inc. and all of the Stockholders of
Daniel Electrical Contractors, Inc. and Daniel Electrical
of Treasure Coast, Inc.
2.5 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Stark
Investments, Inc., and all of the Stockholders of Stark
Investments, Inc.
2.6 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Hatfield
Electric, Inc., and all of the Stockholders of Hatfield
Electric, Inc.
2.7 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., General
Partner, Inc., Charles P. Bagby Company, Inc. and all of
the Stockholders of General Partner, Inc., Charles P.
Bagby Company, Inc.
2.8 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc.,
Houston-Stafford Electric, Inc., and all of the
Stockholders of Houston-Stafford Electric, Inc.
2.9 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Mills
Electrical Contractors, Inc., and all of the Stockholders
of Mills Electrical Contractors, Inc.
2.10 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Muth
Electric, Inc., and all of the Stockholders of Muth
Electric, Inc.
2.11 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Pollock
Electric Inc., and all of the Stockholders of Pollock
Electric Inc.
2.12 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Thomas
Popp & Company and all of the Stockholders of Thomas Popp
& Company.
2.13 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Reynolds
Electric Corp., and all of the Stockholders of Reynolds
Electric Corp.
2.14 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Rodgers
Electric Company, Inc., and all of the Stockholders of
Rodgers Electric Company, Inc.
</TABLE>
II-6
<PAGE> 210
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
2.15 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Summit
Electric of Texas, Incorporated, and all of the
Stockholders of Summit Electric of Texas, Incorporated.
2.16 -- Stock Purchase Agreement dated as of October 21, 1997 by
and among Integrated Electrical Services, Inc., Thurman &
O'Connell Corporation, and all of the Stockholders of
Thurman & O'Connell Corporation.
*3.1 -- Amended and Restated Certificate of Incorporation.
*3.2 -- Bylaws.
*4.1 -- Specimen Common Stock Certificate.
*5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality of
the securities being registered.
*10.1 -- Form of Employment and Non-Competition Agreement.
*10.2 -- Form of Officer and Director Indemnification Agreement.
*10.3 -- Integrated Electrical Services, Inc. 1997 Stock Option
and Incentive Plan.
*10.4 -- Non-employee Director Stock Option Plan.
*23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit
5.1).
23.2 -- Consent of Arthur Andersen LLP.
24.1 -- Powers of Attorney (included in signature page set forth
on page II-5).
27 -- Financial Data Schedule.
99.1 -- Consents of Directors to serve.
</TABLE>
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* To be filed by amendment.
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STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
ACE ELECTRIC, INC.
and
all of the STOCKHOLDERS of ACE ELECTRIC, INC.
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TABLE OF CONTENTS
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Page
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
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<TABLE>
<S> <C> <C>
18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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<PAGE> 7
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation
and By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
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<PAGE> 8
SCHEDULES
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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<PAGE> 9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), ACE ELECTRIC, INC., a Georgia corporation (the
"Company"), and the stockholders listed on the signature pages of this
Agreement (the "Stockholders"), which are all the stockholders of the Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of
a Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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<PAGE> 12
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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<PAGE> 13
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Georgia.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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<PAGE> 14
(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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<PAGE> 15
occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods
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<PAGE> 18
then ended, subject, in the case of the Interim Financial Statements,
to normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and (c) name of claimant and all
other parties to the claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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<PAGE> 19
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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<PAGE> 20
Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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<PAGE> 21
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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<PAGE> 22
5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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<PAGE> 24
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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<PAGE> 25
has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended December 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
(b) The Stockholders made a valid election under the provisions of
Subchapter S of the Code and the Company has not, within the past five years,
been taxed under the provisions of Subchapter C of the Code. The Stockholders
shall pay, and they hereby indemnify IES and the Company against, all income
taxes payable with respect to the Company's operations for all periods through
and including the Consummation Date.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any
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<PAGE> 27
of the terms, conditions or provisions of (i) the Charter Documents of the
Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any of its properties or assets, or
(iii) any Material Document to which the Company or any of the Stockholders is
now a party or by which any of the Stockholders or the Company or any of its
properties or assets may be bound or affected. The consummation by the Company
and the Stockholders of the transactions contemplated hereby will not result in
any material violation, conflict, breach, right of termination or acceleration
or creation of liens under any of the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the preceding sentence,
subject, in the case of the terms, conditions or provisions of the items
described in clause (iii) above, to obtaining (prior to the Effective Time)
such consents as may be required from commercial lenders, lessors or other
third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
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<PAGE> 28
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
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<PAGE> 29
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access
thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
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5.29 DISCLOSURE. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished in writing by IES. If, during the
period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
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5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
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6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
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6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
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against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii)
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any filings required under the Hart-Scott Act and under state securities laws
in connection with the purchase and sale of the Company Stock or the capital
stock of the Other Founding Companies, no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by IES or the consummation by IES of the transactions
contemplated hereby.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
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6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
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(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement
to be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
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(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
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(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
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7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. IES shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of IES contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of IES to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. The delivery of
any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to
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a Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
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7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
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8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the Closing Date and the
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Consummation Date, respectively, and signed by the President or
any Vice President of IES shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and
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regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after IES has furnished such Indemnified Party with a sufficient number of
copies of the same.
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(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
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17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
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18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
-55-
<PAGE> 64
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Wade Coleman
Coleman, Talley & Newbern
P.O. Box 5437
Valdosta, Georgia 31603
(c) If to the Company, addressed to it at:
Ace Electric, Inc.
313 Janet Drive
Valdosta, Georgia 31602
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
-56-
<PAGE> 65
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
-57-
<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
______________________________
Senior Vice President and
Chief Financial Officer
[Remainder of page intentionally left blank]
-58-
<PAGE> 67
ACE ELECTRIC, INC.
By: /s/
----------------------------------
Name:
--------------------------
Title:
-------------------------
/s/ ROBERT STALVEY
--------------------------------------
Robert Stalvey Shares Owned: 7,150
5219 New Bethel Road
Valdosta, Georgia 31605
/s/ THOMAS STALVEY
--------------------------------------
Thomas Stalvey Shares Owned: 7,150
7008 Franklinville Road
Valdosta, Georgia 31605
-59-
<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND ACE ELECTRIC, INC.
AND ITS STOCKHOLDERS
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDERS:
$3,566,388 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 191,056 shares of IES common stock and $891,597 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below multiplied by the actual
initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock(1) Cash
----------- ------------ --------------- --------------
<S> <C> <C> <C>
Robert Stalvey 7,150 95,528 $445,799
Thomas Stalvey 7,150 95,528 445,799
----------------------- ---------------------- --------------
14,300 191,056 $891,597
======================= ====================== ==============
MINIMUM VALUE: 2,917,953
- -----------------
(1) After giving effect to the proposed stock split described in the Draft Registration Statement.
</TABLE>
<PAGE> 69
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed in
the Schedules to the definitive agreement) and excess cash, plus any
remaining excess cash (as set forth on the next page). To the extent
nonoperating assets and cash are not sufficient to fund a portion of the
distribution of previously taxed earnings, the company may complete the
distribution by issuing a note payable to shareholders which will be
funded by IES as soon as practical after the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1, 1997,
through the consummation date. To the extent the company does not have
sufficient cash available to distribute the net earnings from July 1,
1997, through the consummation date, the distribution may be in the form
of a note payable to the shareholder(s) and will be funded by IES as soon
as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1 and
2 above may not reduce the Company's equity as determined under generally
accepted accounted principles below the minimum cash requirements set
forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on the
next page) at June 30, 1997, along with nonoperating net assets (as
disclosed in the Schedules to the definitive agreement) to be distributed
to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute all
net earnings after tax from July 1, 1997, through the consummation date.
To the extent the company does not have sufficient cash available to
distribute the net earnings from July 1, 1997, through the consummation
date, the distribution may be in the form of a note payable to the
shareholder(s) and will be funded by IES as soon as practical after the
consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1 and
2 above may not reduce the Company's equity as determined under generally
accepted accounting principles below the minimum cash requirements set
forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
-----------------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
AMBER ELECTRIC, INC.
and
all of the STOCKHOLDERS of AMBER ELECTRIC, INC.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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ANNEXES
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Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
</TABLE>
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SCHEDULES
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), AMBER ELECTRIC, INC., a Florida corporation (the
"Company"), and the stockholders listed on the signature pages of this
Agreement (the "Stockholders"), which are all the stockholders of the Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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<PAGE> 12
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Florida.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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<PAGE> 14
(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the
Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods
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<PAGE> 18
then ended, subject, in the case of the Interim Financial Statements,
to normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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<PAGE> 19
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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<PAGE> 20
Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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<PAGE> 21
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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<PAGE> 22
5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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<PAGE> 24
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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<PAGE> 25
has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended December 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of (i)
the Charter Documents of the Company, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
properties or assets, or (iii) any Material Document to which the Company or
any of the Stockholders is now a party or by which any of the Stockholders or
the Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the
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Stockholders of the transactions contemplated hereby will not result in any
material violation, conflict, breach, right of termination or acceleration or
creation of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
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(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
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(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which 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. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not
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apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished in writing by IES. If, during
the period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
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5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties
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set forth herein shall survive until the expiration of any applicable
limitations period, which shall be deemed to be the Expiration Date for such
purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
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6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
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6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act and under state securities laws in connection with the purchase
and sale of the Company Stock or the capital stock of the Other Founding
Companies, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by IES
or the consummation by IES of the transactions contemplated hereby.
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6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
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6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material
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which may be required in connection with any documents or materials required by
this Agreement. The Company will cause all information obtained in connection
with the negotiation and performance of this Agreement to be treated as
confidential in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
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7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
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(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement
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to be complied with or satisfied by such person hereunder. IES shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of IES contained herein to be untrue or inaccurate
in any material respect at or prior to the Closing and (ii) any material
failure of IES to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to a
Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
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7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
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7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the
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Closing Date and the Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Consummation Date, respectively, and signed by
the President or any Vice President of IES shall have been delivered to the
Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and
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regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration
-52-
<PAGE> 61
statement or prospectus or any amendment or supplements thereto after IES has
furnished such Indemnified Party with a sufficient number of copies of the
same.
(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
-53-
<PAGE> 62
17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
-54-
<PAGE> 63
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
-55-
<PAGE> 64
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Greg Humphreys
Shulttz & Bowen
20 N. Orange Avenue
Suite 1000
Orlando, Florida 32801-4626
(c) If to the Company, addressed to it at:
Amber Electric, Inc.
630 Kissimmee Avenue
P.O. Box 737
Ocoee, Florida 34761
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
-56-
<PAGE> 65
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
-57-
<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
------------------------------------
Senior Vice President and
Chief Financial Officer
[Remainder of page intentionally left blank]
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<PAGE> 67
AMBER ELECTRIC, INC.
By: /s/
---------------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
/s/ DANNIEL J. PETRO
------------------------------------------------
Danniel J. Petro Shares Owned: 561
Family Trust
Box 737
Ocoee, Florida 34761
-59-
<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND AMBER ELECTRIC, INC.
AND ITS STOCKHOLDER
CONSIDERATION TO BE PAID TO THE STOCKHOLDER
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDER:
$9,944,261 in cash and the value of outstanding common Stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 532,728 shares of IES common stock and $2,486,065 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below multiplied by the actual
initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDER:
<TABLE>
<CAPTION>
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock(1) Cash
----------- ------------ --------------- -----------
<S> <C> <C> <C>
Danniel J. Petro Family 561 532,728 $2,486,065
---------- ------- ----------
561 532,728 $2,486,065
=========== ======= ==========
MINIMUM VALUE 8,136,216
</TABLE>
- --------------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 69
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
---------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
BW CONSOLIDATED, INC.
all of the STOCKHOLDERS named herein
BEXAR ELECTRIC COMPANY, LTD.,
CALHOUN ELECTRIC COMPANY, LTD.
and
the EMPLOYEE PARTNERS named herein
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of
the Company and IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . 21
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . 28
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . 55
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of
Incorporation and By-Laws of IES;
Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and
Stockholders
Annex V - Form of Key Employee Employment Agreement
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SCHEDULES
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
13.1 Stockholders with Non-Competes
16.2 Non-accredited Investors
18.5 Brokers and Agents
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), BW CONSOLIDATED, INC., a Nevada corporation (the
"Company" and where necessary or appropriate as the context requires, Company
shall refer to the Company and its Subsidiaries); Bob Weik, The Katherine Ann
Mabry Trust of 1996 and The Lori Diane Weik Trust of 1996, which are all the
stockholders of the Company; Bexar Electric Company, Ltd., a Texas limited
partnership and Calhoun Electric Company, Ltd., a Texas limited partnership
(collectively, the "Partnership"); and James C. Foster, Carl Johnston, Clifton
Engel, Wayne Zwicke, Bobby Neuse, Billy Hill, Alfredo Perez, Albert Bloch, Jr.,
Jerald Jarzombek, Robert Hufnagl, Doug Burg, Wesley Johnson, Melvin Starr,
Randy Belken, Charlie Luensman, Brian Marr, Aubrey Steffen, and Dennis
Nollkamper (together with Bob Weik, The Katherine Ann Mabry Trust of 1996 and
The Lori Diane Weik Trust of 1996, the "Stockholders").
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders and the Employee
Partners own, and as of the Consummation Date the Stockholders and the Employee
Partners will own, all of the issued and outstanding capital stock of the
Company and all of the interests in BW/CEC, BW/BEC and the Partnership (the
"Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, the Employee Partners, and each of the Other Founding
Companies that are parties to the Other Agreements, have approved and adopted
the IES Plan of Organization as an integrated plan pursuant to which the
Stockholders, the Employee Partners, and the stockholders of each of the other
Founding Companies will transfer their respective membership interests in
BW/BEC and BW/CEC, their partnership interests in the Partnership, or the
capital stock of each of the Founding Companies to IES and the Stockholders,
the Employee Partners, and the stockholders of each of the other Founding
Companies will acquire the stock of IES (but not cash or other property) as a
tax-free transfer of property under Section 351 of the Code;
<PAGE> 10
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
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<PAGE> 11
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Employee Partners" has the meaning set forth on the signature pages
hereto.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
BW Consolidated, Inc., a Nevada corporation (together with its
subsidiaries Bexar Electric Company, Ltd., a Texas limited
partnership, and Calhoun Electric Company, Ltd., a Texas limited
partnership);
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
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<PAGE> 12
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals of this
Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
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<PAGE> 13
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Nevada.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
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<PAGE> 14
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders and the Employee Partners
shall sell to IES and IES shall purchase from the Stockholders and the Employee
Partners, all of the issued and outstanding shares of capital stock of the
Company and all of their respective interests in BW/CEC, BW/BEC and the
Partnership as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
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3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
3.3 INTEREST TRANSFERS AND CONSENTS. At or prior to the Pricing,
each of the Employee Partners shall deliver executed transfer and assignments
("Transfers and Assignments"), attached hereto at Schedule 3.3 and pursuant to
which each such Employee Partner transfers all of its interest in Partnership
to IES effective as of the Consummation Date. At or prior to the Pricing, Bob
Weik shall deliver executed transfers and assignments (also "Transfers and
Assignments"), attached hereto at Schedule 3.3 and pursuant to which Bob Weik
transfers all of his interest in both BW/CEC and BW/BEC to IES on or effective
as of the Consummation Date. At or prior to the Pricing, each of the Employee
Partners shall deliver executed consents ("Consents"), attached hereto at
Schedule 3.3 and pursuant to which the necessary partners of Partnership
consent to the transfer of such Employee Partner's interest in the Partnership
to and substitution as a partner of IES, to IES on or effective as of the
Consummation Date. At or prior to the Pricing, Bob Weik shall deliver executed
consents (also "Consents"), attached hereto at Schedule 3.3 and pursuant to
which the necessary members of each of BW/CEC and BW/BEC consent to the
transfer of Bob Weik's interests in BW/CEC and BW/BEC to and substitution as a
member of IES, to IES on or effective as of the Consummation Date.
3.4 DELIVERY OF CONSIDERATION. On the Consummation Date, each
Employee Partner and Bob Weik shall, upon delivery of the Transfer and
Assignment, and Consent referred to in Section 3.3 hereof with respect to such
person's interest in the Partnership, BW/CEC or BW/CEC, as appropriate, receive
the respective number of shares of IES Stock
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and the amount of cash described in Annex I hereto, said cash to be payable by
certified check or wire transfer.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall occur at or prior to the Pricing (the "Closing"), shall take
place on the closing date (the "Closing Date") at the offices of Andrews &
Kurth L.L.P, 4200 Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All
Company Stock and the Transfers and Assignments and Consents shall be delivered
at the Closing to Andrews & Kurth L.L.P., to be held in trust until the
Consummation Date, and shall be returned immediately upon any termination of
this Agreement prior to the Consummation Date. On the Consummation Date (x)
all transactions contemplated by this Agreement, including the delivery of
shares and cash which the Stockholders shall be entitled to receive pursuant to
Annex I hereof, shall be completed, and (y) the closing with respect to the IPO
shall occur and be completed. The date on which the actions described in the
preceding clauses (x) and (y) occurs shall be referred to as the "Consummation
Date." During the period from the Closing Date to the Consummation Date, this
Agreement may only be terminated by the Company if the underwriting agreement
in respect of the IPO is terminated pursuant to the terms of such underwriting
agreement. This Agreement shall in any event terminate if the Consummation
Date does not occur within 30 days of the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the
Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
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5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of deliberations of or
actions taken by the Company's Board of Directors, any committees of the Board
of Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) the Company has no obligation (contingent or otherwise) to
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<PAGE> 18
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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods
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<PAGE> 19
ended June 30, 1996 and 1997, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and
schedules are referred to herein as the "Interim Financial
Statements"). The Year-end Financial Statements and the Interim
Financial Statements are collectively called the "Financial
Statements". The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis and fairly present the financial position of the
Company as of the dates thereof and the results of its operations and
changes in financial position for the periods then ended, subject, in
the case of the Interim Financial Statements, to normal year-end and
audit adjustments and any other adjustments described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
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<PAGE> 20
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or
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<PAGE> 21
liable under, any Environmental Law in connection with the ownership or
operation of its business, (iv) there are no civil, criminal or administrative
actions, suits, demands, claims, hearings, investigations or proceedings
pending or, to the knowledge of the Company or the Stockholders, threatened,
against the Company relating to any violation, or alleged violation, of any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company concerning the release of any Hazardous Substance or the
threatened or actual violation of any Environmental Law, (vi) no Hazardous
Substance has been disposed of, released or transported in violation of any
applicable Environmental Law from any properties owned by the Company as a
result of any activity of the Company during the time such properties were
owned, leased or operated by the Company, (vii) there have been no
environmental investigations, studies, audits, tests, reviews or other analysis
regarding compliance or non-compliance with any applicable Environmental Law
conducted by or which are in the possession of the Company relating to the
activities of the Company which are not listed on Schedule 5.13 attached hereto
prior to the date hereof, (viii) to the knowledge of the Company and the
Stockholders, there are no underground storage tanks on, in or under any
properties owned by the Company and no underground storage tanks have been
closed or removed from any of such properties during the time such properties
were owned, leased or operated by the Company which are not listed on Schedule
5.13, (ix) to the knowledge of the Company and the Stockholders, there is no
asbestos or asbestos-containing material present in any of the properties owned
by the Company, and no asbestos has been removed from any of such properties
during the time such properties were owned, leased or operated by the Company,
and (x) neither the Company nor any of its respective properties are subject to
any material liabilities or expenditures (fixed or contingent) relating to any
suit, settlement, court order, administrative order, regulatory requirement,
judgment or claim asserted or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence,
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<PAGE> 22
nuisance, trespass and strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of, effects of or exposure to any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options
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<PAGE> 23
to purchase land), other than agreements listed on Schedules 5.10, 5.14 or
5.16, (a) in existence as of the Balance Sheet Date and (b) entered into since
the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule 5.15 a
summary description of all plans or projects involving the opening of new
operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
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<PAGE> 24
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included on Schedule 5.16 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material
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<PAGE> 25
respects with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, and the payment of social security and similar taxes, and (iii) no
person has asserted that the Company is liable in any material amount for any
arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing.
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
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5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, threatened
against or affecting, the Company,
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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 any of them and no written notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
the Company, and to the knowledge of the Company and the Stockholders there is
no basis for any such claim, action, suit or proceeding. The Company has
conducted and is now conducting its business in compliance in all material
respects with the requirements, standards, criteria and conditions set forth in
applicable Federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations.
5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended December 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
(b) The Stockholders made a valid election under the provisions of
Subchapter S of the Code effective for the predecessor of the Company as of
January 1, 1996. Prior to such date, the Company's predecessor in interest was
taxed under the provisions of Subchapter C of the Code. The Stockholders shall
pay, and they hereby indemnify IES and the Company against, all income taxes
payable with respect to the Company's operations for all periods through and
including the Consummation Date.
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5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of (i)
the Charter Documents of the Company, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
properties or assets, or (iii) any Material Document to which the Company or
any of the Stockholders is now a party or by which any of the Stockholders or
the Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the Stockholders of the transactions
contemplated hereby will not result in any material violation, conflict,
breach, right of termination or acceleration or creation of liens under any of
the terms, conditions or provisions of the items described in clauses (i)
through (iii) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (iii) above, to
obtaining (prior to the Effective Time) such consents as may be required from
commercial lenders, lessors or other third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
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(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
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(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company
and a description of the terms of such power.
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<PAGE> 31
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which 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. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished in writing by IES. If, during the
period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been
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or will be made or performed by any prospective Underwriter, relative to IES or
the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock or interests
in BW/BEC, BW/CEC and the Partnership identified on Annex I hereto as being
owned by such Stockholder, and, such Company Stock is owned free and clear of
all liens, encumbrances and claims of every kind.
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5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock,
interests in the Partnership or IES Stock that such Stockholder has or may have
had. Nothing herein, however, shall limit or restrict the rights of any
Stockholder to acquire IES Stock pursuant to (i) this Agreement or (ii) any
outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1 or Section 3.3.
6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
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<PAGE> 34
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
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6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the
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effectiveness thereof by the SEC and filings with various state blue sky
authorities, and (iii) any filings required under the Hart-Scott Act in
connection with the purchase and sale of the Company Stock or the capital stock
of the Other Founding Companies, none of the IES Documents requires notice to,
or the consent or approval of, any governmental agency or other third party
with respect to the consummation by IES of any of the transactions contemplated
hereby in order to remain in full force and effect, and consummation by IES of
the transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any material right or
benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act and under state securities laws in connection with the purchase
and sale of the Company Stock or the capital stock of the Other Founding
Companies, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by IES
or the consummation by IES of the transactions contemplated hereby.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
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6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules thereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will
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furnish IES with such additional financial and operating data and other
information as to the business and properties of the Company as IES may from
time to time reasonably request. The Company will cooperate with IES, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. IES, the Stockholders and the Company
will treat all information obtained in connection with the negotiation and
performance of this Agreement or the due diligence investigations conducted
with respect to the Company as confidential in accordance with the provisions
of Section 14 hereof.
(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement
to be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
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(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested
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in good faith and by appropriate proceedings (and for which contested
taxes adequate reserves have been established and are being
maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of
business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or
5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
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7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. IES shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of IES contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of IES to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. The delivery of
any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether
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the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to a
Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the
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Company or the results of its operations from the financial statements as of
the Balance Sheet Date, except for the transactions permitted pursuant to the
terms and conditions for equity distributions described in Annex I. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section
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8.9, as of the Consummation Date, if any such conditions have not been
satisfied, any one or more Stockholders owning 51% or more of the Company Stock
shall have the right to terminate this Agreement, or in the alternative, waive
any condition not so satisfied. Any act or action of the Stockholders in
consummating the Closing or delivering the certificates representing Company
Stock as of the Consummation Date shall constitute a waiver of any conditions
not so satisfied. However, no such waiver shall be deemed to affect the
survival of the representations and warranties of IES contained in Section 6
hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the Closing Date and the
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Consummation Date, respectively, and signed by the President or
any Vice President of IES shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
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8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company or interests in BW/CEC, BW/BEC or the Partnership for IES Stock (but
not cash or other property) pursuant to the IES Plan of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
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9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
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9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
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9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
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10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
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11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that such indemnity shall not inure to the benefit of IES or the Company to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
Stockholders provided, in writing, corrected information to IES counsel and to
IES for inclusion in the final prospectus, and such information was not so
included or properly delivered, and provided further, that no Stockholder shall
be liable for any indemnification obligation pursuant to this Section 11.1 to
the extent solely attributable to a breach of any representation, warranty or
agreement made herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any
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Stockholder relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability,
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and for so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim and the Indemnified Party refuses to
consent to such settlement, then the Indemnifying Party's liability under this
Section with respect to such Third Person claim shall be limited to the amount
so offered in settlement by said Third Person. Upon agreement as to such
settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to
in such settlement. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party
may undertake such defense through counsel of its choice, at the cost and
expense of the Indemnifying Party, and the Indemnified Party may settle such
matter, and the Indemnifying Party shall pay the Indemnified Party for the
settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification
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Threshold"). Stockholders shall not assert any claim for indemnification
hereunder against IES until such time as, and solely to the extent that, the
aggregate of all claims which Stockholders may have against IES shall exceed
$50,000. Even after the $50,000 threshold for IES or the Indemnification
Threshold for a Stockholder has been met, all claims must be made in $10,000
increments, which claims may be cumulated in order to meet such $50,000 and
$10,000 thresholds. For purposes of this paragraph, the IES Stock delivered to
the Stockholders shall be valued at the initial public offering price as set
forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock or interests in BW/CEC, BW/BEC or the Partnership. For purposes of
crediting Stockholders for payments made pursuant to Section 11.1, the IES
Stock shall be valued at the greater of (a) the initial public offering price
as set forth in the Registration Statement and (b) the average of the closing
prices of the IES Stock (rounded to the nearest one thousandth) on the five
trading days preceding the date on which a claim for indemnification is made,
as reported in The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set
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forth in Section 8 hereof have not been satisfied or waived as of the
Closing Date or the Consummation Date, as applicable, or by IES, if
the conditions set forth in Section 9 hereof have not been satisfied
or waived as of the Closing Date or the Consummation Date, as
applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders (excluding the
Employee Partners listed on Schedule 13.1 hereto who have previously executed
agreements which contain covenants not to compete) will not, without the prior
written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such
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Stockholder after due inquiry, IES or any subsidiary thereof made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach
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of any other provision hereof by any party hereto and shall have no effect if
the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Stockholders
shall, if possible, give prior written notice thereof to IES and provide IES
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section,
IES shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting IES from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In
the event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law,
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provided, that prior to disclosing any information pursuant to this clause
(ii), IES shall, if possible, give prior written notice thereof to the Company
and the Stockholders and provide the Company and the Stockholders with the
opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, and (d) to the public to the
extent necessary or advisable in connection with the filing of the Registration
Statement and the IPO and the securities laws applicable thereto and to the
operation of IES as a publicly held entity after the IPO. In the event of a
breach or threatened breach by IES of the provisions of this Section, the
Company and the Stockholders shall be entitled to an injunction restraining IES
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY
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ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION, APPOINTMENT OR
OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING DATE]. 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)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and regulations of the SEC. All the IES Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
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17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free
organization under Section 351 of the Code. In addition, if IES is advised in
writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 17.1 that the number of shares to be sold by persons other than
IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
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<PAGE> 60
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any term sheet
associated therewith), and such other documents as such Stockholder
may reasonably request in order to facilitate the disposition of the
relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent
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<PAGE> 61
corporate documents and properties of IES (the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause IES' officers, directors and employees to
supply all information reasonably requested by any such Inspectors in
connection with such registration statement; provided, that records
which IES determines, in good faith, to be confidential and which IES
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in the registration
statement or (ii) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction after
delivery of sufficient notice to IES to enable IES to contest such
subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow
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<PAGE> 62
agent, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after IES has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more
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<PAGE> 63
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
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<PAGE> 64
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
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<PAGE> 65
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
W. Kirk Baker
Oppenheimer, Blend, Harrison & Tate, Inc.
711 Navarro, Suite 600
San Antonio, Texas 78205
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<PAGE> 66
(c) If to the Company, addressed to it at:
Bexar Electric Company, Ltd.
Attn: Bob Weik
2014 West Avenue
San Antonio, Texas 78201
W. Kirk Baker
Oppenheimer, Blend, Harrison & Tate, Inc.
711 Navarro, Suite 600
San Antonio, Texas 78205
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
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<PAGE> 67
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
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<PAGE> 68
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement effective as of the date and year first above written.
COMPANY:
BW CONSOLIDATED, INC.
By: /s/
--------------------------------------
Bob Weik, President
STOCKHOLDERS: SPOUSES:
/s/ /s/
- ----------------------------------------- ----------------------------------
Bob Weik (Signature)
----------------------------------
THE KATHERINE ANN MABRY TRUST (Print Name)
OF 1996,
Katherine Ann Mabry BW Consolidated "S"
Trust
By: /s/
--------------------------------------
Katherine Ann Mabry, trustee
THE LORI DIANE WEIK TRUST OF 1996,
Lori Diane Weik BW Consolidated "S" Trust
By: /s/
--------------------------------------
Lori Diane Weik, trustee
PARTNERSHIPS;
BEXAR ELECTRIC COMPANY, LTD.
By: BW/BEC, Inc., its general partner
By: /s/
--------------------------------------
Bob Weik, President
<PAGE> 69
CALHOUN ELECTRIC COMPANY, LTD.
By: BW/CEC, Inc., its general partner
By: /s/
--------------------------------------
Bob Weik, President
EMPLOYEE PARTNERS: SPOUSES:
/s/ /s/
- ----------------------------------------- ----------------------------------
Carl Johnston (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Clifton Engel (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Wayne Zwicke (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Bobby Neuse (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Billy Hill (Signature)
----------------------------------
<PAGE> 70
/s/ /s/
- ----------------------------------------- ----------------------------------
Alfredo Perez (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Albert Bloch, Jr. (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Jerald Jarzombek (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Robert Hufnagl (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Doug Burg (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Wesley Johnson (Signature)
----------------------------------
(Print Name)
<PAGE> 71
/s/ /s/
- ----------------------------------------- ----------------------------------
Melvin Starr (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Randy Belken (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Charlie Luensman (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Brian Marr (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Aubrey Steffen (Signature)
----------------------------------
(Print Name)
/s/ /s/
- ----------------------------------------- ----------------------------------
Dennis Nollkamper (Signature)
----------------------------------
(Print Name)
<PAGE> 72
/s/ /s/
- ----------------------------------------- ----------------------------------
James C. Foster (Signature)
----------------------------------
(Print Name)
INTEGRATED ELECTRICAL SERVICES,
INC.
By: /s/
--------------------------------------
Senior Vice President
and Chief Financial Officer
<PAGE> 73
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND BEXAR ELECTRIC COMPANY, LTD.
AND ITS STOCKHOLDERS
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDERS:
$34,783,406 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 1,863,397 shares of IES common stock and $8,695,852 of
cash, it being agreed that the actual amount of all shares shall remain
unchanged while the cash payments described in this Annex I will depend on the
actual initial public offering price of the common stock of IES in the IPO,
which may be more or less than $14.00 per share; provided, however that the
aggregate consideration shall not be less than the minimum value set forth
below. Such cash will be the cash consideration noted below multiplied by the
actual initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<S> <C> <C> <C>
Percentage
of Direct
and Indirect Shares of IES
Stockholder Ownership Common Stock(1) Cash
----------- --------- -------------- --- ----------------------
Bob Weik 72.4697% 1,350,399 $ 6,301,861
"GRAT" 4.0000% 74,536 $ 347,834
Katherine Ann Mabry Trust 2.0000% 37,268 $ 173,917
Lori Diane Weik Trust 2.0000% 37,268 $ 173,917
Carl Johnston 2.7256% 50,789 $ 237,014
Billy Hill 1.2255% 22,836 $ 106,567
Wayne Zwicke 1.2255% 22,836 $ 106,567
Bobby Neuse 1.2255% 22,836 $ 106,567
Clifton Engel 1.2255% 22,836 $ 106,567
Alfredo Perez 0.9191% 17,127 $ 79,925
Albert Bloch 0.6127% 11,418 $ 53,283
Jerald Jarzombek 0.6127% 11,418 $ 53,283
Robert Hufnagl 0.6127% 11,418 $ 53,283
Doug Burg 0.6127% 11,418 $ 53,283
Wesley Johnson 0.6127% 11,418 $ 53,283
Melvin Starr 0.6127% 11,418 $ 53,283
Randy Belken 0.4596% 8,563 $ 39,962
Charlie Luensman 0.4596% 8,563 $ 39,962
Brian Marr 0.4596% 8,563 $ 39,962
</TABLE>
<PAGE> 74
<TABLE>
<S> <C> <C> <C>
Aubrey Stelfen 0.4596% 8,563 $ 39,962
Dennis Nollkamper 0.4596% 8,563 $ 39,962
James Foster 5.0094% 93,345 $ 435,608
----------- ---------- ------------
100.0000% 1,863,397 $ 8,695,852
MINIMUM VALUE: 28,459,152
</TABLE>
________________________
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 75
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed in
the Schedules to the definitive agreement) and excess cash, plus any
remaining excess cash (as set forth on the next page). To the extent
nonoperating assets and cash are not sufficient to fund a portion of the
distribution of previously taxed earnings, the company may complete the
distribution by issuing a note payable to shareholders which will be
funded by IES as soon as practical after the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings (determined in accordance with generally accepted
accounting principles, provided that in determining any compensation
expense related to the issuance of cheap stock, such expense will be
limited to the appraised fair market value of the partnership interest
exchanged for such stock and any gain resulting from a disguised sale for
federal income tax purposes shall not be taken into account) and any
capital contributions made from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash available
to distribute the net earnings from July 1, 1997, through the
consummation date, the distribution may be in the form of a note payable
to the shareholder(s) and will be funded by IES as soon as practical
after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1 and
2 above may not reduce the Company's equity as determined under generally
accepted accounted principles below the minimum cash requirements set
forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on the
next page) at June 30, 1997, along with nonoperating net assets (as
disclosed in the Schedules to the definitive agreement) to be distributed
to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute all
net earnings after tax from July 1, 1997, through the consummation date.
To the extent the company does not have sufficient cash available to
distribute the net earnings from July 1, 1997, through the consummation
date, the distribution may be in the form of a note payable to the
shareholder(s) and will be funded by IES as soon as practical after the
consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1 and
2 above may not reduce the Company's equity as
<PAGE> 76
determined under generally accepted accounting principles below the
minimum cash requirements set forth on the next page.
<PAGE> 77
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
-----------------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
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STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
DANIEL ELECTRICAL CONTRACTORS, INC.
DANIEL ELECTRICAL OF TREASURE COAST, INC.
and
all of the STOCKHOLDERS of
DANIEL ELECTRICAL CONTRACTORS, INC. and
DANIEL ELECTRICAL OF TREASURE COAST, INC.
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TABLE OF CONTENTS
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RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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<TABLE>
<S> <C> <C>
18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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<PAGE> 7
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
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<PAGE> 8
SCHEDULES
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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<PAGE> 9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), DANIEL ELECTRICAL CONTRACTORS, INC., a Florida
corporation, and DANIEL ELECTRICAL OF TREASURE COAST, INC., a Florida
corporation (collectively, the "Company"), and the stockholders listed on the
signature pages of this Agreement (the "Stockholders"), which are all the
stockholders of the Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals of this
Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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<PAGE> 12
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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<PAGE> 13
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Florida.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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<PAGE> 14
(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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<PAGE> 15
occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods
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<PAGE> 18
then ended, subject, in the case of the Interim Financial Statements,
to normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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<PAGE> 20
Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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<PAGE> 22
5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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<PAGE> 24
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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<PAGE> 25
has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended December 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
(b) The Stockholders made a valid election under the provisions of
Subchapter S of the Code and the Company has not, within the past five years,
been taxed under the provisions of Subchapter C of the Code. The Stockholders
shall pay, and they hereby indemnify IES and the Company against, all income
taxes payable with respect to the Company's operations for all periods through
and including the Consummation Date.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any
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<PAGE> 27
of the terms, conditions or provisions of (i) the Charter Documents of the
Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any of its properties or assets, or
(iii) any Material Document to which the Company or any of the Stockholders is
now a party or by which any of the Stockholders or the Company or any of its
properties or assets may be bound or affected. The consummation by the Company
and the Stockholders of the transactions contemplated hereby will not result in
any material violation, conflict, breach, right of termination or acceleration
or creation of liens under any of the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the preceding sentence,
subject, in the case of the terms, conditions or provisions of the items
described in clause (iii) above, to obtaining (prior to the Effective Time)
such consents as may be required from commercial lenders, lessors or other
third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
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5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
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<PAGE> 29
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
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5.29 DISCLOSURE. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished in writing by IES. If, during the
period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
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5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
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6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
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6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
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against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii)
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any filings required under the Hart-Scott Act and under state securities laws
in connection with the purchase and sale of the Company Stock or the capital
stock of the Other Founding Companies, no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by IES or the consummation by IES of the transactions
contemplated hereby.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
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6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
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(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement
to be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
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(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
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(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
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7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. IES shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of IES contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of IES to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. The delivery of
any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to
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a Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
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7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
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8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the Closing Date and the
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Consummation Date, respectively, and signed by the President or
any Vice President of IES shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and
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regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after IES has furnished such Indemnified Party with a sufficient number of
copies of the same.
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(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
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17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
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18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
-55-
<PAGE> 64
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Karin Orlin
Zack, Sparber, Kosnitzky, Spratt & Brooks, P.A.
One International Place
Suite 2300
Miami, Florida 33131
(c) If to the Company, addressed to it at:
Daniel Electrical Contractors, Inc.
5965 N.W. 82nd Avenue
Miami, Florida 33166
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
-56-
<PAGE> 65
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
-57-
<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
---------------------------
Senior Vice President
& Chief Financial Officer
[Remainder of page intentionally left blank]
-58-
<PAGE> 67
DANIEL ELECTRICAL
CONTRACTORS, INC.
By: /s/
-------------------------------------
Name:
---------------------------
Title:
--------------------------
/s/ THOMAS A. DANIEL
----------------------------------------
Thomas A. Daniel Shares Owned: 7,500
3720 Granada Blvd.
Coral Gables, Florida 33134
DANIEL ELECTRICAL OF TREASURE
COAST, INC.
By: /s/
--------------------------------
Name:
--------------------------
Title:
-------------------------
/s/ THOMAS A. DANIEL
----------------------------------------
Thomas A. Daniel Shares Owned: 100
3720 Granada Blvd.
Coral Gables, Florida 33134
-59-
<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC. AND
DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST, INC.
AND THEIR STOCKHOLDER
CONSIDERATION TO BE PAID TO THE STOCKHOLDER
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDER:
$15,900,694 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 851,823 shares of IES common stock and $3,975,174 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below multiplied by the actual
initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDER:
<TABLE>
<CAPTION>
DEC DTC
Number of Number of Shares of IES
Stockholder Shares Owned Shares Owned Common Stock(1) Cash
----------- ----------------- ----------------- ------------------ -------------
<S> <C> <C> <C> <C>
Thomas A. Daniel 7,500 100 851,823 $3,975,174
----------------- ----------------- ------------------ -------------
7,500 100 851,823 $3,975,174
================= ================= ================== =============
MINIMUM VALUE: 13,009,662
</TABLE>
- -----------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 69
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
-----------------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
STARK INVESTMENTS, INC.
and
all of the STOCKHOLDERS of STARK INVESTMENTS, INC.
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
Page
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company
and IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
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SCHEDULES
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), STARK INVESTMENTS, INC., a Texas corporation (the
"Company"), and the stockholders listed on the signature pages of this
Agreement (the "Stockholders"), which are all the stockholders of the Company.
RECITALS
WHEREAS, the Company is engaged in the electrical supply business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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<PAGE> 12
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Texas.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods
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<PAGE> 18
then ended, subject, in the case of the Interim Financial Statements,
to normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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<PAGE> 19
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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<PAGE> 20
Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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<PAGE> 21
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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<PAGE> 22
5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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<PAGE> 24
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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<PAGE> 25
has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended December 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of (i)
the Charter Documents of the Company, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
properties or assets, or (iii) any Material Document to which the Company or
any of the Stockholders is now a party or by which any of the Stockholders or
the Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the
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Stockholders of the transactions contemplated hereby will not result in any
material violation, conflict, breach, right of termination or acceleration or
creation of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
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(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
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(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which 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. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not
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apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished in writing by IES. If, during
the period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
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5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties
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set forth herein shall survive until the expiration of any applicable
limitations period, which shall be deemed to be the Expiration Date for such
purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
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6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
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6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act and under state securities laws in connection with the purchase
and sale of the Company Stock or the capital stock of the Other Founding
Companies, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by IES
or the consummation by IES of the transactions contemplated hereby.
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6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
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6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material
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which may be required in connection with any documents or materials required by
this Agreement. The Company will cause all information obtained in connection
with the negotiation and performance of this Agreement to be treated as
confidential in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
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7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
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(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement
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to be complied with or satisfied by such person hereunder. IES shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of IES contained herein to be untrue or inaccurate
in any material respect at or prior to the Closing and (ii) any material
failure of IES to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to a
Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
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7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
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7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the
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Closing Date and the Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Consummation Date, respectively, and signed by
the President or any Vice President of IES shall have been delivered to the
Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical supply business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical supply business, which candidate, to the actual knowledge
of such Stockholder after due inquiry, was called upon by IES or any
subsidiary thereof or for which, to the actual knowledge of such
Stockholder after due inquiry, IES or any subsidiary thereof made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and
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regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration
-52-
<PAGE> 61
statement or prospectus or any amendment or supplements thereto after IES has
furnished such Indemnified Party with a sufficient number of copies of the
same.
(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
-53-
<PAGE> 62
17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
-54-
<PAGE> 63
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
-55-
<PAGE> 64
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Stephen E. Toomey
4200 S. Shepherd
Suite 212
Houston, Texas 77098
(c) If to the Company, addressed to it at:
Stark Investments, Inc.
12333-A Sowden Road
Houston, Texas 77080
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
-56-
<PAGE> 65
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
-57-
<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
------------------------------
Senior Vice President and
Chief Financial Officer
[Remainder of page intentionally left blank]
-58-
<PAGE> 67
STARK INVESTMENTS, INC.
By: /s/
------------------------------------
Name:
-----------------------------
Title:
----------------------------
/s/ JOHN S. WAGNER
---------------------------------------
John S. Wagner Shares Owned: 1,000
3831 Pleasant Valley Drive
Missouri City, Texas 77459
Spousal Consent and Acknowledgment:
/s/ CATHERINE WAGNER
---------------------------------------
Catherine Wagner
3831 Pleasant Valley Drive
Missouri City, Texas 77459
-59-
<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND STARK INVESTMENTS, INC.
AND ITS STOCKHOLDER
CONSIDERATION TO BE PAID TO THE STOCKHOLDER
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDER:
$12,514,280 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 670,408 shares of IES common stock and $3,128,570 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below multiplied by the actual
initial public offering price per share divided by $14.
<TABLE>
<CAPTION>
Consideration to be paid to the STOCKHOLDER:
--------------------------------------------
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock(1) Cash
----------- ------------ --------------- ----
<S> <C> <C> <C>
John S. Wagner 1,000 670,408 $3,128,570
---------- ------- ----------
1,000 670,408 $3,128,570
========== ======= ==========
MINIMUM VALUE: 10,238,956
</TABLE>
- -----------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 69
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
---------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
HATFIELD ELECTRIC, INC.
and
all of the STOCKHOLDERS of HATFIELD ELECTRIC, INC.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of
Incorporation and By-Laws of IES; Board
Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and
Stockholders
Annex V - Form of Key Employee Employment Agreement
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SCHEDULES
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), HATFIELD ELECTRIC, INC., an Arizona corporation
(the "Company"), and the stockholders listed on the signature pages of this
Agreement (the "Stockholders"), which are all the stockholders of the Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Arizona.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock shall
be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock shall
be delivered at the Closing to Andrews & Kurth L.L.P., to be held in trust
until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on which
the actions described in the preceding clauses (x) and (y) occurs shall be
referred to as the "Consummation Date." During the period from the Closing Date
to the Consummation Date, this Agreement may only be terminated by the Company
if the underwriting agreement in respect of the IPO is terminated pursuant to
the terms of such underwriting agreement. This Agreement shall in any event
terminate if the Consummation Date does not occur within 30 days of the
Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The Company
has delivered to IES complete and correct copies of all minutes of meetings,
written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except
as set forth on Schedule 5.4, the Company has not acquired or redeemed any
Company Stock since January 1, 1995. Except as set forth on Schedule 5.4, (i)
no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth
on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of October 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended October 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the eight-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the
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<PAGE> 18
periods then ended, subject, in the case of the Interim Financial
Statements, to normal year-end and audit adjustments and any other
adjustments described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or liability
for which the amount is not fixed or is contested, the Company has provided to
IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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<PAGE> 19
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold all
licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which exposure
is regulated by any government authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial
substance or petroleum or any derivative or by-product thereof, radon,
radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15, none
of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except as
set forth on Schedule 5.16, any such real property owned by the Company will be
sold or distributed by the Company on terms mutually acceptable to IES and the
Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect. Such
insurance policies evidence all of the insurance the Company is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All of such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Consummation Date
except as set forth on Schedule 5.17. Since January 1, 1995, no insurance
carried by the Company has been canceled by the insurer and the Company has not
been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended October 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of (i)
the Charter Documents of the Company, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
properties or assets, or (iii) any Material Document to which the Company or
any of the Stockholders is now a party or by which any of the Stockholders or
the Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the
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Stockholders of the transactions contemplated hereby will not result in any
material violation, conflict, breach, right of termination or acceleration or
creation of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
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(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
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(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which 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. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not
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apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished in writing by IES. If, during
the period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
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5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to review
and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however, shall
limit or restrict the rights of any Stockholder to acquire IES Stock pursuant
to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of IES Stock received as described in Section 3.1.
6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such representations
and warranties shall survive the Consummation Date for a period of eighteen
months (the last day of such period being the "Expiration Date"), except that
solely for purposes of determining whether a claim for indemnification under
Section 11.2(iii) hereof has been made on a timely basis, and solely to the
extent that in connection with the IPO, any of the Stockholders actually incurs
liability under the 1933 Act, the 1934 Act, or any other Federal or state
securities laws, the representations and warranties
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set forth herein shall survive until the expiration of any applicable
limitations period, which shall be deemed to be the Expiration Date for such
purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
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6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except
for the Other Agreements and except as set forth in the Draft Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates IES to issue any of its authorized but unissued
capital stock; and (ii) IES 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. The outstanding options, warrants or other rights to acquire shares of
the stock of IES will be as described in the Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not presently
own, of record or beneficially, or controls, directly or indirectly, any
capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity, and IES is not,
directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES included
in the Draft Registration Statement (the "IES Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position
of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
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6.9 NO VIOLATIONS. (a) IES is not in violation of any IES Charter
Document. Neither IES, nor, to the best knowledge of IES, any other party
thereto, is in default under any lease, instrument, agreement, license, or
permit to which IES is a party, or by which IES, or any of its properties, are
bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation by
IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act and under state securities laws in connection with the purchase
and sale of the Company Stock or the capital stock of the Other Founding
Companies, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by IES
or the consummation by IES of the transactions contemplated hereby.
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6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to the
Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the time
of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES has
conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
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6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration Statement
and the Registration Statement comply as to form in all material respects with
the requirements of the Form S-1 Registration Statement and applicable
requirements under Federal laws and regulations, provided that the foregoing
does not apply to any information that the Company and the Stockholders have
furnished to IES specifically for inclusion in the Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES, the
Stockholders and the Company will treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Company as confidential in
accordance with the provisions of Section 14 hereof.
(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material
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which may be required in connection with any documents or materials required by
this Agreement. The Company will cause all information obtained in connection
with the negotiation and performance of this Agreement to be treated as
confidential in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
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7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
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(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement
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to be complied with or satisfied by such person hereunder. IES shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of IES contained herein to be untrue or inaccurate
in any material respect at or prior to the Closing and (ii) any material
failure of IES to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or supplement
a Schedule pursuant to this Section 7.7 to reflect an item not known to the
Company or the Stockholders at the time of entering into this Agreement or an
event occurring after the date of this Agreement, and IES does not consent to
such amendment or supplement, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 12.1(i) hereof. In the event that IES
seeks to amend or supplement a Schedule pursuant to this Section 7.7 and a
majority of the Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. No amendment of or supplement to a Schedule
shall be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement.
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7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at least
10 days prior to the Consummation Date the unaudited consolidated balance
sheets of the Company as of the end of all fiscal quarters following the
Balance Sheet Date, and the unaudited consolidated statement of income, cash
flows and retained earnings of the Company for all fiscal quarters ended after
the Balance Sheet Date, disclosing no Material Adverse Change in the Company or
change which would cause a Material Adverse Effect in the financial condition
of the Company or the results of its operations from the financial statements
as of the Balance Sheet Date, except for the transactions permitted pursuant to
the terms and conditions for equity distributions described in Annex I. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
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7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES shall
maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the
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Closing Date and the Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Consummation Date, respectively, and signed by
the President or any Vice President of IES shall have been delivered to the
Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion
from counsel for IES, dated the Consummation Date, in the form annexed hereto
as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation Date
are subject to the satisfaction or waiver on or prior to the Consummation Date
of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not been
satisfied, IES shall have the right to terminate this Agreement, or waive any
such condition, but no such waiver shall be deemed to affect the survival of
the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as though
such representations and warranties had been made on and as of such date; all
of the terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the Stockholders shall have
delivered to IES certificates dated the Closing Date and the Consummation Date,
respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company, other
than those identified on Schedules 2.1, shall have resigned as directors of the
Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. IES
shall use reasonable efforts to have the Stockholders released from any and all
guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and shall
permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax-free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the Consummation
Date, a customer of IES or any subsidiary thereof, of the Company or
of any of the Other Founding Companies within the Territory for the
purpose of soliciting or selling products or services in direct
competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated at
the beginning of this Section 13, during which the agreements and covenants of
each Stockholder made in this Section 13 shall be effective, shall be computed
by excluding from such computation any time during which such Stockholder is in
violation of any provision of this Section 13. The covenants contained in
Section 13 shall not be affected by any breach of any other provision hereof by
any party hereto and shall have no effect if the transactions contemplated by
this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from pursuing
any other available remedy for such breach or threatened breach, including the
recovery of damages. In the event the transactions contemplated by this
Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of five years from
the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such Stockholders
pursuant to this Agreement is being acquired solely for their own respective
accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. The Stockholders covenant, warrant and represent that none of the
shares of IES Stock issued to such Stockholders will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and
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regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in making
investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked any
and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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<PAGE> 60
(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration
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<PAGE> 61
statement or prospectus or any amendment or supplements thereto after IES has
furnished such Indemnified Party with a sufficient number of copies of the
same.
(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not entitled
or elects not, to assume the defense of a claim, will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party, a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
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<PAGE> 62
17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
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<PAGE> 63
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
two (2) or more counterparts, each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damages or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying
party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder acknowledges
that he, and not the Company or IES, will pay all taxes due by him upon receipt
of the consideration payable pursuant to Section 1 hereof. The Stockholders
acknowledge that the risks of the transactions contemplated hereby include tax
risks, with respect to which the Stockholders are relying partially on the
opinion contemplated by Section 8.12 hereof and representations by IES in this
Agreement.
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<PAGE> 64
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Michael Hool
Mariscal, Weeks, McIntyre & Friedlander
2901 N. Central
Suite 200
Phoenix, Arizona 85012
(c) If to the Company, addressed to it at:
Hatfield Electric, Inc.
7626 E. Greenway Road, Suite 100
Scottsdale, Arizona 85260
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Texas, excluding any conflicts of law, rule or
principle that might refer same to the laws of another jurisdiction.
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<PAGE> 65
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
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<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
-------------------------------------
Senior Vice President and
Chief Financial Officer
[Remainder of page intentionally left blank]
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<PAGE> 67
HATFIELD ELECTRIC, INC.
By: /s/
-------------------------------------
Name:
---------------------------
Title:
--------------------------
/s/ HARVEY B. FRIEDMAN
----------------------------------------
Harvey B. Friedman Shares Owned: 10,000
and Francine A. Friedman as JTROS
11071 East De La O
Scottsdale, Arizona 85255
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<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND HATFIELD ELECTRIC, INC.
AND ITS STOCKHOLDERS
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDERS:
$3,889,332 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 208,357 shares of IES common stock and $972,333 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below multiplied by the actual
initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock(1) Cash
----------- ------------ ------------------ --------------
<S> <C> <C> <C>
Harvey B. Friedman and 10,000 208,357 $972,333
Francine A. Friedman
-------------------- ------------------ --------------
as JTROS 10,000 208,357 $972,333
==================== ================== ==============
MINIMUM VALUE: 3,182,184
</TABLE>
- -----------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 69
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
-----------------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
GENERAL PARTNER, INC.
CHARLES P. BAGBY COMPANY, INC.
and
all of the STOCKHOLDERS of GENERAL PARTNER, INC.
and CHARLES P. BAGBY COMPANY, INC.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company
and IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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<PAGE> 7
ANNEXES
<TABLE>
<S> <C> <C>
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
</TABLE>
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<PAGE> 8
SCHEDULES
<TABLE>
<S> <C>
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
</TABLE>
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<PAGE> 9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), GENERAL PARTNER, INC., an Alabama corporation,
CHARLES P. BAGBY COMPANY, INC., an Alabama corporation (collectively, the
"Company"), and the stockholders listed on the signature pages of this
Agreement (the "Stockholders"), which are all the stockholders of the Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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<PAGE> 11
Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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<PAGE> 12
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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<PAGE> 13
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Alabama.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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<PAGE> 14
(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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<PAGE> 15
occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the
Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods
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<PAGE> 18
then ended, subject, in the case of the Interim Financial Statements,
to normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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<PAGE> 19
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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<PAGE> 22
5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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<PAGE> 24
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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<PAGE> 25
has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended December 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
(b) The Stockholders made a valid election under the provisions of
Subchapter S of the Code and the Company has not, within the past five years,
been taxed under the provisions of Subchapter C of the Code. The Stockholders
shall pay, and they hereby indemnify IES and the Company against, all income
taxes payable with respect to the Company's operations for all periods through
and including the Consummation Date.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any
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<PAGE> 27
of the terms, conditions or provisions of (i) the Charter Documents of the
Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any of its properties or assets, or
(iii) any Material Document to which the Company or any of the Stockholders is
now a party or by which any of the Stockholders or the Company or any of its
properties or assets may be bound or affected. The consummation by the Company
and the Stockholders of the transactions contemplated hereby will not result in
any material violation, conflict, breach, right of termination or acceleration
or creation of liens under any of the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the preceding sentence,
subject, in the case of the terms, conditions or provisions of the items
described in clause (iii) above, to obtaining (prior to the Effective Time)
such consents as may be required from commercial lenders, lessors or other
third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
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5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
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<PAGE> 29
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
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5.29 DISCLOSURE. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished in writing by IES. If, during the
period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
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<PAGE> 31
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
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6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
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6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
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against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii)
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any filings required under the Hart-Scott Act and under state securities laws
in connection with the purchase and sale of the Company Stock or the capital
stock of the Other Founding Companies, no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by IES or the consummation by IES of the transactions
contemplated hereby.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
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6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
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(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement
to be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
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(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
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(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
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7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. IES shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of IES contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of IES to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. The delivery of
any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to
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a Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
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7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
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8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the Closing Date and the
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Consummation Date, respectively, and signed by the President or
any Vice President of IES shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and
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regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after IES has furnished such Indemnified Party with a sufficient number of
copies of the same.
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(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
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17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
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18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
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18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Steven Brickman
Sirote & Permutt, P.C.
2222 Arlington Avenue South
Birmingham, Alabama 35205
(c) If to the Company, addressed to it at:
Haymaker Electric, Ltd.
2701 7th Avenue South
Birmingham, Alabama 35233-3405
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
-56-
<PAGE> 65
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
-57-
<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
------------------------------
Senior Vice President and
Chief Financial Officer
[Remainder of page intentionally left blank]
-58-
<PAGE> 67
GENERAL PARTNER, INC.
By: /s/
------------------------------
Name:
-------------------
Title:
------------------
2701 7th Ave. S.
Birmingham, Alabama 35233
STOCKHOLDERS:
/s/ CHARLES P. BAGBY
------------------------------------------
Charles P. Bagby Shares Owned: 700 shares
/s/ BRAD BERRYHILL
------------------------------------------
Brad Berryhill Shares Owned: 100 shares
/s/ ALLEN MCCAIN
------------------------------------------
Allen McCain Shares Owned: 100 shares
CHARLES P. BAGBY COMPANY, INC.
By: /s/
--------------------------------------
Name:
----------------------------
Title:
---------------------------
2701 7th Ave. S.
Birmingham, Alabama 35233
STOCKHOLDER:
/S/ CHARLES P. BAGBY
------------------------------------------
Charles P. Bagby Shares Owned: 1,000 shares
-59-
<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.;
AND GENERAL PARTNERS, INC.,
CHARLES P. BAGBY COMPANY, INC.
AND THEIR STOCKHOLDERS
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDERS:
$8,115,058 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 434,735 shares of IES common stock and $2,028,765 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below multiplied by the actual
initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Percentage Percentage
Ownership Ownership Shares of IES
Stockholder of GP of LP Common Stock(1) Cash
- ----------- ----- ----- -------------- ---------
<S> <C> <C> <C> <C>
Charles P. Bagby 78% 100% 358,190 1,671,603
Brad Berryhill 11% -- 17,890 83,279
Allen McCain 11% -- 58,655 273,883
------- ---------
434,735 2,028,765
======= =========
MINIMUM VALUE: 6,639,597
</TABLE>
_________________
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 69
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
-----------------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
HOUSTON-STAFFORD ELECTRIC, INC.
and
all of the STOCKHOLDERS of HOUSTON-STAFFORD ELECTRIC, INC.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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<PAGE> 7
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions and
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
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SCHEDULES
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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<PAGE> 9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), HOUSTON-STAFFORD ELECTRIC, INC., a Texas
corporation (the "Company"), and the persons listed on the signature pages of
this Agreement (the "Stockholders"), which are all the stockholders of the
Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, Ben L. Mueller has certain claims and other property rights
against the Company, its common stock and/or Roy D. Brown and has agreed to
transfer and release, effective as of the Closing Date, all claims, property
rights, demands or causes of action he has, had, or may have against the
Company, Roy D. Brown, any of the common stock of the Company and/or IES, as
acquirer of the common stock of the Company, for and in consideration of the
shares of IES Stock and cash to be received by him as described on Annex I
hereto;
WHEREAS, Ben L. Mueller shall for purposes of this Agreement and as a
result of his claims and other property rights, also be referred to as and
considered to be a Stockholder of the Company for all purposes herein;
<PAGE> 10
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
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<PAGE> 11
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
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<PAGE> 12
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
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<PAGE> 13
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Texas.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
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<PAGE> 14
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
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<PAGE> 15
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company or other property, shall,
upon surrender of certificates evidencing that capital stock or other property,
receive from IES the respective number of shares of IES Stock and the amount of
cash described on Annex I hereto, which shall be payable by certified check or
wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall occur at or prior to the Pricing (the "Closing"), shall take
place on the closing date (the "Closing Date") at the offices of Andrews &
Kurth L.L.P, 4200 Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All
Company Stock shall be delivered at the Closing to Andrews & Kurth L.L.P., to
be held in trust until the Consummation Date, and shall be returned immediately
upon any termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
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<PAGE> 16
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the
Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of deliberations of or
actions taken by the Company's Board of Directors, any committees of the Board
of Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
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<PAGE> 17
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7,
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the Company has not been, within such period of time, a subsidiary or division
of another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods then
ended, subject, in the case of the Interim Financial Statements, to
normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or
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<PAGE> 19
litigation that has been threatened in writing, or other material liabilities
which are not fixed or otherwise accrued or reserved, a good faith and
reasonable estimate of the maximum amount which the Company reasonably expects
will be payable and the amount, if any, accrued or reserved for each such
potential liability on the Company's Financial Statements. For each such
contingent liability or liability for which the amount is not fixed or is
contested, the Company has provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all
other parties to the claim, suit or
proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such
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<PAGE> 20
trademarks, trade names, patents, patent applications, copyrights and other
intellectual property will be assigned or licensed to the Company for no
additional consideration. The Licenses and other rights listed on Schedule
5.12 are valid, and the Company has not received any notice that any person
intends to cancel, terminate or not renew any such License or other right. The
Company has conducted and is conducting its business in compliance in all
material respects with the requirements, standards, criteria and conditions set
forth in the Licenses and other rights listed on Schedule 5.12 and is not in
violation of any of the foregoing in any material respect. Except as
specifically provided in Schedule 5.12, the consummation by the Company of 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 such Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
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<PAGE> 21
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned
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<PAGE> 22
by the Company or leased by the Company pursuant to a lease included on
Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 or
replacement property thereof is in working order and condition, ordinary wear
and tear excepted and (iii) all leases and agreements included on Schedule 5.14
are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule 5.15 a
summary description of all plans or projects involving the opening of new
operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
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<PAGE> 23
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only;
and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included on Schedule 5.16 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
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<PAGE> 24
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of
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<PAGE> 25
1974, as amended ("ERISA")) or any non-qualified deferred compensation
arrangement). For the purposes of this Agreement, the term "employee pension
benefit plan" shall have the same meaning as is given that term in Section 3(2)
of ERISA. The Company has not sponsored, maintained or contributed to any
employee pension benefit plan other than the plans set forth on Schedule 5.19,
and the Company is not or could not be required to contribute to any retirement
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of the Company's
employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
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<PAGE> 26
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax
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<PAGE> 27
Returns of Company for their last three (3) fiscal years, or such shorter
period of time as any of them shall have existed, are attached hereto as
Schedule 5.22 or have otherwise been delivered to IES. The Company has a
taxable year ended December 31. Except as set forth on Schedule 5.22, the
Company uses the accrual method of accounting for income tax purposes, and the
Company's methods of accounting have not changed in the past five years. The
Company is not an investment Company as defined in Section 351(e)(1) of the
Code. The Company is not and has not during the last five years been a party
to any tax sharing agreement or agreement of similar effect. Except as set
forth on Schedule 5.22, the Company is not and has not during the last five
years been a member of any consolidated group. The Company has not received,
been denied, or applied for any private letter ruling during the last ten
years.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of (i)
the Charter Documents of the Company, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
properties or assets, or (iii) any Material Document to which the Company or
any of the Stockholders is now a party or by which any of the Stockholders or
the Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the Stockholders of the transactions
contemplated hereby will not result in any material violation, conflict,
breach, right of termination or acceleration or creation of liens under any of
the terms, conditions or provisions of the items described in clauses (i)
through (iii) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (iii) above, to
obtaining (prior to the Effective Time) such consents as may be required from
commercial lenders, lessors or other third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
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contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
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(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
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(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which 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. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished in writing by IES. If, during the
period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether
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express or implied, oral or written, that a Registration Statement will become
effective or that the IPO pursuant thereto will occur; (ii) that neither IES or
any of its officers, directors, agents or representatives nor any Underwriter
shall have any liability to the Company, the Stockholders or any other person
affiliated or associated with the Company for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
Stockholders to enter into this Agreement, or to vote in favor of or consent to
the proposed purchase and sale of the Company Stock, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to IES or the prospective
IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
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<PAGE> 32
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
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except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
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6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject,
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in the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act and under state securities laws in connection with the purchase
and sale of the Company Stock or the capital stock of the Other Founding
Companies, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by IES
or the consummation by IES of the transactions contemplated hereby.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
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6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules thereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
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7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement
to be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
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(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
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(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
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(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. IES shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of IES contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of IES to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. The delivery of
any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing
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sentence, no amendment or supplement to a Schedule prepared by the Company that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on the Company may be made unless IES consents to such amendment
or supplement; and provided further, that no amendment or supplement to a
Schedule prepared by IES that constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on IES may be made unless a majority
of the Founding Companies consent to such amendment or supplement. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.7. In the event that the Company
seeks to amend or supplement a Schedule pursuant to this Section 7.7 to reflect
an item not known to the Company or the Stockholders at the time of entering
into this Agreement or an event occurring after the date of this Agreement, and
IES does not consent to such amendment or supplement, this Agreement shall be
deemed terminated by mutual consent as set forth in Section 12.1(i) hereof. In
the event that IES seeks to amend or supplement a Schedule pursuant to this
Section 7.7 and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(i) hereof. No amendment of or supplement
to a Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
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7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the Closing Date and the
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Consummation Date, respectively, and signed by the President or
any Vice President of IES shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
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8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
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8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company or other property for IES Stock (but not cash or other property)
pursuant to the IES Plan of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
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9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
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9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
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10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a)
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of the Code subject to gain, if any, recognized on the receipt of cash
or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that such indemnity shall not inure to the benefit of IES or the Company to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
Stockholders provided, in writing, corrected information to IES counsel and to
IES for inclusion in the final prospectus, and such information was not so
included or properly delivered, and provided further, that no Stockholder shall
be liable for any indemnification obligation pursuant to this Section 11.1 to
the extent solely attributable to a breach of any representation, warranty or
agreement made herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied,
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with respect to the transactions contemplated by this Agreement, the Company or
its assets, liabilities and business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information
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reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party, provided
that if counsel to the Indemnifying Party shall have a conflict of interest
that prevents counsel for the Indemnifying Party from representing Indemnified
Party, Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which
event the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any
such Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement. If the Indemnifying
Party does not undertake to defend such matter to which the Indemnified Party
is entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of
its choice, at the cost and expense of the Indemnifying Party, and the
Indemnified Party may settle such matter, and the Indemnifying Party shall pay
the Indemnified Party for the settlement amount and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements
hereunder shall effect a complete release of the Indemnified Party, unless the
Indemnified Party otherwise agrees in writing. The parties hereto will make
appropriate adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
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11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days preceding the date on which a claim for
indemnification is made, as reported in The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this
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Agreement to perform any of its obligations under this Agreement to
the extent required to be performed by it prior to or on the
Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
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(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2)
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years stated at the beginning of this Section 13, during which the agreements
and covenants of each Stockholder made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Stockholders
shall, if possible, give prior written notice thereof to IES and provide IES
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section,
IES shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting IES from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In
the event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that
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such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of IES, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause
(ii), IES shall, if possible, give prior written notice thereof to the Company
and the Stockholders and provide the Company and the Stockholders with the
opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, and (d) to the public to the
extent necessary or advisable in connection with the filing of the Registration
Statement and the IPO and the securities laws applicable thereto and to the
operation of IES as a publicly held entity after the IPO. In the event of a
breach or threatened breach by IES of the provisions of this Section, the
Company and the Stockholders shall be entitled to an injunction restraining IES
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
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THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and regulations of the SEC. All the IES Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the
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preceding sentence and all questions have been answered to their satisfaction.
Except as set forth on Schedule 16.2, each Stockholder is an "accredited
investor" as defined in Rule 501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free
organization under Section 351 of the Code. In addition, if IES is advised in
writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 17.1 that the number of shares to be sold by persons other than
IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become
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effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto,
IES will furnish a representative of the Stockholders with copies of
all such documents proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any term sheet
associated therewith), and such other documents as such Stockholder
may reasonably request in order to facilitate the disposition of the
relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES
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Stock to be sold in such offering, and promptly make all required
filings of such prospectus by supplement or post-effective amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus
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so that, as thereafter delivered to the purchasers of the covered
shares, such prospectus will not contain an untrue statement of
material fact or omit to state any fact required to be stated therein
or necessary to make the statements therein (in the case of the
prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after IES has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory
-53-
<PAGE> 62
to the indemnified party. Any failure to give prompt notice shall deprive a
party of its right to indemnification hereunder only to the extent that such
failure shall have adversely affected the indemnifying party. If the defense
of any claim is assumed, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent shall
not be unreasonably withheld). An indemnifying party that is not entitled or
elects not, to assume the defense of a claim, will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party, a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request
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<PAGE> 63
in availing itself of any rule or regulation of the SEC allowing a
Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
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<PAGE> 64
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
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<PAGE> 65
Stephen E. Toomey
4200 S. Shepherd, Suite 212
Houston, Texas 77098
(c) If to the Company, addressed to it at:
Houston-Stafford Electric, Inc.
10203 Mula Circle
P.O. Box 942
Stafford, Texas 77497-0947
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
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<PAGE> 66
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
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<PAGE> 67
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
-----------------------------------
Senior Vice President and
Chief Financial Officer
[Remainder of page intentionally left blank]
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<PAGE> 68
HOUSTON-STAFFORD ELECTRIC, INC.
By: /s/
-----------------------------------
Name:
-------------------------
Title:
------------------------
/s/ ROY D. BROWN
--------------------------------------
Roy D. Brown Shares Owned: 20,000
3519 West Creek Club Drive
Missouri City, Texas 77459
Spousal Consent and Acknowledgment:
/s/ DIANNE BROWN
--------------------------------------
Dianne Brown
3519 West Creek Club Drive
Missouri City, Texas 77459
/s/ BEN L. MUELLER
--------------------------------------
Ben L. Mueller
1103 Meadowlark
Sugar Land, Texas 77478
Spousal Consent and Acknowledgment:
/s/ FAYE MUELLER
--------------------------------------
Faye Mueller
1103 Meadowlark
Sugar Land, Texas 77478
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<PAGE> 69
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND HOUSTON-STAFFORD ELECTRIC, INC.
AND ITS STOCKHOLDERS
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDERS:
$50,057,118 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 2,681,631 shares of IES common stock and $12,514,280 of
cash, it being agreed that the actual amount of all shares shall remain
unchanged while the cash payments described in this Annex I will depend on the
actual initial public offering price of the common stock of IES in the IPO,
which may be more or less than $14.00 per share; provided, however that the
aggregate consideration shall not be less than the minimum value set forth
below. Such cash will be the cash consideration noted below multiplied by the
actual initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock(1) Cash
- ---------- ------------ --------------- --------------
<S> <C> <C> <C>
Roy D. Brown 20,000 1,608,979 $7,508,568
Ben L. Mueller property right 1,072,652 5,005,712
--------------- --------------
2,681,631 $12,514,280
=============== ==============
MINIMUM VALUE: 40,955,825
</TABLE>
_________________
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 70
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 71
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
--------------------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors,
Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas,
Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
MILLS ELECTRICAL CONTRACTORS, INC.
and
all of the STOCKHOLDERS of MILLS ELECTRICAL CONTRACTORS, INC.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 SALE AND PURCHASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY AND IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 STOCKHOLDERS' CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 STOCKHOLDERS' DELIVERIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 DUE ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 CAPITAL STOCK OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 NO BONUS SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 PREDECESSOR STATUS; ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 SPIN-OFF BY THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 LIABILITIES AND OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 ACCOUNTS AND NOTES RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 PERMITS AND INTANGIBLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS . . . . . . . . . . . . . . . . . . . . . 13
5.16 REAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 EMPLOYEE PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 COMPLIANCE WITH ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 CONFORMITY WITH LAW; LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.22 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 GOVERNMENT CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 ABSENCE OF CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.27 VALIDITY OF OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 RELATIONS WITH GOVERNMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 PROHIBITED ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 NO WARRANTIES OR INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY TRANSACTIONS. . . . . . . . . . . . . . . . . 22
5.33 REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 AUTHORITY; OWNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 PREEMPTIVE RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 DUE ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 CAPITAL STOCK OF IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 LIABILITIES AND OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 CONFORMITY WITH LAW; LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 NO VIOLATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 VALIDITY OF OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 NO SIDE AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 RELATIONS WITH GOVERNMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 OTHER AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 DRAFT REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 CONDUCT OF BUSINESS PENDING CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 PROHIBITED ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 NO SHOP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 NOTIFICATION OF CERTAIN MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 AMENDMENT OF SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 FINAL FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.10 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.11 AUTHORIZED CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.12 COMPLIANCE WITH THE HART-SCOTT ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY . . . . . . . . . . . . . . . . . . . . . . 34
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . 34
8.2 SATISFACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 NO LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 OPINION OF COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.5 REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.6 CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 GOOD STANDING CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 NO MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 CLOSING OF IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 SECRETARY'S CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.13 OTHER FOUNDING COMPANIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . 36
9.2 NO LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 SECRETARY'S CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 NO MATERIAL ADVERSE EFFECT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.5 STOCKHOLDERS' RELEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 SATISFACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 OPINION OF COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 GOOD STANDING CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.11 REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.12 EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 CLOSING OF IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 RESIGNATIONS OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . 38
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 PREPARATION AND FILING OF TAX RETURNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.4 DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.2 INDEMNIFICATION BY IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.3 THIRD PERSON CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.4 EXCLUSIVE REMEDY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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11.5 LIMITATIONS ON INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 LIABILITIES IN EVENT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.1 PROHIBITED ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.2 DAMAGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.3 REASONABLE RESTRAINT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 SEVERABILITY; REFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 INDEPENDENT COVENANT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 MATERIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.1 STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 DAMAGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.4 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 RETURN OF INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 TRANSFER RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
16.1 COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
16.2 ECONOMIC RISK; SOPHISTICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 PIGGYBACK REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 REGISTRATION PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.4 UNDERWRITING AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
17.5 TRANSFER OF RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
17.6 RULE 144 REPORTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 COOPERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.3 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.4 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 BROKERS AND AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.8 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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18.10 EXERCISE OF RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 TIME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 REFORMATION AND SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 REMEDIES CUMULATIVE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
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SCHEDULES
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2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), MILLS ELECTRICAL CONTRACTORS, INC., a Texas
corporation (the "Company"), and the stockholders listed on the signature pages
of this Agreement (the "Stockholders"), which are all the stockholders of the
Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Texas.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the
Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods
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then ended, subject, in the case of the Interim Financial Statements,
to normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended December 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
(b) The Stockholders made a valid election under the provisions of
Subchapter S of the Code and the Company has not, within the past five years,
been taxed under the provisions of Subchapter C of the Code. The Stockholders
shall pay, and they hereby indemnify IES and the Company against, all income
taxes payable with respect to the Company's operations for all periods through
and including the Consummation Date.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any
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of the terms, conditions or provisions of (i) the Charter Documents of the
Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any of its properties or assets, or
(iii) any Material Document to which the Company or any of the Stockholders is
now a party or by which any of the Stockholders or the Company or any of its
properties or assets may be bound or affected. The consummation by the Company
and the Stockholders of the transactions contemplated hereby will not result in
any material violation, conflict, breach, right of termination or acceleration
or creation of liens under any of the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the preceding sentence,
subject, in the case of the terms, conditions or provisions of the items
described in clause (iii) above, to obtaining (prior to the Effective Time)
such consents as may be required from commercial lenders, lessors or other
third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
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5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
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(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
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5.29 DISCLOSURE. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished in writing by IES. If, during the
period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
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5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
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6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
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6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
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<PAGE> 34
against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii)
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any filings required under the Hart-Scott Act and under state securities laws
in connection with the purchase and sale of the Company Stock or the capital
stock of the Other Founding Companies, no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by IES or the consummation by IES of the transactions
contemplated hereby.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
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6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
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(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement
to be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
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(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
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(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
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7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. IES shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of IES contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of IES to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. The delivery of
any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to
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a Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
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7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
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8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the Closing Date and the
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Consummation Date, respectively, and signed by the President or
any Vice President of IES shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and
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regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after IES has furnished such Indemnified Party with a sufficient number of
copies of the same.
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(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
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<PAGE> 62
17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
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18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
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<PAGE> 64
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Chuck Stuber
Canterbury, Stuber, Elder, Gooch & Surrat
5400 LBJ Freeway, Suite 1300
Dallas, Texas 75240
(c) If to the Company, addressed to it at:
Mills Electrical Contractors, Inc.
2535 Walnut Hill Lane
Dallas, Texas 75229
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
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18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
-----------------------------------
Senior Vice President and
Chief Financial Officer
[Remainder of page intentionally left blank]
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<PAGE> 67
MILLS ELECTRICAL
CONTRACTORS, INC.
By: /s/
---------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
/s/ JERRY M. MILLS
------------------------------------------------------
Jerry M. Mills Shares Owned: 631
464 Country Lane Interest in Fort Worth Regional
Coppell, Texas 75019 Electrical Systems, L.L.C.: 1%
/s/ DANIEL F. HARPER
------------------------------------------------------
Daniel F. Harper Shares Owned: 45
2328 Eagle Crest Drive
Grapevine, Texas 76051
Spousal Consent and Acknowledgment:
/s/ DEBRA HARPER
------------------------------------------------------
Debra Harper
2328 Eagle Crest Drive
Grapevine, Texas 76051
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<PAGE> 68
/s/ TIMOTHY A. CUMMINGS
------------------------------------------------------
Timothy A. Cummings Shares Owned: 51
3141 Oakdale Drive
Hurst, Texas 76054
Spousal Consent and Acknowledgment:
/s/ MARY JO CUMMINGS
------------------------------------------------------
Mary Jo Cummings
3141 Oakdale Drive
Hurst, Texas 76054
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<PAGE> 69
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC. AND
MILLS ELECTRICAL CONTRACTORS, INC.
AND ITS STOCKHOLDERS
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDERS:
$46,548,262 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 2,493,657 shares of IES common stock and $11,637,065 of
cash, it being agreed that the actual amount of all shares shall remain
unchanged while the cash payments described in this Annex I will depend on the
actual initial public offering price of the common stock of IES in the IPO,
which may be more or less than $14.00 per share; provided, however that the
aggregate consideration shall not be less than the minimum value set forth
below. Such cash will be the cash consideration noted below multiplied by the
actual initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Number of
Company
Shares/Interest
--------------- Shares of IES
Stockholder Owned Common Stock(1) Cash
----------- ----- --------------- ------------
<S> <C> <C> <C>
Jerry M. Mills 631 2,147,705 10,022,624
Daniel F. Harper 45 153,165 714,767
Timothy A. Cummings 51 173,586 810,069
Interest in Fort Worth
----------------------
Regional Electrical Systems,
----------------------------
L.L.C.
------
Jerry M. Mills 1% -- --
Johnnie G. Miller(2) 10% 19,201 89,605
---------- --------- ------------
727 2,493,657 $ 11,637,065
---------- --------- ------------
MINIMUM VALUE: 38,084,940
</TABLE>
- ------------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
(2) To be delivered in connection with the attached purchase right.
<PAGE> 70
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 71
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
MUTH ELECTRIC, INC.
and
all of the STOCKHOLDERS of MUTH ELECTRIC, INC.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
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<CAPTION>
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RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
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<TABLE>
<S> <C> <C>
18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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<PAGE> 7
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
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SCHEDULES
<TABLE>
<S> <C>
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
</TABLE>
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<PAGE> 9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), MUTH ELECTRIC, INC., a South Dakota corporation
(the "Company"), and the stockholders listed on the signature pages of this
Agreement (the "Stockholders"), which are all the stockholders of the Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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<PAGE> 12
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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<PAGE> 13
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of South Dakota.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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<PAGE> 14
(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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<PAGE> 15
occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the
Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods
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then ended, subject, in the case of the Interim Financial Statements,
to normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to
the claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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<PAGE> 20
Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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<PAGE> 21
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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<PAGE> 22
5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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<PAGE> 24
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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<PAGE> 25
has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended December 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
(b) The Stockholders made a valid election under the provisions of
Subchapter S of the Code and the Company has not, within the past five years,
been taxed under the provisions of Subchapter C of the Code. The Stockholders
shall pay, and they hereby indemnify IES and the Company against, all income
taxes payable with respect to the Company's operations for all periods through
and including the Consummation Date.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any
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<PAGE> 27
of the terms, conditions or provisions of (i) the Charter Documents of the
Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any of its properties or assets, or
(iii) any Material Document to which the Company or any of the Stockholders is
now a party or by which any of the Stockholders or the Company or any of its
properties or assets may be bound or affected. The consummation by the Company
and the Stockholders of the transactions contemplated hereby will not result in
any material violation, conflict, breach, right of termination or acceleration
or creation of liens under any of the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the preceding sentence,
subject, in the case of the terms, conditions or provisions of the items
described in clause (iii) above, to obtaining (prior to the Effective Time)
such consents as may be required from commercial lenders, lessors or other
third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
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<PAGE> 28
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
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<PAGE> 29
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon
or have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
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5.29 DISCLOSURE. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished in writing by IES. If, during the
period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
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5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
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6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
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6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
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against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii)
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any filings required under the Hart-Scott Act and under state securities laws
in connection with the purchase and sale of the Company Stock or the capital
stock of the Other Founding Companies, no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by IES or the consummation by IES of the transactions
contemplated hereby.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
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6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
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(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement
to be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
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(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
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(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
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7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. IES shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of IES contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of IES to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. The delivery of
any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to
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a Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
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7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
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8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the Closing Date and the
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Consummation Date, respectively, and signed by the President or
any Vice President of IES shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and
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regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after IES has furnished such Indemnified Party with a sufficient number of
copies of the same.
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(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
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17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
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18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
-55-
<PAGE> 64
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Don Peterson
Morgan, Theeler
221 E. Third Avenue
Mitchell, South Dakota 57301-7025
(c) If to the Company, addressed to it at:
Muth Electric, Inc.
400 North Rowley
P.O. Box 1400
Mitchell, South Dakota 57301
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
-56-
<PAGE> 65
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
-57-
<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
------------------------------------
Senior Vice President and
Chief Financial Officer
[Remainder of page intentionally left blank]
-58-
<PAGE> 67
MUTH ELECTRIC, INC.
By: /s/
--------------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
/s/ RICHARD MUTH
-----------------------------------------------------
Richard Muth Shares Owned: 697
140 N. Harmon Dr.
Mitchell, South Dakota 57301
/s/ DARLENE MUTH
-----------------------------------------------------
Darlene Muth Shares Owned: 40
140 N. Harmon Dr.
Mitchell, South Dakota 57301
-59-
<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND MUTH ELECTRIC, INC.
AND ITS STOCKHOLDERS
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDERS:
$8,835,377 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 473,324 shares of IES common stock and $2,208,844 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below multiplied by the actual
initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock(1) Cash
----------- ------------ -------------- ------------
<S> <C> <C> <C>
Richard Muth 697 447,635 $2,088,961
Darlene Muth 40 25,689 119,883
----------- ------------- ----------
737 473,324 $2,208,844
=========== ============= ==========
MINIMUM VALUE: 7,228,944
</TABLE>
_________________
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 69
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
-----------------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
POLLOCK ELECTRIC INC.
and
all of the STOCKHOLDERS of POLLOCK ELECTRIC INC.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
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SCHEDULES
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), POLLOCK ELECTRIC INC., a Texas corporation (the
"Company"), and the stockholders listed on the signature pages of this
Agreement (the "Stockholders"), which are all the stockholders of the Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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<PAGE> 12
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Texas.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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<PAGE> 14
(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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<PAGE> 15
occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the
Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of October 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended October 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the eight-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the
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<PAGE> 18
periods then ended, subject, in the case of the Interim Financial
Statements, to normal year-end and audit adjustments and any other
adjustments described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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<PAGE> 19
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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<PAGE> 20
Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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<PAGE> 21
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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<PAGE> 22
5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only;
and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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<PAGE> 24
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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<PAGE> 25
has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended October 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of (i)
the Charter Documents of the Company, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
properties or assets, or (iii) any Material Document to which the Company or
any of the Stockholders is now a party or by which any of the Stockholders or
the Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the
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Stockholders of the transactions contemplated hereby will not result in any
material violation, conflict, breach, right of termination or acceleration or
creation of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
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(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
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(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which 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. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not
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apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished in writing by IES. If, during
the period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
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5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties
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set forth herein shall survive until the expiration of any applicable
limitations period, which shall be deemed to be the Expiration Date for such
purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
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6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
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6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act and under state securities laws in connection with the purchase
and sale of the Company Stock or the capital stock of the Other Founding
Companies, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by IES
or the consummation by IES of the transactions contemplated hereby.
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6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
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6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the
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negotiation and performance of this Agreement to be treated as confidential in
accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
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7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
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(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement
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to be complied with or satisfied by such person hereunder. IES shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of IES contained herein to be untrue or inaccurate
in any material respect at or prior to the Closing and (ii) any material
failure of IES to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to a
Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
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7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
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7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the
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Closing Date and the Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Consummation Date, respectively, and signed by
the President or any Vice President of IES shall have been delivered to the
Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and
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regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration
-52-
<PAGE> 61
statement or prospectus or any amendment or supplements thereto after IES has
furnished such Indemnified Party with a sufficient number of copies of the
same.
(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
-53-
<PAGE> 62
17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
-54-
<PAGE> 63
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
-55-
<PAGE> 64
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Gordon Zuber
Weycer, Kaplan, Pulaski & Zuber
1400 Summit Tower
11 Greenway Plaza
Houston, Texas 77046-1104
(c) If to the Company, addressed to it at:
Pollock Electric Inc.
4001 Sherwood Lane
P.O. Box 925187
Houston, Texas 77292-5187
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
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<PAGE> 65
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
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<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
------------------------------------
Senior Vice President and
Chief Executive Officer
[Remainder of page intentionally left blank]
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<PAGE> 67
POLLOCK ELECTRIC INC.
By: /s/
-------------------------------------
Name:
---------------------------
Title:
--------------------------
/s/ JON V. POLLOCK
----------------------------------------
Jon V. Pollock Shares Owned: 1,000
518 Pine Shadows
Houston, Texas 77056
Spousal Consent and Acknowledgment:
/s/ JANE POLLOCK
----------------------------------------
Jane Pollock
518 Pine Shadows
Houston, Texas 77056
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<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND POLLOCK ELECTRIC, INC.
AND ITS STOCKHOLDER
CONSIDERATION TO BE PAID TO THE STOCKHOLDER
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDER:
$5,968,276 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 319,729 shares of IES common stock and $1,492,069 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below plus $400,000 multiplied by the
actual initial public offering price per share divided by $14 less $400,000.
<TABLE>
<CAPTION>
Consideration to be paid to the STOCKHOLDER:
--------------------------------------------
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock(1) Cash
----------- ------------ --------------- ----------
<S> <C> <C> <C>
Jon V. Pollock 1,000 319,729 $1,092,069
--------- ------- ----------
1,000 319,729 $1,092,069
========= ======= ==========
MINIMUM VALUE: 4,883,139
</TABLE>
- --------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 69
S Corporations
- --------------
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
- --------------
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
----------------- ------------- ------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
THOMAS POPP & COMPANY
and
all of the STOCKHOLDERS of THOMAS POPP & COMPANY
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
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SCHEDULES
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), THOMAS POPP & COMPANY, an Ohio corporation (the
"Company"), and the stockholders listed on the signature pages of this
Agreement (the "Stockholders"), which are all the stockholders of the Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Ohio.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock shall
be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock shall
be delivered at the Closing to Andrews & Kurth L.L.P., to be held in trust
until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on which
the actions described in the preceding clauses (x) and (y) occurs shall be
referred to as the "Consummation Date." During the period from the Closing Date
to the Consummation Date, this Agreement may only be terminated by the Company
if the underwriting agreement in respect of the IPO is terminated pursuant to
the terms of such underwriting agreement. This Agreement shall in any event
terminate if the Consummation Date does not occur within 30 days of the
Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the
Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The Company
has delivered to IES complete and correct copies of all minutes of meetings,
written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except
as set forth on Schedule 5.4, the Company has not acquired or redeemed any
Company Stock since January 1, 1995. Except as set forth on Schedule 5.4, (i)
no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth
on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods
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then ended, subject, in the case of the Interim Financial Statements,
to normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or liability
for which the amount is not fixed or is contested, the Company has provided to
IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to
the claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold all
licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which exposure
is regulated by any government authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial
substance or petroleum or any derivative or by-product thereof, radon,
radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15, none
of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except as
set forth on Schedule 5.16, any such real property owned by the Company will be
sold or distributed by the Company on terms mutually acceptable to IES and the
Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect. Such
insurance policies evidence all of the insurance the Company is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All of such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Consummation Date
except as set forth on Schedule 5.17. Since January 1, 1995, no insurance
carried by the Company has been canceled by the insurer and the Company has not
been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended December 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
(b) The Stockholders made a valid election under the provisions of
Subchapter S of the Code and the Company has not, within the past five years,
been taxed under the provisions of Subchapter C of the Code. The Stockholders
shall pay, and they hereby indemnify IES and the Company against, all income
taxes payable with respect to the Company's operations for all periods through
and including the Consummation Date.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any
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<PAGE> 27
of the terms, conditions or provisions of (i) the Charter Documents of the
Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any of its properties or assets, or
(iii) any Material Document to which the Company or any of the Stockholders is
now a party or by which any of the Stockholders or the Company or any of its
properties or assets may be bound or affected. The consummation by the Company
and the Stockholders of the transactions contemplated hereby will not result in
any material violation, conflict, breach, right of termination or acceleration
or creation of liens under any of the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the preceding sentence,
subject, in the case of the terms, conditions or provisions of the items
described in clause (iii) above, to obtaining (prior to the Effective Time)
such consents as may be required from commercial lenders, lessors or other
third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
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5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
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<PAGE> 29
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
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5.29 DISCLOSURE. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished in writing by IES. If, during the period
of time during which a prospectus is required to be delivered in connection
with the IPO, the Company or the Stockholders become aware of any fact or
circumstance which would affect the accuracy of a representation or warranty of
Company or Stockholders in this Agreement in any material respect, the Company
and the Stockholders shall immediately give notice of such fact or circumstance
to IES. However, subject to the provisions of Section 7.7, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement, and, subject to the provisions of Section
7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
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5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to review
and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however, shall
limit or restrict the rights of any Stockholder to acquire IES Stock pursuant
to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of IES Stock received as described in Section 3.1.
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<PAGE> 32
6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such representations
and warranties shall survive the Consummation Date for a period of eighteen
months (the last day of such period being the "Expiration Date"), except that
solely for purposes of determining whether a claim for indemnification under
Section 11.2(iii) hereof has been made on a timely basis, and solely to the
extent that in connection with the IPO, any of the Stockholders actually incurs
liability under the 1933 Act, the 1934 Act, or any other Federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
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6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except
for the Other Agreements and except as set forth in the Draft Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates IES to issue any of its authorized but unissued
capital stock; and (ii) IES 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. The outstanding options, warrants or other rights to acquire shares of
the stock of IES will be as described in the Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not presently
own, of record or beneficially, or controls, directly or indirectly, any
capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity, and IES is not,
directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES included
in the Draft Registration Statement (the "IES Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position
of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
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<PAGE> 34
against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) IES is not in violation of any IES Charter
Document. Neither IES, nor, to the best knowledge of IES, any other party
thereto, is in default under any lease, instrument, agreement, license, or
permit to which IES is a party, or by which IES, or any of its properties, are
bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation by
IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii)
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any filings required under the Hart-Scott Act and under state securities laws
in connection with the purchase and sale of the Company Stock or the capital
stock of the Other Founding Companies, no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by IES or the consummation by IES of the transactions
contemplated hereby.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to the
Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the time
of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES has
conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
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6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration Statement
and the Registration Statement comply as to form in all material respects with
the requirements of the Form S-1 Registration Statement and applicable
requirements under Federal laws and regulations, provided that the foregoing
does not apply to any information that the Company and the Stockholders have
furnished to IES specifically for inclusion in the Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES, the
Stockholders and the Company will treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Company as confidential in
accordance with the provisions of Section 14 hereof.
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(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement
to be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
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(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
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(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
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7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. IES shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of IES contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of IES to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. The delivery of any
notice pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or supplement
a Schedule pursuant to this Section 7.7 to reflect an item not known to the
Company or the Stockholders at the time of entering into this Agreement or an
event occurring after the date of this Agreement, and IES does not consent to
such amendment or supplement, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 12.1(i) hereof. In the event that IES
seeks to amend or supplement a Schedule pursuant to this Section 7.7 and a
majority of the Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. No amendment of or supplement to
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a Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at least
10 days prior to the Consummation Date the unaudited consolidated balance
sheets of the Company as of the end of all fiscal quarters following the
Balance Sheet Date, and the unaudited consolidated statement of income, cash
flows and retained earnings of the Company for all fiscal quarters ended after
the Balance Sheet Date, disclosing no Material Adverse Change in the Company or
change which would cause a Material Adverse Effect in the financial condition
of the Company or the results of its operations from the financial statements
as of the Balance Sheet Date, except for the transactions permitted pursuant to
the terms and conditions for equity distributions described in Annex I. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
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7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES shall
maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
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8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the Closing Date and the
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Consummation Date, respectively, and signed by the President or
any Vice President of IES shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion
from counsel for IES, dated the Consummation Date, in the form annexed hereto
as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation Date
are subject to the satisfaction or waiver on or prior to the Consummation Date
of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not been
satisfied, IES shall have the right to terminate this Agreement, or waive any
such condition, but no such waiver shall be deemed to affect the survival of
the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as though
such representations and warranties had been made on and as of such date; all
of the terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the Stockholders shall have
delivered to IES certificates dated the Closing Date and the Consummation Date,
respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company, other
than those identified on Schedules 2.1, shall have resigned as directors of the
Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. IES
shall use reasonable efforts to have the Stockholders released from any and all
guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and shall
permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the Consummation
Date, a customer of IES or any subsidiary thereof, of the Company or
of any of the Other Founding Companies within the Territory for the
purpose of soliciting or selling products or services in direct
competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated at
the beginning of this Section 13, during which the agreements and covenants of
each Stockholder made in this Section 13 shall be effective, shall be computed
by excluding from such computation any time during which such Stockholder is in
violation of any provision of this Section 13. The covenants contained in
Section 13 shall not be affected by any breach of any other provision hereof by
any party hereto and shall have no effect if the transactions contemplated by
this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from pursuing
any other available remedy for such breach or threatened breach, including the
recovery of damages. In the event the transactions contemplated by this
Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of five years from
the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such Stockholders
pursuant to this Agreement is being acquired solely for their own respective
accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. The Stockholders covenant, warrant and represent that none of the
shares of IES Stock issued to such Stockholders will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and
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<PAGE> 57
regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in making
investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked any
and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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<PAGE> 58
transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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<PAGE> 59
term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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<PAGE> 60
(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after IES has furnished such Indemnified Party with a sufficient number of
copies of the same.
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<PAGE> 61
(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not entitled
or elects not, to assume the defense of a claim, will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party, a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
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<PAGE> 62
17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
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<PAGE> 63
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
two (2) or more counterparts, each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damages or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying
party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder acknowledges
that he, and not the Company or IES, will pay all taxes due by him upon receipt
of the consideration payable pursuant to Section 1 hereof. The Stockholders
acknowledge that the risks of the transactions contemplated hereby include tax
risks, with respect to which the Stockholders are relying partially on the
opinion contemplated by Section 8.12 hereof and representations by IES in this
Agreement.
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<PAGE> 64
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Bob Buechner
Buechner, Haffer, O'Connell, Meyers & Healey
105 East 4th Street
Suite 1405
Cincinnati, Ohio 45202
(c) If to the Company, addressed to it at:
Thomas Popp & Company
8627 Calumet Way
Cincinnati, Ohio 45249
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Texas, excluding any conflicts of law, rule or
principle that might refer same to the laws of another jurisdiction.
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<PAGE> 65
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
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<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
------------------------------
Senior Vice President
& Chief Financial Officer
[Remainder of page intentionally left blank]
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<PAGE> 67
THOMAS POPP & COMPANY
By: /s/
-----------------------------------
Name:
----------------------------
Title:
---------------------------
/s/ THOMAS C. POPP
--------------------------------------
Thomas C. Popp Shares Owned: 51
8627 Calumet Way
Cincinnati, Ohio 45249
/s/ WILLIAM V. BEISHCEL
--------------------------------------
William V. Beischel Shares Owned: 49
8200 Lake Valley Drive
Cincinnati, Ohio 45247
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<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND THOMAS POPP & COMPANY
AND ITS STOCKHOLDERS
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDERS:
$3,904,283 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 209,158 shares of IES common stock and $976,071 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below multiplied by the actual
initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock Cash
----------- ------------ ------------- ----
<S> <C> <C> <C>
Thomas C. Popp 51 106,671 $497,796
William V. Beischel 49 102,487 478,275
--------- ------- --------
100 209,158 $976,071
========= ======= ========
MINIMUM VALUE: 3,194,415
</TABLE>
_________________
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 69
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
-----------------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
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STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
REYNOLDS ELECTRIC CORP.
and
all of the STOCKHOLDERS of REYNOLDS ELECTRIC CORP.
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TABLE OF CONTENTS
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RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
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<TABLE>
<S> <C> <C>
18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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<PAGE> 7
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
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<PAGE> 8
SCHEDULES
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc.
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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<PAGE> 9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), REYNOLDS ELECTRIC CORP., an Arizona corporation
(the "Company"), and the stockholders listed on the signature pages of this
Agreement (the "Stockholders"), which are all the stockholders of the Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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<PAGE> 12
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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<PAGE> 13
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Arizona.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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<PAGE> 14
(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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<PAGE> 15
occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods
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<PAGE> 18
then ended, subject, in the case of the Interim Financial Statements,
to normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to
the claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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<PAGE> 22
5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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<PAGE> 24
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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<PAGE> 25
has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended December 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
(b) The Stockholders made a valid election under the provisions of
Subchapter S of the Code and the Company has not, within the past five years,
been taxed under the provisions of Subchapter C of the Code. The Stockholders
shall pay, and they hereby indemnify IES and the Company against, all income
taxes payable with respect to the Company's operations for all periods through
and including the Consummation Date.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any
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<PAGE> 27
of the terms, conditions or provisions of (i) the Charter Documents of the
Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any of its properties or assets, or
(iii) any Material Document to which the Company or any of the Stockholders is
now a party or by which any of the Stockholders or the Company or any of its
properties or assets may be bound or affected. The consummation by the Company
and the Stockholders of the transactions contemplated hereby will not result in
any material violation, conflict, breach, right of termination or acceleration
or creation of liens under any of the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the preceding sentence,
subject, in the case of the terms, conditions or provisions of the items
described in clause (iii) above, to obtaining (prior to the Effective Time)
such consents as may be required from commercial lenders, lessors or other
third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
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5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
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<PAGE> 29
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon
or have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
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5.29 DISCLOSURE. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished in writing by IES. If, during the
period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
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5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
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5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A
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copy of the resolutions adopted by the Board of Directors of IES, which approve
this Agreement and the transactions contemplated hereby in all respects,
certified by the Secretary or an Assistant Secretary of the Company as being in
full force and effect on the date hereof, is attached hereto in Annex II.
6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
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6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions
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contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act and under state securities laws in connection with the purchase
and sale of the Company Stock or the capital stock of the Other Founding
Companies, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by IES
or the consummation by IES of the transactions contemplated hereby.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and
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is not a party to any other material agreement other than the Other Agreements
and the agreements contemplated thereby and to such agreements as will be filed
as Exhibits to the Registration Statement.
6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents
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or materials required by this Agreement. IES, the Stockholders and the Company
will treat all information obtained in connection with the negotiation and
performance of this Agreement or the due diligence investigations conducted
with respect to the Company as confidential in accordance with the provisions
of Section 14 hereof.
(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement
to be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the
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knowledge and consent of IES (which consent shall not be unreasonably
withheld), provided that debt and/or lease instruments may be replaced
without the consent of IES if such replacement instruments are on
terms at least as favorable to the Company as the instruments being
replaced;
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
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(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date
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provided that nothing herein shall prohibit or prevent the Company from paying
(either prior to or on the Closing Date) notes or other obligations from the
Company to the Stockholders in accordance with the terms thereof, which terms
have been disclosed to IES. Such termination agreements are listed on Schedule
7.5 and copies thereof shall be attached thereto.
7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. IES shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of IES contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of IES to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. The delivery of
any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
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consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to a
Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial
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statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any
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conditions not so satisfied. However, no such waiver shall be deemed to affect
the survival of the representations and warranties of IES contained in Section
6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the Closing Date and the
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Consummation Date, respectively, and signed by the President or
any Vice President of IES shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
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8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
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9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
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9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
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9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
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10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
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11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that such indemnity shall not inure to the benefit of IES or the Company to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
Stockholders provided, in writing, corrected information to IES counsel and to
IES for inclusion in the final prospectus, and such information was not so
included or properly delivered, and provided further, that no Stockholder shall
be liable for any indemnification obligation pursuant to this Section 11.1 to
the extent solely attributable to a breach of any representation, warranty or
agreement made herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any
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Stockholder relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability,
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and for so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim and the Indemnified Party refuses to
consent to such settlement, then the Indemnifying Party's liability under this
Section with respect to such Third Person claim shall be limited to the amount
so offered in settlement by said Third Person. Upon agreement as to such
settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to
in such settlement. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party
may undertake such defense through counsel of its choice, at the cost and
expense of the Indemnifying Party, and the Indemnified Party may settle such
matter, and the Indemnifying Party shall pay the Indemnified Party for the
settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification
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Threshold"). Stockholders shall not assert any claim for indemnification
hereunder against IES until such time as, and solely to the extent that, the
aggregate of all claims which Stockholders may have against IES shall exceed
$50,000. Even after the $50,000 threshold for IES or the Indemnification
Threshold for a Stockholder has been met, all claims must be made in $10,000
increments, which claims may be cumulated in order to meet such $50,000 and
$10,000 thresholds. For purposes of this paragraph, the IES Stock delivered to
the Stockholders shall be valued at the initial public offering price as set
forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days preceding the date on which a claim for
indemnification is made, as reported in The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set
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forth in Section 8 hereof have not been satisfied or waived as of the
Closing Date or the Consummation Date, as applicable, or by IES, if
the conditions set forth in Section 9 hereof have not been satisfied
or waived as of the Closing Date or the Consummation Date, as
applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
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(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
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13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Stockholders
shall, if possible, give prior written notice thereof to IES and provide IES
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section,
IES shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting IES from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In
the event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the
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disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, and (d)
to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of IES as a publicly held entity after
the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. UPON THE WRITTEN REQUEST OF THE
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HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND
(AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and regulations of the SEC. All the IES Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
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17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free
organization under Section 351 of the Code. In addition, if IES is advised in
writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 17.1 that the number of shares to be sold by persons other than
IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
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(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any term sheet
associated therewith), and such other documents as such Stockholder
may reasonably request in order to facilitate the disposition of the
relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and
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any accountant or other agent retained by participating Stockholders
or any such underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of IES (the "Records"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause
IES' officers, directors and employees to supply all information
reasonably requested by any such Inspectors in connection with such
registration statement; provided, that records which IES determines,
in good faith, to be confidential and which IES notifies the
Inspectors are confidential shall not be disclosed by the Inspectors
unless (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in the registration statement or
(ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction after delivery of
sufficient notice to IES to enable IES to contest such subpoena or
order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow
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agent, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after IES has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more
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than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
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18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
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18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Michael Hool
Mariscal, Weeks, McIntyre & Friedlander
2901 N. Central
Suite 200
Phoenix, Arizona 85012
-56-
<PAGE> 65
(c) If to the Company, addressed to it at:
Reynolds Electric Corp.
1835 W. Vogel
Suite No. 4
Phoenix, Arizona 85021-0960
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
-57-
<PAGE> 66
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
-58-
<PAGE> 67
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
------------------------------------
Senior Vice President and
Chief Financial Officer
[Remainder of page intentionally left blank]
-59-
<PAGE> 68
REYNOLDS ELECTRIC CORP.
By: /s/
-------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
/s/ CLAUDE ERNEST REYNOLDS, JR.
-----------------------------------------------
Claude Ernest Reynolds, Jr. Shares Owned: 920
16433 N. 35th Lane
Phoenix, Arizona 85023
Spousal Consent and Acknowledgment:
/s/ SHARON ANN REYNOLDS
-----------------------------------------------
Sharon Ann Reynolds
16433 N. 35th Lane
Phoenix, Arizona 85023
/s/ BENJAMIN REYNOLDS
-----------------------------------------------
Benjamin Reynolds Shares Owned: 40
/s/ CLAUDE ERNEST REYNOLDS
-----------------------------------------------
Claude Ernest Reynolds Shares Owned: 40
A/N/F of Breanna Reynolds,
a minor child
/s/ SHARON ANN REYNOLDS
-----------------------------------------------
Sharon Ann Reynolds
A/N/F of Breanna Reynolds,
a minor child
-60-
<PAGE> 69
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND REYNOLDS ELECTRIC CORP.
AND ITS STOCKHOLDERS
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDERS:
$3,755,567 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 201,191 shares of IES common stock and $938,892 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below multiplied by the actual
initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock(1) Cash
----------- ------------ ------------------ ------------
<S> <C> <C> <C>
Claude Ernest Reynolds, Jr. 920 185,096 $ 863,782
Benjamin Reynolds 40 16,095 37,555
Breanna Reynolds, Minor Child 40 16,095 37,555
----------------- ------------------ ------------
1,000 201,191 $ 938,892
================= ================== ============
MINIMUM VALUE: 3,072,735
- -----------------
(1) After giving effect to the proposed stock split described in the Draft Registration Statement.
</TABLE>
<PAGE> 70
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 71
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
-----------------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
RODGERS ELECTRIC COMPANY, INC.
and
all of the STOCKHOLDERS of RODGERS ELECTRIC COMPANY, INC.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
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SCHEDULES
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"),RODGERS ELECTRIC COMPANY, INC., a Washington
corporation (the "Company"), and the stockholders listed on the signature pages
of this Agreement (the "Stockholders"), which are all the stockholders of the
Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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<PAGE> 12
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Washington.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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<PAGE> 14
(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of September 30,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended September 30,
1996, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the nine-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods
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<PAGE> 18
then ended, subject, in the case of the Interim Financial Statements,
to normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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<PAGE> 19
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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<PAGE> 20
Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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<PAGE> 21
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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<PAGE> 22
5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only;
and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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<PAGE> 24
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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<PAGE> 25
has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended September 30. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of (i)
the Charter Documents of the Company, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
properties or assets, or (iii) any Material Document to which the Company or
any of the Stockholders is now a party or by which any of the Stockholders or
the Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the
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Stockholders of the transactions contemplated hereby will not result in any
material violation, conflict, breach, right of termination or acceleration or
creation of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
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(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
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(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which 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. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not
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apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished in writing by IES. If, during
the period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
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5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties
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set forth herein shall survive until the expiration of any applicable
limitations period, which shall be deemed to be the Expiration Date for such
purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
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6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
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6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act and under state securities laws in connection with the purchase
and sale of the Company Stock or the capital stock of the Other Founding
Companies, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by IES
or the consummation by IES of the transactions contemplated hereby.
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6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
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6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material
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which may be required in connection with any documents or materials required by
this Agreement. The Company will cause all information obtained in connection
with the negotiation and performance of this Agreement to be treated as
confidential in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
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7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
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(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement
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to be complied with or satisfied by such person hereunder. IES shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of IES contained herein to be untrue or inaccurate
in any material respect at or prior to the Closing and (ii) any material
failure of IES to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to a
Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
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7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
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7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the
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Closing Date and the Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Consummation Date, respectively, and signed by
the President or any Vice President of IES shall have been delivered to the
Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and
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regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration
-52-
<PAGE> 61
statement or prospectus or any amendment or supplements thereto after IES has
furnished such Indemnified Party with a sufficient number of copies of the
same.
(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
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<PAGE> 62
17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
-54-
<PAGE> 63
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
-55-
<PAGE> 64
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Glen Paul Carpenter
Anderson Hunter
P. O. Box 5397
Everett, Washington 98206
(c) If to the Company, addressed to it at:
Rodgers Electric Company, Inc.
2609 Wetmore
P. O. Box 1152
Everett, Washington 98206
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
-56-
<PAGE> 65
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
-57-
<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
------------------------------------
Senior Vice President and
Chief Financial Officer
[Remainder of page intentionally left blank]
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<PAGE> 67
RODGERS ELECTRIC COMPANY, INC.
By: /s/
-----------------------------------
Name:
-------------------------
Title:
------------------------
/s/ TERRY E. EARNHEART
--------------------------------------
Terry E. Earnheart Shares Owned: 74
3519 71st Ave. N.E.
Marysville, Washington 98270
/s/ CHERYLE L. EARNHEART
---------------------------------------
Cheryle L. Earnheart Shares Owned: 74
3519 71st Ave. N.E.
Marysville, Washington 98270
/s/ CHERIE L. EARNHEART
---------------------------------------
Cherie L. Earnheart Shares Owned: 1
3519 71st Ave. N.E.
Marysville, Washington 98270
/s/ TYLER E. EARNHEART
---------------------------------------
Tyler E. Earnheart Shares Owned: 1
3519 71st Ave. N.E.
Marysville, Washington 98270
-59-
<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND RODGERS ELECTRIC COMPANY, INC.
AND ITS STOCKHOLDERS
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDERS:
$6,733,541 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 360,725 shares of IES common stock and $1,683,385 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below multiplied by the actual
initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock(1) Cash
------------ -------------- --------------
<S> <C> <C> <C>
Terry E. Earnheart 74 177,958 $830,470
Cheryle L. Earnheart 74 177,958 830,470
Cherie L. Earnheart 1 2,405 11,223
Tyler E. Earnheart 1 2,405 11,223
-------------------- ------------------ --------------
150 360,725 $1,683,385
==================== ================== ==============
MINIMUM VALUE: 5,509,260
</TABLE>
_________________
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 69
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
-----------------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
SUMMIT ELECTRIC OF TEXAS, INCORPORATED
and
all of the STOCKHOLDERS of SUMMIT ELECTRIC OF TEXAS, INCORPORATED
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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ANNEXES
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Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
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SCHEDULES
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2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), SUMMIT ELECTRIC OF TEXAS, INCORPORATED, a Texas
corporation (the "Company"), and the stockholders listed on the signature pages
of this Agreement (the "Stockholders"), which are all the stockholders of the
Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Texas.
"Stockholders" has the meaning set forth in the first paragraph of
this Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of March 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended March 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the three-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the
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<PAGE> 18
periods then ended, subject, in the case of the Interim Financial
Statements, to normal year-end and audit adjustments and any other
adjustments described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely
to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be
deemed to be zero.
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<PAGE> 19
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only;
and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended March 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of (i)
the Charter Documents of the Company, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
properties or assets, or (iii) any Material Document to which the Company or
any of the Stockholders is now a party or by which any of the Stockholders or
the Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the
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Stockholders of the transactions contemplated hereby will not result in any
material violation, conflict, breach, right of termination or acceleration or
creation of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
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(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
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(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which 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. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not
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apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished in writing by IES. If, during
the period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
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5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties
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set forth herein shall survive until the expiration of any applicable
limitations period, which shall be deemed to be the Expiration Date for such
purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
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6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
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6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act and under state securities laws in connection with the purchase
and sale of the Company Stock or the capital stock of the Other Founding
Companies, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by IES
or the consummation by IES of the transactions contemplated hereby.
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6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
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6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material
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which may be required in connection with any documents or materials required by
this Agreement. The Company will cause all information obtained in connection
with the negotiation and performance of this Agreement to be treated as
confidential in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
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7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
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(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement
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to be complied with or satisfied by such person hereunder. IES shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of IES contained herein to be untrue or inaccurate
in any material respect at or prior to the Closing and (ii) any material
failure of IES to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to a
Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
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7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
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7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the
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Closing Date and the Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Consummation Date, respectively, and signed by
the President or any Vice President of IES shall have been delivered to the
Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and
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<PAGE> 57
regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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<PAGE> 58
transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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<PAGE> 59
term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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<PAGE> 60
(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration
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<PAGE> 61
statement or prospectus or any amendment or supplements thereto after IES has
furnished such Indemnified Party with a sufficient number of copies of the
same.
(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
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<PAGE> 62
17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
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<PAGE> 63
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
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<PAGE> 64
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Malcolm Gibson
Gibson & Herberger L.L.P.
Three Riverway
Suite 400
Houston, Texas 77056
(c) If to the Company, addressed to it at:
Summit Electric of Texas, Incorporated
4545 South Pinemont
Houston, Texas 77041
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
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<PAGE> 65
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
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<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
-------------------------------
Senior Vice President
& Chief Financial Officer
[Remainder of page intentionally left blank]
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<PAGE> 67
SUMMIT ELECTRIC OF TEXAS,
INCORPORATED
By: /s/
--------------------------------------
Name:
----------------------------
Title:
---------------------------
/s/ STEVEN E. JACKSON
-----------------------------------------
Steven E. Jackson Shares Owned: 1,000
18323 Mountfield
Houston, Texas 77084
Spousal Consent and Acknowledgment:
/s/ CLARE SULLIVAN-JACKSON
-----------------------------------------
Clare Sullivan-Jackson
18323 Mountfield
Houston, Texas 77084
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<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND SUMMIT ELECTRIC OF TEXAS, INCORPORATED
AND ITS STOCKHOLDER
CONSIDERATION TO BE PAID TO THE STOCKHOLDER
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDER:
$6,001,437 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 321,506 shares of IES common stock and $1,500,439 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below less $400,000 multiplied by the
actual initial public offering price per share divided by $14 plus $400,000.
Consideration to be paid to the STOCKHOLDER:
<TABLE>
<CAPTION>
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock(1) Cash
- ----------- ------------ -------------- ----------
<S> <C> <C> <C>
Steven E. Jackson 1,000 321,506 $1,900,439
------------ -------------- ----------
1,000 321,506 $1,900,439
============ ============== ==========
MINIMUM VALUE: 4,910,265
</TABLE>
_________________
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 69
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 21st day of October, 1997
by and among
INTEGRATED ELECTRICAL SERVICES, INC.
THURMAN & O'CONNELL CORPORATION
and
all of the STOCKHOLDERS of THURMAN & O'CONNELL CORPORATION
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certain Information With Respect to the Capital Stock of the Company and IES. . . . . . . . . . . . . 5
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers; Material Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 Interest in Customers and Suppliers and Related Party Transactions. . . . . . . . . . . . . . . . . 22
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.36 No Commitment to Dispose of IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. REPRESENTATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.11 IES Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Draft Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.11 Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . . . . . 34
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Other Founding Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Representations and Warranties; Performance and Obligations. . . . . . . . . . . . . . . . . . . . . 36
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.15 Resignations of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . . . . . . 38
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 General Indemnification by the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Indemnification by IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 IES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.5 Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.5 Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.6 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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<PAGE> 7
ANNEXES
<TABLE>
<S> <C>
Annex I - Consideration to Be Paid to Stockholders
Annex II - Amended and Restated Certificate of Incorporation and
By-Laws of IES; Board Resolutions
Annex III - Form of Opinion of Counsel to IES
Annex IV - Form of Opinion of Counsel to Company and Stockholders
Annex V - Form of Key Employee Employment Agreement
</TABLE>
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<PAGE> 8
SCHEDULES
<TABLE>
<S> <C>
2.1 Board of Directors
2.2 Officers
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
16.2 Non-accredited Investors
18.5 Brokers and Agents
</TABLE>
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<PAGE> 9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 21st
day of October, 1997, by and among INTEGRATED ELECTRICAL SERVICES, INC., a
Delaware corporation ("IES"), THURMAN & O'CONNELL CORPORATION, a Kentucky
corporation (the "Company"), and the stockholders listed on the signature pages
of this Agreement (the "Stockholders"), which are all the stockholders of the
Company.
RECITALS
WHEREAS, the Company is engaged in the electrical contracting
business;
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, IES is entering into other separate agreements simultaneously
with this Agreement that are substantially the same as this Agreement (the
"Other Agreements"), each of which is entitled "Stock Purchase Agreement," with
each of the Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional companies engaged in the electrical
services business;
WHEREAS, this Agreement and the Other Agreements constitute the "IES
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of IES, and each of the Other Founding Companies that are parties
to the Other Agreements, have approved and adopted the IES Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies will transfer the capital stock of each
of the Founding Companies to IES and the Stockholders of each of the other
Founding Companies will acquire the stock of IES (but not cash or other
property) as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the board of directors of the
Company has approved this Agreement as part of the IES Plan of Organization in
order to transfer the capital stock of the Company to IES; and
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 10
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Affiliates" means with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled by, or is
under common control with such person or entity.
"Balance Sheet Date" means June 30, 1997.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the recitals of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
"Draft Registration Statement" means the draft dated October 20, 1997
of the Registration Statement, and any corrections thereto and supplemental
information delivered by IES to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to IES.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13(b).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Ace Electric, Inc., a Georgia corporation;
Amber Electric, Inc., a Florida corporation;
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<PAGE> 11
Bexar Electric Company, Ltd., a Texas limited partnership;
Daniel Electrical Contractors, Inc., a Florida corporation, and Daniel
Electrical of Treasure Coast, Inc., a Florida corporation;
Hatfield Electric, Inc., an Arizona corporation;
Haymaker Electric, Ltd., an Alabama limited partnership;
Houston-Stafford Electric, Inc., a Texas corporation;
Mills Electrical Contractors, Inc., a Texas corporation;
Muth Electric, Inc., a South Dakota corporation;
Pollock Electric Inc., a Texas corporation;
Thomas Popp & Company, an Ohio corporation;
Reynolds Electric Corp., an Arizona corporation;
Rodgers Electric Company, Inc., a Washington corporation;
Stark Investments, Inc., a Texas corporation;
Summit Electric of Texas, Incorporated, a Texas corporation; and
Thurman & O'Connell Corporation, a Kentucky corporation;
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Hazardous Substance" has the meaning set forth in Section 5.13(c).
"IES" has the meaning set forth in the first paragraph of this
Agreement.
"IES Charter Documents" has the meaning set forth in Section 6.1.
"IES Plan of Organization" has the meaning set forth in the recitals
of this Agreement.
"IES Stock" means the common stock, par value $.01 per share, of IES.
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<PAGE> 12
"IPO" means the initial public offering of IES Stock pursuant to the
Registration Statement.
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer or
director.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23.
"Minimum Value" has the meaning set forth in Annex I.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by IES and the Underwriters
of the public offering price of the shares of IES Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of IES Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Restricted Common Stock" has the meaning set forth in Section
1.3(ii).
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
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<PAGE> 13
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Kentucky.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, withholding, employment, excise, property, deed, stamp,
alternative or add-on minimum, or other taxes, assessments, duties, fees,
levies or other governmental charges, whether disputed or not, together with
any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, on the Consummation Date, the Stockholders shall sell to IES and IES
shall purchase from the Stockholders, all of the issued and outstanding shares
of capital stock of the Company as set forth in Annex I hereto.
1.2 PURCHASE PRICE. The purchase price for the Company Stock
shall be as set forth on Annex I to this Agreement.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY AND IES. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company and
IES as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
5.3 hereto; and
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<PAGE> 14
(ii) immediately prior to the Closing Date and the
Consummation Date, the authorized capital stock of IES will consist of
100,000,000 shares of IES Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.0l par value, of which no
shares will be issued and outstanding and 2,655,709 shares of
Restricted Voting Common Stock, $.01 per value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as
otherwise set forth in the Registration Statement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons identified on Schedule 2.2 hereto, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from IES the respective
number of shares of IES Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to effect the delivery of shares referred to in Section 3 hereof;
provided, that such actions shall not include the actual completion of the
purchase and sale of the Company Stock or the delivery of the IES Stock and
cash referred to in Section 3 hereof, each of which actions shall only be taken
upon the Consummation Date as herein provided. The delivery of the Company
Stock, which shall
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<PAGE> 15
occur at or prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P, 4200
Texas Commerce Tower, 600 Travis, Houston, Texas 77002. All Company Stock
shall be delivered at the Closing to Andrews & Kurth L.L.P., to be held in
trust until the Consummation Date, and shall be returned immediately upon any
termination of this Agreement prior to the Consummation Date. On the
Consummation Date (x) all transactions contemplated by this Agreement,
including the delivery of shares and cash which the Stockholders shall be
entitled to receive pursuant to Annex I hereof, shall be completed, and (y) the
closing with respect to the IPO shall occur and be completed. The date on
which the actions described in the preceding clauses (x) and (y) occurs shall
be referred to as the "Consummation Date." During the period from the Closing
Date to the Consummation Date, this Agreement may only be terminated by the
Company if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall in
any event terminate if the Consummation Date does not occur within 30 days of
the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
(A) Representations and Warranties of the Company and the
Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Company and the Stockholders,
jointly and severally, represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of
this Agreement and, subject to Section 7.7 hereto, shall be true at the time of
Closing and the Consummation Date, and that such representations and warranties
shall survive the Consummation Date for a period of eighteen months (the last
day of such period being the "Expiration Date"), except that the warranties and
representations set forth in Sections 5.3 and 5.22 hereof shall survive until
such time as the applicable limitations period has run, which shall be deemed
to be the Expiration Date for Sections 5.3 and 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Incorporation, and has the requisite power and authority
to carry on its business as it is now being conducted. The Company is duly
qualified or authorized to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or authorization necessary except where
the failure to be so qualified or authorized to do business would not have a
Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all
states in which the Company is authorized or qualified to do business. True,
complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii)
the stock records of the Company, are all attached to Schedule 5.1. The
Company has delivered to IES complete and correct copies of all minutes of
meetings, written consents and other evidence, if any, of
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<PAGE> 16
deliberations of or actions taken by the Company's Board of Directors, any
committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of
the Company executing this Agreement have the authority to enter into and bind
the Company to the terms of this Agreement and (ii) the Company has the full
legal right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated hereby in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. 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, are owned of record and beneficially by the Stockholders and
further, such shares 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 were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the Company has not acquired or redeemed
any Company Stock since January 1, 1995. Except as set forth on Schedule 5.4,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) 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; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the IES Plan of Organization. There are
no voting trusts, proxies or other agreements or understandings to which the
Company or any of the Stockholders is a party or is bound with respect to the
voting of any shares of capital stock of the Company.
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<PAGE> 17
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the IES Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set
forth on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, 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 non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a
listing of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the Company or any other person or entity that is an Affiliate of the Company
since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31,
1995 and 1996 and the related statements of operations, stockholder's
equity and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets,
the related statements of operations, stockholder's equity and cash
flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of June 30, 1996,
the balance sheet of the Company as of June 30, 1997 (the "Balance
Sheet Date") and the related statements of operations, stockholder's
equity and cash flows for the six-month periods ended June 30, 1996
and 1997, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein
as the "Interim Financial Statements"). The Year-end Financial
Statements and the Interim Financial Statements are collectively
called the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods
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<PAGE> 18
then ended, subject, in the case of the Interim Financial Statements,
to normal year-end and audit adjustments and any other adjustments
described therein.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date or otherwise reflected in the Company Financial Statements
at the Balance Sheet Date which by their nature would be required in accordance
with GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound other than those made in the ordinary course of business and consistent
with past practice. Except as set forth on Schedule 5.10, since the Balance
Sheet Date, the Company has not incurred any material liabilities or
obligations of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business and consistent with past practices. The
Company has also delivered to IES on Schedule 5.10, in the case of those
contingent liabilities related to pending litigation or litigation that has
been threatened in writing, or other material liabilities which are not fixed
or otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which the Company reasonably expects will be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. For each such contingent liability or
liability for which the amount is not fixed or is contested, the Company has
provided to IES the following information:
(i) a summary description of the liability together with
the following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers or stockholders relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending;
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith estimate of the maximum amount, if any,
which the Company expects, based on information available, is likely to
become payable with respect to each such liability. If no estimate is
provided, the estimate shall for purposes of this Agreement be deemed
to be zero.
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<PAGE> 19
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 5.11, net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company or its employees hold
all licenses, franchises, permits and other governmental authorizations
("Licenses") necessary to conduct the business of the Company, the absence of
which would cause a Material Adverse Effect on the Company, and the Company has
delivered to IES a list that is accurate, in all material respects, and summary
description (which is set forth on Schedule 5.12) of all such Licenses,
including any trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company or any of its employees (including
interests in software or other technology systems, programs and intellectual
property). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property will
be assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company
has not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedule 5.12 and is not in violation of any of the
foregoing in any material respect. Except as specifically provided in Schedule
5.12, the consummation by the Company of 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 such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
5.13 attached hereto, (i) the Company has conducted its businesses in
compliance in all material respects with all applicable Environmental Laws,
including, without limitation, having all environmental permits, licenses and
other approvals and authorizations necessary for the operation of its business
as presently conducted, (ii) none of the properties owned by the Company
contain any Hazardous Substance as a result of any activity of the Company in
amounts exceeding the levels permitted by applicable Environmental Laws, (iii)
the Company has not received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company or the Stockholders, threatened, against the
Company relating to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be filed, by the
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Company concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company as a result of any
activity of the Company during the time such properties were owned, leased or
operated by the Company, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analysis regarding compliance or
non-compliance with any applicable Environmental Law conducted by or which are
in the possession of the Company relating to the activities of the Company
which are not listed on Schedule 5.13 attached hereto prior to the date hereof,
(viii) to the knowledge of the Company and the Stockholders, there are no
underground storage tanks on, in or under any properties owned by the Company
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the
Company and the Stockholders, there is no asbestos or asbestos-containing
material present in any of the properties owned by the Company, and no asbestos
has been removed from any of such properties during the time such properties
were owned, leased or operated by the Company, and (x) neither the Company nor
any of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, each as amended and as in effect on the Closing Date, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to
any Hazardous Substance.
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(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to IES an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property material to the operations of the Company included in "plant, property
and equipment" on the balance sheet of the Company, (y) all other personal
property owned by the Company with an individual value in excess of $2,500 (i)
as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and
(z) all material leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all personal property material to, and used by, the Company in its
business is either owned by the Company or leased by the Company pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 or replacement property thereof is in working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for any period covered by any of
the Financial Statements. Except to the extent set forth on Schedule 5.15,
none of such customers has canceled or substantially reduced or, to the best
knowledge of the Company and the Stockholders, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedules 5.10, 5.14
or 5.16, (a) in existence as of the Balance Sheet Date and (b) entered into
since the Balance Sheet Date, and in each case has delivered true, complete and
correct copies of such agreements to IES. Except for expenditures in the
ordinary course of business, the Company has also indicated on Schedule
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<PAGE> 22
5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than 2% of the Company's revenues for fiscal 1996 by the Company during
any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1997,
the Company has not experienced any difficulties in obtaining any inventory
items necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the best knowledge of the Company and the
Stockholders, no customer or supplier of the Company will cease to do business
with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 5.15, the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. Except
as set forth on Schedule 5.16, any such real property owned by the Company will
be sold or distributed by the Company on terms mutually acceptable to IES and
the Company and leased back by the Company on terms no less favorable to the
Company than those available from an unaffiliated party and otherwise
reasonably acceptable to IES at or prior to the Closing Date. The Company has
good and insurable title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current or
contemplated use of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases
included
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<PAGE> 23
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to IES (i) an accurate
list as of the Balance Sheet Date of all insurance policies carried by the
Company, (ii) an accurate list of all insurance loss runs or workers
compensation claims received for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. All of such insurance policies are currently in full
force and effect and shall remain in full force and effect through the
Consummation Date except as set forth on Schedule 5.17. Since January 1, 1995,
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to IES an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees
of the Company, listing all employment agreements with such officers, directors
and key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to IES true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
except as disclosed on Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) to the best
knowledge of the Company and the Stockholders, no campaign to establish such
arrangement is in progress and (iii) there is no pending or, to the best of the
Company's knowledge and the Stockholders' knowledge, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years. The Company
believes its relationship with employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i)
there are no significant controversies pending or, to the knowledge of the
Company and the Stockholders, threatened between the Company and any of its
employees, (ii) the Company has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (iii) no person has asserted
that the Company is liable in any material amount for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
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<PAGE> 24
5.19 EMPLOYEE PLANS. The Company has delivered to IES an accurate
schedule (Schedule 5.19) showing all employee benefit plans of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the employee benefit plans, if any, described on
Schedule 5.19, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and neither the Company nor any subsidiary has any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, and the Company is not or could not be
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to
any plan listed on Schedule 5.19 have either been fulfilled in their entirety
or are fully reflected on the balance sheet of the Company as of the Balance
Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401 (a) of
the Code are, and have been so qualified and have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are attached to Schedule 5.19. Except as disclosed on Schedule 5.20,
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, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof.
Neither Stockholders, any such plan listed in Schedule 5.19, nor the Company
has engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA. No such Plan listed in Schedule 5.19
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<PAGE> 25
has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(l) of ERISA; and the Company has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service nor any
liability to the Pension Benefit Guaranty Corporation. The Company further
represents that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations
or discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such
plan listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not
incurred liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the Company
could have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes the
Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10 or 5.13, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of the Company and the Stockholders, 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 any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and to the knowledge of the
Company and the Stockholders there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance in all material respects with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations.
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5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other Taxes (including penalties and interest) for any
period or periods prior to and including the Balance Sheet Date and no notice
of any claim for Taxes, whether pending or threatened, has been received. All
Tax, including interest and penalties (whether or not shown on any Tax Return),
owed by the Company has been paid. The amounts shown as accruals for Taxes on
the Company Financial Statements are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income Tax
Returns and franchise Tax Returns of Company for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22 or have otherwise been delivered to IES. The
Company has a taxable year ended December 31. Except as set forth on Schedule
5.22, the Company uses the accrual method of accounting for income tax
purposes, and the Company's methods of accounting have not changed in the past
five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not during the
last five years been a member of any consolidated group. The Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
(b) The Stockholders made a valid election under the provisions of
Subchapter S of the Code and the Company has not, within the past five years,
been taxed under the provisions of Subchapter C of the Code. The Stockholders
shall pay, and they hereby indemnify IES and the Company against, all income
taxes payable with respect to the Company's operations for all periods through
and including the Consummation Date.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any charter document.
Neither the Company nor, to the best knowledge of the Company and the
Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents").
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any
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<PAGE> 27
of the terms, conditions or provisions of (i) the Charter Documents of the
Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any of its properties or assets, or
(iii) any Material Document to which the Company or any of the Stockholders is
now a party or by which any of the Stockholders or the Company or any of its
properties or assets may be bound or affected. The consummation by the Company
and the Stockholders of the transactions contemplated hereby will not result in
any material violation, conflict, breach, right of termination or acceleration
or creation of liens under any of the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the preceding sentence,
subject, in the case of the terms, conditions or provisions of the items
described in clause (iii) above, to obtaining (prior to the Effective Time)
such consents as may be required from commercial lenders, lessors or other
third parties.
(c) Except as set forth on Schedule 5.23 and except for the
Hart-Scott Act, none of the Material Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 with the SEC pursuant to the 1933 Act, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filing required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or IES of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, IES or any
Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
the Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
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5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not
been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance), alone or in the aggregate, which has caused a
Material Adverse Effect on the Company;
(iii) any change in the authorized capital of the Company
or its outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) 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 that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the
Company to any of its officers, directors, Stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, which has caused a
Material Adverse Effect on the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
affiliates, except inventory sold or transferred in the ordinary
course of business;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material 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;
(x) 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 the Company's business;
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<PAGE> 29
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party;
(xiii) any transaction by the Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has
delivered to IES an accurate schedule (which is set forth on Schedule 5.26) as
of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth 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 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
Company.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
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<PAGE> 30
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, and the completed Director and Officer Questionnaires, with
respect to any Stockholder who has completed such, and the completed S-1
Questionnaire furnished to IES by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact
concerning the Company or the Stockholders or omit to state a material fact
concerning the Company or the Stockholders necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished in writing by IES. If, during the
period of time during which a prospectus is required to be delivered in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to IES. However, subject to the provisions of Section 7.7, such
notification shall not relieve either the Company or the Stockholders of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.7, at the sole option of IES, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on
the Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur; (ii) that neither IES or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company,
the Stockholders or any other person affiliated or associated with the Company
for any failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed purchase and sale
of the Company Stock, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to IES or the prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30,
the Company has not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any
payment to or perform any service for any person.
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<PAGE> 31
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or
will be a party to an agreement or relationship, that involves the receipt by
such person of compensation or property from the Company other than through a
customary employment relationship.
5.33 REGISTRATION STATEMENT. To the best of the Company's and the
Stockholders' knowledge, none of the information supplied or to be supplied by
the Company specifically for inclusion in the Registration Statement contained
or will contain any untrue statement of a material fact concerning the Company
or the Stockholders or omitted or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein
concerning the Company or the Stockholders, in light of the circumstances under
which they are made, not misleading. The Company shall have the right to
review and approve in advance any statements made about the Company in the
Registration Statement.
(B) Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of
Closing and on the Consummation Date, and that the representations and
warranties set forth in Section 5(B) shall survive the Consummation Date.
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex I hereto as being owned by such Stockholder, and, such Company Stock is
owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or IES
Stock that such Stockholder has or may have had. Nothing herein, however,
shall limit or restrict the rights of any Stockholder to acquire IES Stock
pursuant to (i) this Agreement or (ii) any outstanding option granted by IES.
5.36 NO COMMITMENT TO DISPOSE OF IES STOCK. No Stockholder is
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of IES Stock received as described in Section 3.1.
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6. REPRESENTATIONS OF IES
Except as otherwise qualified below, IES represents and warrants that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.7 hereof, shall be true
at the time of Closing and the Consummation Date, and that such
representations and warranties shall survive the Consummation Date for a period
of eighteen months (the last day of such period being the "Expiration Date"),
except that solely for purposes of determining whether a claim for
indemnification under Section 11.2(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, any of the
Stockholders actually incurs liability under the 1933 Act, the 1934 Act, or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
IES acknowledges that in purchasing the shares of Company Stock, it is
relying upon its own independent investigation as well as the representations
and warranties of the Company and the Stockholders as set forth in this
Agreement. Except as set forth herein, the Company and the Stockholders
expressly disclaim any representation or warranty (express, implied or
otherwise) relating to the condition, assets or business of the Company and any
subsidiary including, without limitation, any warranty of merchantability or
fitness for a particular purpose except as expressly set forth herein.
6.1 DUE ORGANIZATION. IES is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted and as contemplated by the IES Plan of Organization.
IES is duly qualified or authorized to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or authorization necessary,
except where the failure to be so qualified or authorized to do business would
not have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as proposed to be amended, of
IES (the "IES Charter Documents") are attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of IES executing this
Agreement have the authority to enter into and bind IES to the terms of this
Agreement and (ii) IES has the full legal right, power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to have been taken by IES to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. A copy of the resolutions adopted by the Board of Directors of
IES, which approve this Agreement and the transactions contemplated hereby in
all respects, certified by the Secretary or an Assistant Secretary of the
Company as being in full force and effect on the date hereof, is attached
hereto in Annex II.
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6.3 CAPITAL STOCK OF IES. The authorized capital stock of IES is
as set forth in Section 1.3(ii). Immediately prior to the Closing Date and the
Consummation Date, all of the issued and outstanding shares of the capital
stock of IES will be as set forth in the Registration Statement, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind other than any restrictions
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of IES have been duly authorized and validly
issued, are fully paid and nonassessable and such shares were offered, issued,
sold and delivered by IES in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of IES.
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except for the Other Agreements and except as set forth in the Draft
Registration Statement, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates IES to issue any of its
authorized but unissued capital stock; and (ii) IES 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. The outstanding options, warrants or other
rights to acquire shares of the stock of IES will be as described in the
Registration Statement.
6.5 SUBSIDIARIES. IES has no subsidiaries. IES does not
presently own, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, and IES is
not, directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of IES
included in the Draft Registration Statement (the "IES Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of IES as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, IES has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth in the Draft Registration Statement, IES is not in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of IES, threatened
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against or affecting, IES, 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. IES has conducted and is conducting its businesses in compliance in
all material respects 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, in any material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) IES is not in violation of any IES
Charter Document. Neither IES, nor, to the best knowledge of IES, any other
party thereto, is in default under any lease, instrument, agreement, license,
or permit to which IES is a party, or by which IES, or any of its properties,
are bound (collectively, the "IES Documents").
(b) The execution and delivery of this Agreement by IES do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of IES under any of the terms,
conditions or provisions of (i) the IES Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to IES or
any of its properties or assets, or (iii) any IES Document. The consummation
by IES of the transactions contemplated hereby will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the purchase and sale of the Company Stock or
the capital stock of the Other Founding Companies, none of the IES Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to the consummation by IES of any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation by IES of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933
Act in connection with the IPO and the purchase and sale of the Company Stock,
(ii) the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii)
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any filings required under the Hart-Scott Act and under state securities laws
in connection with the purchase and sale of the Company Stock or the capital
stock of the Other Founding Companies, no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by IES or the consummation by IES of the transactions
contemplated hereby.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by IES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of IES and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of IES.
6.11 IES STOCK. At the time of issuance thereof and delivery to
the Stockholders, the IES Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of IES, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the IES Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL, other than the Restricted Common
Stock. The IES Stock issued and delivered to the Stockholders shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of IES Stock to be issued to
the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. IES has not entered and will not enter
into any agreement with any of the Founding Companies or any of the
Stockholders of the Founding Companies or IES other than the Other Agreements
and the agreements contemplated by each of the Other Agreements and the
Registration Statement, including the employment agreements, leases and
Indemnification Agreements referred to herein or entered into in connection
with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. IES was formed
in June 1997 and has conducted only limited operations since that time. IES
has conducted no material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, IES does not own and has not at
any time owned any real property or any material personal property and is not a
party to any other material agreement other than the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
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6.14 RELATIONS WITH GOVERNMENTS. Neither IES nor any of its
affiliates has given or offered anything of value to any government official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause IES to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
6.15 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
finished to the Company and the Stockholders in connection herewith, does not
as of the date hereof contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from
any of such documents made or omitted in reliance upon information furnished by
the Company or the Stockholders for inclusion in the Registration Statement.
6.16 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by IES and constitute the legal, valid and
binding obligation of IES enforceable against IES in accordance with their
respective terms. The terms and conditions of the Other Agreements are
identical in all material respects to the terms and conditions in this
Agreement, except for differences reflecting the parties, Annex I and the
schedules hereto.
6.17 DRAFT REGISTRATION STATEMENT. The Draft Registration
Statement and the Registration Statement comply as to form in all material
respects with the requirements of the Form S-1 Registration Statement and
applicable requirements under Federal laws and regulations, provided that the
foregoing does not apply to any information that the Company and the
Stockholders have furnished to IES specifically for inclusion in the
Registration Statement.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of IES
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish IES with such additional
financial and operating data and other information as to the business and
properties of the Company as IES may from time to time reasonably request. The
Company will cooperate with IES, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. IES,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Company as confidential
in accordance with the provisions of Section 14 hereof.
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(b) Between the date of this Agreement and the Consummation Date,
IES will afford to the officers and authorized representatives of the Company
access to all of IES's sites, properties, books and records and will furnish
the Company with such additional financial and operating data and other
information as to the business and properties of IES as the Company may from
time to time reasonably request. IES will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement
to be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2:
(i) carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) use all commercially reasonable efforts to maintain
its respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its
respective obligations under agreements relating to or affecting its
respective assets, properties or rights;
(iv) use all reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance
coverage;
(v) use its commercially reasonable efforts to maintain
and preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
suppliers, customers and others having business relations with the
Company;
(vi) use reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and
all other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or
lease instruments without the knowledge and consent of IES (which
consent shall not be unreasonably withheld), provided that debt and/or
lease instruments may be replaced without the consent of IES if such
replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced;
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(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices; and
(ix) maintain the Company's cash at a level equal to or
above the minimum level of cash required to be maintained as described
in Annex I hereto.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Consummation Date, the Company will not,
without prior written consent of IES:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) except as permitted pursuant to the terms and
conditions for equity distributions described in Annex I, declare or
pay any dividend, or make any distribution in respect of its stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of two percent (2%) of
the Company's revenues for fiscal 1996;
(v) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (1) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of two percent (2%) of
the Company's revenues for fiscal 1996 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) except as set forth in Schedule 7.3(vi) sell, assign,
lease or otherwise transfer or dispose of any property or equipment
except in the normal course of business and other than distributions
of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
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(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 5.11 unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit,
license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending
with the earlier to occur of the Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than IES
or its authorized agents relating to, any acquisition or purchase of
all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.12 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date provided
that nothing herein shall prohibit or prevent the Company from paying (either
prior to or on the Closing Date) notes or other obligations from the Company to
the Stockholders in accordance with the terms thereof, which terms have been
disclosed to IES. Such termination agreements are listed on Schedule 7.5 and
copies thereof shall be attached thereto.
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7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to IES upon obtaining knowledge of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. IES shall
give prompt notice to the Company of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of IES contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of IES to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. The delivery of
any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless IES consents to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule prepared by
IES that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on IES may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and IES does not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that IES seeks to amend or supplement a Schedule pursuant to this Section
7.7 and a majority of the Founding Companies do not consent to such amendment
or supplement, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 12.1(i) hereof. No amendment of or supplement to
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a Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or cause to be furnished to IES and
the Underwriters all of the information concerning the Company and the
Stockholders required for inclusion in, and will cooperate with IES and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
parties hereto agree that the disclosure of information with respect to the
Company and its Stockholders in the Registration Statement and while marketing
the securities of IES in the IPO shall not be a violation of any
confidentiality agreement, including Article 14 of this Agreement, among the
parties hereto or their officers or stockholders. The Company and the
Stockholders agree promptly to advise IES if at any time during the period in
which a prospectus relating to the offering is required to be delivered under
the 1933 Act, they discover that any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Subject to the Company's right to review and approve such
information in the Registration Statement set forth in Section 5.33 above, only
insofar as the information relates solely to the Company or the Stockholders
and is provided by them to IES specifically for inclusion in the Registration
Statement, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at
least 10 days prior to the Consummation Date the unaudited consolidated
balance sheets of the Company as of the end of all fiscal quarters following
the Balance Sheet Date, and the unaudited consolidated statement of income,
cash flows and retained earnings of the Company for all fiscal quarters ended
after the Balance Sheet Date, disclosing no Material Adverse Change in the
Company or change which would cause a Material Adverse Effect in the financial
condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date, except for the transactions permitted
pursuant to the terms and conditions for equity distributions described in
Annex I. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the Company for the periods indicated therein.
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7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated hereby.
7.11 AUTHORIZED CAPITAL. Prior to the Consummation Date, IES
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for stock splits, such changes in
authorized capital stock as are made to respond to comments made by the SEC or
requirements of any exchange or automated trading system for which application
is made to register the IES Stock and any changes necessary or advisable in
order to permit the delivery of the opinion contemplated by Section 8.12
hereof.
7.12 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the
Hart-Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by IES shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by IES. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.9. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the condition
set forth in Section 8.9. As of the Closing Date or, with respect to the
conditions set forth in Section 8.9, as of the Consummation Date, if any such
conditions have not been satisfied, any one or more Stockholders owning 51% or
more of the Company Stock shall have the right to terminate this Agreement, or
in the alternative, waive any condition not so satisfied. Any act or action of
the Stockholders in consummating the Closing or delivering the certificates
representing Company Stock as of the Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of IES
contained in Section 6 hereof.
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8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of IES contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by IES on or before the Closing Date and the
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Consummation Date, respectively, and signed by the President or
any Vice President of IES shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of the Company or the Stockholders
and that are required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Company and its counsel. The Stockholders and
the Company shall be satisfied based on information then known to them that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplements thereto, shall not as they relate to the
Company or the Stockholders contain any untrue statement of a material fact, or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the Company
or Stockholders shall have failed to inform IES in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for IES, dated the Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of IES Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock and no governmental agency
or body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
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8.7 GOOD STANDING CERTIFICATES. IES shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which IES is authorized to do business, showing that IES is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for IES for all periods prior to the Closing have been filed
and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to IES which would constitute and no change in the
disclosures in the Draft Registration Statement shall have been made which
reflects a Material Adverse Effect on IES.
8.9 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of IES, certifying the truth and correctness of attached copies of IES's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the Stockholders of IES approving IES's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion
of Andrews & Kurth L.L.P. or other tax advisor reasonably acceptable to the
Stockholders that the IES Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for IES Stock (but not cash or other property) pursuant to the IES Plan
of Organization.
8.13 OTHER FOUNDING COMPANIES. If any two of the three Founding
Companies with the highest revenues for the most recent fiscal year fail or
refuse or are otherwise unable or unwilling to consummate the transactions
described in the Other Agreements, the Company may terminate this Agreement and
all previously delivered stock certificates representing Company Stock shall be
returned to the Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF IES
The obligations of IES with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.13. The
obligations of IES with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4 and 9.13. As of the
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Closing Date or, with respect to the conditions set forth in Sections 9.1, 9.2,
9.4 and 9.13, as of the Consummation Date, if any such conditions have not
been satisfied, IES shall have the right to terminate this Agreement, or waive
any such condition, but no such waiver shall be deemed to affect the survival
of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.
All the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to IES certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. IES shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the Company which would constitute a Material
Adverse Effect, and the Company shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by
insurance, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered
to IES an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Consummation Date releasing the Company from (i) any and
all claims of the Stockholders against the Company and IES and (ii) obligations
of the Company and IES to the Stockholders, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated hereby. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
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9.6 SATISFACTION. All actions, proceedings, instruments and
documents that are not within the control of IES and that are required to carry
out the transactions contemplated by this Agreement or incidental hereto shall
have been approved by counsel to IES.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7, all existing agreements between the Company and the
Stockholders (and between the Company and entities controlled by the
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. IES shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of IES as a result of which IES deems it inadvisable to proceed with
the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered
to IES a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by IES, in each state in
which the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall enter into an employment agreement substantially in the form of
Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the IES Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
IES a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
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9.15 RESIGNATIONS OF DIRECTORS. Any directors of the Company,
other than those identified on Schedules 2.1, shall have resigned as directors
of the Company.
10. COVENANTS OF IES AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
IES shall use reasonable efforts to have the Stockholders released from any and
all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that IES cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, IES shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. IES will indemnify the
Stockholders against any loss or damage suffered during the 120 day period as a
result of the personal guarantees.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, IES shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for IES Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the IES Stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the
Stockholders shall file or cause to be filed all income Tax Returns
(federal, state, local or otherwise) of any Acquired Party for all
taxable periods that end on or before the Consummation Date, and
shall permit IES to review all such Tax Returns prior to such filings.
Unless the Company is a C corporation, the Stockholders shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to
be due.
(ii) IES shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the Company, IES and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax- free contribution under Section 351(a) of the
Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration
Statement shall be appointed as directors and elected as officers of IES, as
and to the extent set forth in the Draft Registration Statement, promptly
following the Consummation Date.
11. INDEMNIFICATION
The Stockholders and IES each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless IES and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by IES or the Company
as a result of or arising from (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating solely to the Company or the Stockholders which was based upon
information provided to IES or its counsel by the Company or the Stockholders
and is contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders
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required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of IES or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to IES counsel and to IES for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
IES acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
IES further acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims relating to this Agreement and the
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. IES hereby waives to
the fullest extent permitted under applicable law, any and all other rights,
claims and causes of action it or any indemnified person may have against the
Company or any Stockholder relating to this Agreement or the transactions
arising under or based upon any federal, state, local or foreign statute, law,
rule, regulation or otherwise.
11.2 INDEMNIFICATION BY IES. IES covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the Stockholders as a result of or arising from (i) any breach by IES of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
IES under this Agreement; or (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to IES or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to IES or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, except to the extent such relates to the Company or the
Stockholders.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall pay the Indemnified Party
for the settlement amount and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the
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Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. IES and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any
claim for indemnification hereunder against the Stockholders until such time
as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Stockholders shall exceed the greater of (a)
3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section
1.2 plus (ii) the value of the IES Stock delivered to the Stockholders pursuant
to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000
(the "Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against IES until such time as, and solely to the
extent that, the aggregate of all claims which Stockholders may have against
IES shall exceed $50,000. Even after the $50,000 threshold for IES or the
Indemnification Threshold for a Stockholder has been met, all claims must be
made in $10,000 increments, which claims may be cumulated in order to meet such
$50,000 and $10,000 thresholds. For purposes of this paragraph, the IES Stock
delivered to the Stockholders shall be valued at the initial public offering
price as set forth in the Registration Statement.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable under this Section 11 for an amount which exceeds eighty-five percent
(85%) of the amount of proceeds received by such Stockholder (valued as of the
Consummation Date) in connection with the purchase and sale of the Company
Stock. For purposes of crediting Stockholders for payments made pursuant to
Section 11.1, the IES Stock shall be valued at the greater of (a) the initial
public offering price as set forth in the Registration Statement and (b) the
average of the closing prices of the IES Stock (rounded to the nearest one
thousandth) on the five trading days
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preceding the date on which a claim for indemnification is made, as reported in
The Wall Street Journal.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the boards of directors of IES
and the Company;
(ii) by the Stockholders or the Company (acting through
its board of directors), on the one hand, or by IES (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand,
or by IES, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein,
and the curing of such default shall not have been made on or before
the Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by IES, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable; or
(iv) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the
prior written consent of IES, for a period of two (2) years following the
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any electrical contracting business or operation or
related services business in direct competition with IES or any of the
subsidiaries thereof, within 100 miles of where the Company or any of
its subsidiaries conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of IES or any subsidiary thereof for the
purpose or with the intent of enticing such employee away from or out
of the employ of IES or any subsidiary thereof;
(iii) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Consummation Date, a customer of IES or any subsidiary thereof, of the
Company or of any of the Other Founding Companies within the Territory
for the purpose of soliciting or selling products or services in
direct competition with IES within the Territory;
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any competitor in the
electrical contracting business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by
IES or any subsidiary thereof or for which, to the actual knowledge of
such Stockholder after due inquiry, IES or any subsidiary thereof made
an acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment (i) not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or
over-the-counter, or (ii) not more than five percent (5%) of the capital stock
of a competing business whose stock is not publicly traded if the Board of
Directors of IES consents to such acquisition.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by IES in the event of breach by such Stockholder, by
injunctions and restraining orders.
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13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of IES and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of IES; but it is also the intent of IES and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of IES and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
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.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against IES or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES of such
covenants. It is specifically agreed that the period of two (2) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or IES, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or IES's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
IES, (b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties for IES or
the Company and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that
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prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall, if possible, give prior written notice thereof to IES and
provide IES with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section, IES shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting IES from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
by this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 IES. IES recognizes and acknowledges that it had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. IES agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
IES, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), IES shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of IES as a publicly held entity
after the IPO. In the event of a breach or threatened breach by IES of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining IES from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
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14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive the termination of this Agreement for a period of five years
from the Consummation Date.
14.5 RETURN OF INFORMATION. If the transactions contemplated by
this Agreement are not consummated, IES will return or destroy all confidential
information regarding the Company.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by IES, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, or trusts in which a Stockholder is both the
grantor and the beneficiary, the trustees of which so agree), for a period of
two years from the Closing, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, appoint, or otherwise
dispose of any shares of IES Stock received by the Stockholders pursuant to
this Agreement. The certificates evidencing the IES Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as IES may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF IES, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [THE SECOND ANNIVERSARY OF CLOSING
DATE]. 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) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of IES Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The IES Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of IES Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and
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regulations of the SEC. All the IES Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to
bear the economic risk of an investment in the IES Stock to be acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment. Each Stockholder has substantial knowledge and experience in
making investment decisions of this type (or is relying on qualified purchaser
representatives with such knowledge and experience in making this decision),
and is capable, either individually or with such purchaser representatives, of
evaluating the merits and risks of this investment. The Stockholders party
hereto have had an adequate opportunity to ask questions and receive answers
from the officers of IES concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of IES, the plans
for the operations of the business of IES, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholders have asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction. Except as set forth on
Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule
501(a) of the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever IES proposes to register any IES Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by IES and (ii) registrations relating to
employee benefit plans, IES shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 10 days after receipt of such notice, IES shall cause
to be included in such registration all of the IES Stock issued to such
Stockholders pursuant to this Agreement (including any stock issued as or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by IES as a stock split, dividend or
other distribution with respect to, or in exchange for, or in replacement of
such IES Stock) which any such Stockholder requests, other than shares of IES
Stock which may be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, and other than shares of IES Stock
that have been theretofore sold by the Stockholder in accordance with the 1933
Act, provided that IES shall have the right to reduce pro rata the number of
shares of each Selling Stockholder included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
IES or its independent auditors, jeopardize the status of the
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transactions contemplated hereby and by the Registration Statement as a
tax-free organization under Section 351 of the Code. In addition, if IES is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than IES is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, IES may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter. If any Stockholder disapproves of the terms of the
underwriting, that Stockholder may elect to withdraw therefrom by written
notice to IES and the managing underwriter. That Stockholder's shares of IES
Stock so withdrawn shall also be withdrawn from registration; provided,
however, that, if by the withdrawal of such shares a greater number of shares
of IES Stock held by other Stockholders may be included in such registration,
then IES shall offer to all other Stockholders of IES the right to include
additional shares in the same proportion used in effecting the above
limitations.
17.2 REGISTRATION PROCEDURES. Whenever IES is required to register
shares of IES Stock pursuant to Sections 17.1, IES will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares and use its best efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, IES will furnish a
representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
(ii) Notify the Stockholders of any stop order issued or
threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(iii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days, cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 474 under the 1933
Act; and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such registration statement or supplement to the prospectus;
(iv) Furnish to each Stockholder who so requests such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any
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term sheet associated therewith), and such other documents as such
Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(v) Make "generally available to its security holders"
(within the meaning of Rule 158) an earnings statement satisfying the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no
later than 90 days after the end of the 12-month period beginning with
the first day of IES' first fiscal quarter commencing after the
effective date of the registration statement;
(vi) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(vii) If requested by the managing underwriter or
underwriters, if any, or any participating Stockholder, promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or any
participating Stockholder, as the case may be, reasonably requests to
be included therein, including, without limitation, information with
respect to the number of shares of IES Stock being sold by
participating Stockholders to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of an underwritten offering of the
shares of IES Stock to be sold in such offering, and promptly make all
required filings of such prospectus by supplement or post-effective
amendment;
(viii) Make available for inspection by participating
Stockholders, any underwriter participating in any disposition
pursuant to such registration statement, and the counsel retained by
the participating Stockholders, counsel for the underwriters and any
accountant or other agent retained by participating Stockholders or
any such underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of IES
(the "Records"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause IES' officers,
directors and employees to supply all information reasonably requested
by any such Inspectors in connection with such registration statement;
provided, that records which IES determines, in good faith, to be
confidential and which IES notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction after delivery of sufficient notice to IES
to enable IES to contest such subpoena or order;
(ix) Take all other steps reasonably necessary to effect
the registration of the shares of IES Stock contemplated hereby;
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(x) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such
registration or qualification effective during the period such
registration statement is required to be kept effective, provided that
IES shall not be required to become subject to taxation, to qualify
generally to do business or to file a general consent to service of
process in any such states or jurisdictions;
(xi) Cause all such shares of IES Stock to be listed or
included not later than the date of the first sale of shares of IES
Stock under such registration statement on any securities exchanges or
trading systems on which similar securities issued by IES are then
listed or included; and
(xii) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that IES is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in
effect), together with any associated term sheet, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and, at the
request of such Stockholder, IES promptly will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact required
to be stated therein or necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of
the circumstances under which they were made) not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by IES.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section
17.1, IES shall indemnify, to the extent permitted by law, each selling
Stockholder (an "Indemnified Party") against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to IES by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after IES has furnished such Indemnified Party with a sufficient number of
copies of the same.
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(b) In connection with any registration under Section
17.1, each Stockholder shall furnish to IES in writing such information
concerning the Stockholder and his or her proposed offering of shares as is
reasonably requested by IES for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, IES, its
directors and officers and each person who controls IES (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state therein a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
but only to the extent that such untrue or alleged untrue statement or omission
or alleged omission is contained in or omitted from information so furnished in
writing to IES by such Stockholder expressly for use in the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.3 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, IES and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of IES's size and investment stature,
including indemnification; provided, however, that the Stockholder shall be
exempt and excluded from any indemnification of the managing underwriters other
than with respect to information provided by the respective Stockholders to IES
or the managing underwriters.
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17.5 TRANSFER OF RIGHTS. The right to cause IES to register shares
of IES Stock under this Agreement may be assigned to a transferee or assignee
of any Stockholder to the extent that such transferee or assignee is a member
of the immediate family of a Stockholder, or a trust or partnership for the
benefit of any such persons.
17.6 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale
of IES stock to the public without registration, IES agrees to use its
reasonable efforts to:
(i) make and keep public information regarding IES
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of six years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of IES under the 1933 Act and the 1934 Act at
any time after it has become subject to such reporting requirements;
and
(iii) so long as a Stockholder owns any restricted IES
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by IES as to its compliance with the
current public information requirements of Rule 144 (at any time from
and after 90 days following the effective date of the Registration
Statement, and of the 1933 Act and the 1934 Act (any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of IES, and such other reports and
documents so filed as a Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Stockholder to
sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders and IES shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with IES on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 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 IES, and the heirs and legal representatives of the Stockholders.
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18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and IES and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and IES, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, IES will pay the fees, expenses and disbursements of IES
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by IES under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by IES, and the costs of preparing the Registration
Statement. Each Stockholder shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the purchase and sale of the
Company Stock, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Stockholder shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or IES, will pay all taxes due by him
upon receipt of the consideration payable pursuant to Section 1 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying partially
on the opinion contemplated by Section 8.12 hereof and representations by IES
in this Agreement.
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18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to IES addressed to it at:
Integrated Electrical Services, Inc.
2301 Preston
Houston, Texas 77003
with copies to:
John F. Wombwell
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses
set forth on the signature pages hereto, with copies to:
Cynthia Young
Wyatt Tarrant & Combs
2700 Citizens Plaza
Louisville, Kentucky 40202
(c) If to the Company, addressed to it at:
Thurman & O'Connell Corporation
7613 National Turnpike
P.O. Box 14182
Louisville, Kentucky 40214
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, excluding any conflicts of
law, rule or principle that might refer same to the laws of another
jurisdiction.
-56-
<PAGE> 65
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the parties made
herein and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of IES, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving IES Stock in connection with the purchase
and sale of the Company Stock and each future holder of such IES Stock.
-57-
<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTEGRATED ELECTRICAL
SERVICES, INC.
By: /s/
----------------------------------
Senior Vice President &
Chief Financial Officer
[Remainder of page intentionally left blank]
-58-
<PAGE> 67
THURMAN & O'CONNELL
CORPORATION
By: /s/
------------------------------------------
Name:
--------------------------------
Title:
-------------------------------
/s/ JAMES D. THURMAN
---------------------------------------------
James D. Thurman Shares Owned: 100
606 Lake Forest Parkway
Louisville, Kentucky 40245
/s/ LAWRENCE E. O'CONNELL
---------------------------------------------
Lawrence E. O'Connell Shares Owned: 100
1409 Somerhill Way
Louisville, Kentucky 40223
-59-
<PAGE> 68
ANNEX I
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1997
BY AND AMONG
INTEGRATED ELECTRICAL SERVICES, INC.
AND THURMAN & O'CONNELL CORPORATION
AND ITS STOCKHOLDERS
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
AGGREGATE CONSIDERATION TO BE PAID TO STOCKHOLDERS:
$9,325,870 in cash and the value of outstanding common stock of Integrated
Electrical Services, Inc. (IES) assuming a public offering price of $14.00 per
share, consisting of 499,600 shares of IES common stock and $2,331,468 of cash,
it being agreed that the actual amount of all shares shall remain unchanged
while the cash payments described in this Annex I will depend on the actual
initial public offering price of the common stock of IES in the IPO, which may
be more or less than $14.00 per share; provided, however that the aggregate
consideration shall not be less than the minimum value set forth below. Such
cash will be the cash consideration noted below multiplied by the actual
initial public offering price per share divided by $14.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Number of
Company Shares of IES
Stockholder Shares Owned Common Stock(1) Cash
----------- ------------ --------------- ------------
<S> <C> <C> <C>
James D. Thurman 100 249,800 $1,165,734
Lawrence E. O'Connell 100 249,800 1,165,734
--------- ------- ----------
200 499,600 $2,331,468
========= ======= ==========
MINIMUM VALUE: 7,630,254
</TABLE>
- ---------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
<PAGE> 69
S Corporations
1. All S Corporations may distribute any previously taxed earnings as of
June 30, 1997, to the extent of nonoperating net assets (as disclosed
in the Schedules to the definitive agreement) and excess cash, plus
any remaining excess cash (as set forth on the next page). To the
extent nonoperating assets and cash are not sufficient to fund a
portion of the distribution of previously taxed earnings, the company
may complete the distribution by issuing a note payable to
shareholders which will be funded by IES as soon as practical after
the consummation date.
2. In addition to 1 above, all S Corporations are entitled to distribute
their net earnings and any capital contributions made from July 1,
1997, through the consummation date. To the extent the company does
not have sufficient cash available to distribute the net earnings from
July 1, 1997, through the consummation date, the distribution may be
in the form of a note payable to the shareholder(s) and will be funded
by IES as soon as practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounted principles below the minimum cash
requirements set forth on the next page.
C Corporations
1. All C Corporations are entitled to their excess cash (as set forth on
the next page) at June 30, 1997, along with nonoperating net assets
(as disclosed in the Schedules to the definitive agreement) to be
distributed to the shareholder(s).
2. In addition to 1 above, all C Corporations are entitled to distribute
all net earnings after tax from July 1, 1997, through the consummation
date. To the extent the company does not have sufficient cash
available to distribute the net earnings from July 1, 1997, through
the consummation date, the distribution may be in the form of a note
payable to the shareholder(s) and will be funded by IES as soon as
practical after the consummation date.
3. The distributions described in 1 above may not exceed the company's
retained earnings as determined under generally accepted accounted
principles at June 30, 1997, and the total of all distributions in 1
and 2 above may not reduce the Company's equity as determined under
generally accepted accounting principles below the minimum cash
requirements set forth on the next page.
<PAGE> 70
<TABLE>
<CAPTION>
Cash and Cash
Equivalents as of Minimum Excess
June 30, 1997 Cash Required Cash
-----------------------------------------------------------------------
<S> <C> <C> <C>
Ace Electric, Inc. 130,028 30,000 100,028
Amber Electric, Inc. 759,329 90,000 669,329
Bexar Electric Company, Ltd. 782,000 190,000 590,000
Daniel Electrical Contractors, Inc. 1,200,831 100,000 1,100,831
Hatfield Electric, Inc. -37,746 40,000 0
Haymaker Electric, Inc. 13,314 50,000 0
Houston-Stafford Electric, Inc. 3,251,114 150,000 3,101,114
Stark Investments, Inc. 395,827 150,000 245,827
Mills Electrical Contractors, Inc. 2,021,000 300,000 1,721,000
Muth Electric, Inc. 9,000 100,000 0
Pollock Electric, Inc. 14,960 90,000 0
Reynolds Electric Corp. 138,951 40,000 98,951
Rodgers Electric Company, Inc. 846,833 20,000 826,833
Summit Electric of Texas, Incorporated 32,129 60,000 0
Thomas Popp & Company 598,361 20,000 578,361
Thurman & O'Connell Corporation 1,479,550 30,000 1,449,550
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated October 15, 1997 on the financial statements of the following
businesses included in or made a part of this registration statement: Integrated
Electrical Services, Inc.; BW Consolidated, Inc. and Subsidiaries;
Houston-Stafford Electric, Inc. and Consolidated Entity; Mills Electrical
Contractors, Inc. and Subsidiary; Muth Electric, Inc.; Amber Electric, Inc.;
Daniel Electrical Contractors, Inc. and Daniel Electrical of Treasure Coast,
Inc.; Pollock Electric Inc.; Thurman & O'Connell Corporation; Haymaker Electric,
Ltd.; and Summit Electric of Texas, Inc.; and to all references to our firm
included in this registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
October 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,647
<SECURITIES> 0
<RECEIVABLES> 10,294
<ALLOWANCES> 385
<INVENTORY> 2,531
<CURRENT-ASSETS> 17,296
<PP&E> 3,062
<DEPRECIATION> 1,025
<TOTAL-ASSETS> 22,161
<CURRENT-LIABILITIES> 13,004
<BONDS> 0
0
0
<COMMON> 295
<OTHER-SE> 6,534
<TOTAL-LIABILITY-AND-EQUITY> 22,161
<SALES> 37,508
<TOTAL-REVENUES> 37,508
<CGS> 30,098
<TOTAL-COSTS> 35,080
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> 2,420
<INCOME-TAX> 942
<INCOME-CONTINUING> 1,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,478
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Integrated Electrical
Services, Inc. ("IES") as a director to be appointed after consummation of the
initial public offering of IES.
IN WITNESS WHEREOF, the undersigned has executed this Consent
effective as of the 20th day of October, 1997.
/s/ JERRY MILLS
----------------------------
Jerry Mills
<PAGE> 2
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Integrated Electrical
Services, Inc. ("IES") as a director to be appointed after consummation of the
initial public offering of IES.
IN WITNESS WHEREOF, the undersigned has executed this Consent
effective as of the 23rd day of October, 1997.
/s/ JON POLLOCK
----------------------------
Jon Pollock
<PAGE> 3
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Integrated Electrical
Services, Inc. ("IES") as a director to be appointed after consummation of the
initial public offering of IES.
IN WITNESS WHEREOF, the undersigned has executed this Consent
effective as of the 20th day of October, 1997.
/s/ BEN L. MUELLER
----------------------------
Ben L. Mueller
<PAGE> 4
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Integrated Electrical
Services, Inc. ("IES") as a director to be appointed after consummation of the
initial public offering of IES.
IN WITNESS WHEREOF, the undersigned has executed this Consent
effective as of the 21st day of October, 1997.
/s/ ROBERT STALVEY
----------------------------
Robert Stalvey
<PAGE> 5
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Integrated Electrical
Services, Inc. ("IES") as a director to be appointed after consummation of the
initial public offering of IES.
IN WITNESS WHEREOF, the undersigned has executed this Consent
effective as of the 23rd day of October, 1997.
/s/ BOB WEIK
----------------------------
Bob Weik
<PAGE> 6
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Integrated Electrical
Services, Inc. ("IES") as a director to be appointed after consummation of the
initial public offering of IES.
IN WITNESS WHEREOF, the undersigned has executed this Consent
effective as of the 22nd day of October, 1997.
/s/ RICHARD MUTH
----------------------------
Richard Muth
