<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
QUANTA SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 1731 74-2851603
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
JOHN R. COLSON
CHIEF EXECUTIVE OFFICER
3555 TIMMONS LANE
SUITE 610
HOUSTON, TEXAS 77027
(713) 629-7600
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
---------------
COPIES TO:
JAMES S. RYAN, III STEPHEN A. RIDDICK
BRAD L. WHITLOCK PIPER & MARBURY L.L.P.
JACKSON WALKER L.L.P. CHARLES CENTER SOUTH
901 MAIN STREET 36 SOUTH CHARLES STREET
SUITE 6000 BALTIMORE, MARYLAND 21201
DALLAS, TEXAS 75287 (410) 539-2530
(214) 953-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE (1) REGISTRATION FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.00001 par value............. $57,500,000 $16,962.50
- --------------------------------------------------------------------------------
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee. In
accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
---------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
DECEMBER 22, 1997
5,000,000 Shares
Quanta Services, Inc.
[LOGO OF QUANTA SERVICES APPEARS HERE]
Common Stock
--------
All of the 5,000,000 shares of Common Stock, $0.00001 par value (the "Common
Stock"), offered hereby are being offered by Quanta Services, Inc. (the
"Company"). The Company was founded in August 1997 to acquire four companies
engaged in specialty electric and telecommunications infrastructure contracting
services (the "Founding Companies") and has conducted no operations to date.
Prior to this 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 a discussion
of the factors to be considered in determining the initial public offering
price. The Company will make application to list the Common Stock on the New
York Stock Exchange (the "NYSE") under the symbol " ". Of the net
proceeds to the Company from the sale of the Common Stock offered hereby, $21.0
million will be paid to the stockholders of the Founding Companies in
connection with the acquisition of the Founding Companies. See "Use of
Proceeds."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................. $ $ $
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Total(2).................. $ $ $
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</TABLE>
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(1) Before deducting expenses of the offering payable by the Company estimated
at $ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 750,000 shares of Common Stock solely to cover over-
allotments, if any. To the extent the option is exercised, the Underwriters
will offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, as stated
herein, subject to prior sale when, as and if delivered to and accepted by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of such shares will be made through the offices of BT
Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1998.
BT ALEX. BROWN
BANCAMERICA ROBERTSON STEPHENS
SANDERS MORRIS MUNDY
The date of this Prospectus is , 1998.
<PAGE>
[map of projects or office locations, pictures or other information]
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
Concurrently with the closing of the offering made hereby (the "Offering"),
Quanta Services, Inc. plans to acquire, in separate transactions (collectively,
the "Acquisitions"), in exchange for consideration including shares of its
Common Stock, four businesses: PAR Electrical Contractors, Inc. ("PAR"), Union
Power Construction Company ("Union Power"), TRANS TECH Electric, Inc. ("TRANS
TECH") and Potelco, Inc. ("Potelco" and, together with PAR, Union Power and
TRANS TECH, the "Founding Companies"). Unless otherwise indicated, references
herein to "Quanta" mean Quanta Services, Inc. and references to the "Company"
mean Quanta and the Founding Companies collectively.
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information and
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 1,613.6016-for-1 stock split of the Common
Stock effected in December 1997.
THE COMPANY
Quanta was founded in August 1997 to create a leading provider of specialty
electrical contracting and maintenance services primarily related to electric
and telecommunications infrastructure in North America. In addition, the
Company provides electrical contracting services to the commercial and
industrial markets and installs transportation control and lighting systems.
The Company's services include the installation, repair and maintenance of
electric power transmission and distribution lines and telecommunication and
cable television lines, the construction of electric substations, the erection
of cellular telephone, PCS(R) and microwave towers, the installation of highway
lighting and traffic control systems, design and engineering services, and the
provision of specialty contracting services for electric, video, security,
fire, voice and data systems. The Company's customers include electric
utilities, telecommunication and cable television system operators,
governmental entities, general contractors and builders, owners and managers of
commercial and industrial properties.
Concurrently with the closing of the Offering, Quanta will acquire the four
Founding Companies, making it one of the largest providers of specialty
electric and telecommunications infrastructure contracting services in its
markets. The Company has a total of 13 offices in eight states and performed
work in 18 states during 1996, principally in the midwest and western U.S. The
Company believes that its size, geographical diversity, industry relationships,
expertise in specialty services, design and engineering capability and number
of skilled personnel provide the Company with significant competitive
advantages. During 1996, the Company generated pro forma combined revenues,
operating income and net income of $108.1 million, $6.5 million and $3.1
million, respectively. During the first nine months of 1997, the Company
generated pro forma combined revenues, operating income and net income of
$108.7 million, $13.0 million and $7.4 million, respectively.
The Company estimates that the electrical and telecommunications contracting
industry generates annual revenues in excess of $40 billion. The Company
believes that it will be well positioned to capitalize on significant trends
currently affecting its industry. The Company expects that these trends, which
include the continuing deregulation of utilities, the upgrading and expansion
of existing infrastructure and the increased outsourcing of services to
providers such as the Company, will provide significant opportunities for
growth.
The Company believes that its industry is highly fragmented. According to the
Department of Commerce, there are more than 50,000 electrical and
telecommunications contracting businesses, consisting of a small number of
regional or national providers and a large number of relatively small, owner-
operated businesses that have limited access to capital and that offer a
limited range of services.
3
<PAGE>
The Company believes that the fragmented nature of the industry presents
substantial consolidation and growth opportunities for companies with a
disciplined acquisition program, a decentralized operating strategy and access
to financial resources required to complete acquisitions and to capitalize on
industry growth opportunities.
GROWTH STRATEGY
The Company plans to achieve its goal of becoming a leading provider of
specialty electric and telecommunications infrastructure contracting services
in North America by (i) implementing its operating strategy, which focuses on
managing on a decentralized basis and achieving operating efficiencies, (ii)
emphasizing continued internal growth and (iii) expanding through acquisitions.
The key elements of the Company's strategy are:
Operating Strategy. The Company intends to manage its operations on a
decentralized basis while maintaining operating and financial controls. Local
management will retain responsibility for the operations, profitability and
growth of its business. Certain administrative functions will be centralized
following the Offering. While local management will retain control of the
operations of its business, the Company's executive management will have
responsibility for corporate strategy and acquisitions, financing, insurance,
investor relations and employee benefit plans. In addition, by combining
overlapping operations of certain of the Founding Companies, the Company
expects to achieve more efficient asset utilization and realize savings in
overhead and other expenses. The Company believes that its operating
efficiency, financial strength, technical expertise, presence in key geographic
areas and reputation for quality and reliability provide competitive advantages
in bidding for, winning and executing new contracts for infrastructure
projects.
Internal Growth. The Founding Companies experienced internal revenue growth
at a compound annual rate of 15.0% between 1994 and 1996. The Company is
focused on continuing its strong internal growth by (i) increasing the volume
of services provided to existing customers, including additional volumes
resulting from increased outsourcing by its customers, (ii) expanding the range
of services provided to existing customers to include additional specialities,
(iii) broadening its customer base to include additional businesses not
presently served by the Company and (iv) geographically expanding its service
area.
Acquisitions. The Company believes that the increasing trend toward the
outsourcing of services to the electric and telecommunications infrastructure
contracting industry will result in a competitive disadvantage for small and
mid-sized companies that do not have access to capital for growth and cannot
provide a broad range of specialty contracting services on a regional or
national basis. In addition, the Company expects that there will continue to be
a large number of attractive acquisition candidates due to the highly
fragmented nature of the industry, the inability of many companies to expand
and modernize due to capital constraints and the desire of owners for
liquidity. The Company intends to actively pursue acquisitions of well-
established companies to enter new geographic markets and expand the range of
services and leverage existing operations within existing markets.
Quanta believes that the prominence and operating strength of the Company and
the experience of its executive management will provide the Company with
significant competitive advantages as it pursues its growth strategy.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby...... 5,000,000 shares
Common Stock to be outstanding
after the Offering.............. 15,872,333 shares(1)
Use of Proceeds.................. To pay the cash portion of the purchase price
of the Founding Companies, to repay all or a
portion of debt of the Founding Companies, to
repay expenses incurred in connection with
the organization of Quanta and the Offering
and for general corporate purposes, including
future acquisitions.
Proposed NYSE symbol............. [ ]
</TABLE>
- --------
(1) Includes (i) 7,527,000 shares to be issued to the owners of the Founding
Companies, (ii) 5,000,000 shares to be sold in the Offering and (iii)
3,345,333 shares of a special class of Common Stock ("Limited Vote Common
Stock") issued to the initial stockholders and certain management personnel
of the Company. Excludes options to purchase 1,500,000 shares of Common
Stock that are expected to be granted upon consummation of the Offering at
an exercise price equal to or greater than the initial public offering
price. See "Management--1997 Stock Option Plan," "Certain Transactions--
Organization of the Company" and "Description of Capital Stock--Common
Stock and Limited Vote Common Stock."
ACQUISITION CONSIDERATION
The aggregate consideration to be paid by Quanta in the Acquisitions consists
of approximately $21.0 million in cash (approximately % of the net proceeds
of the Offering) and 7,527,000 shares of Common Stock (collectively, the
"Acquisition Consideration"). The Acquisition Consideration was determined by
arms-length negotiations between Quanta and representatives of each Founding
Company and was based primarily on the pro forma adjusted net income of each
Founding Company. For a more detailed description of these transactions, see
"Certain Transactions--Organization of the Company."
5
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quanta will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. For financial statement
presentation purposes, PAR has been identified as the "accounting acquiror," as
its stockholders will represent the largest stockholding interest within the
Company. 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 January l, 1996 and are not necessarily indicative
of the results that the Company would have obtained had these events actually
occurred then 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
postcombination results to be achieved by the Company. 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 of the Founding Companies
and the notes thereto, all included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $108,143 $108,666
Cost of services (including
depreciation).......................... 91,769 87,296
-------- --------
Gross profit............................ 16,374 21,370
Selling, general and administrative
expenses(1)............................ 8,394 7,293
Goodwill amortization(2)................ 1,498 1,123
-------- --------
Income from operations.................. 6,482 12,954
Other income (expense), net(3).......... (400) (178)
-------- --------
Income before income tax expense........ 6,082 12,776
Provision for income taxes(4)........... 2,994 5,424
-------- --------
Net income.............................. $ 3,088 $ 7,352
======== ========
Net income per share.................... $ 0.20 $ 0.46
======== ========
Shares used in computing pro forma
income per share(5).................... 15,835 15,835
<CAPTION>
PRO FORMA
------------------------------------
SEPTEMBER 30, 1997
------------------------------------
COMBINED(6) AS ADJUSTED(7)
----------------- ------------------
<S> <C> <C>
BALANCE SHEET DATA:(8)
Working capital (deficit)............... $(19,473)(9) $ 13,986
Total assets............................ 125,842 126,126
Long-term debt, net of current
maturities............................. 5,421 --
Total stockholders' equity.............. 56,257 95,137
</TABLE>
(Footnotes on following page)
6
<PAGE>
- --------
(1) Gives effect to reductions in salary and benefits to certain owners of the
Founding Companies to which they have agreed prospectively. Additionally,
excludes the $11.5 million non-recurring non-cash charge recognized by
Quanta related to the issuance of stock to an initial stockholder and
management. See "Certain Transactions."
(2) 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.
(3) Reflects the reduction for interest expense of $1.4 million and $1.0
million for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively, attributable to the repayment of
historical debt with proceeds from the Offering, net of additional interest
expense discussed in Note 8 below. Additionally, reflects reductions in
expenses associated with certain non-operating assets that will be
transferred to the Founding Companies prior to the Acquisitions.
(4) Assumes all pretax income before non-deductible goodwill and other
permanent items is subject to an estimated 39.0% combined tax rate.
(5) Includes (i) 7,527,000 shares of Common Stock to be issued to the owners of
the Founding Companies, (ii) 3,345,333 shares of Limited Vote Common Stock
issued to the initial stockholders and certain management personnel of the
Company and (iii) 4,962,259 shares of the 5,000,000 shares of Common Stock
to be sold in the Offering to pay the cash portion of the Acquisition
Consideration, to repay expenses incurred in connection with the
organization of Quanta and the Offering and to retire debt.
(6) Reflects the Acquisitions and related transactions as if they had occurred
on September 30, 1997 as described in the notes to the Unaudited Pro Forma
Combined Financial Statements. The unaudited pro forma combined balance
sheet data should be read in conjunction with the other financial
information and historical financial statements, and notes thereto,
included elsewhere in this Prospectus.
(7) Reflects the closing of the Offering and the Company's application of the
net proceeds therefrom to fund the cash portion of the Acquisition
Consideration and to repay certain indebtedness of the Founding Companies.
See "Use of Proceeds" and "Certain Transactions."
(8) Two of the Founding Companies have historically elected S corporation
status for tax purposes. Prior to the Acquisitions, these Founding
Companies will make distributions to their stockholders totaling
approximately $7.8 million (the "S Corporation Distributions"). In order to
fund the S Corporation Distributions, the Company will borrow approximately
$7.8 million. Accordingly, pro forma interest expense has been increased by
$0.7 million for the year ended December 31, 1996 and $0.5 million for the
nine months ended September 30, 1997 and pro forma stockholders' equity has
been reduced by approximately $7.8 million.
(9) Includes the estimated $21.0 million payable to owners of the Founding
Companies, representing the actual cash portion of the Acquisition
Consideration to be paid from a portion of the net proceeds from the
Offering. The cash portion of the Acquisition Consideration will be
determined based on the initial public offering price of the Common Stock
offered hereby.
7
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY 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 nine month year-to-date results for 1996 and 1997. The historical income
statement data presented below have not been adjusted for the 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 such
Founding Companies, included elsewhere in this Prospectus. Also, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Introduction."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEARS ENDED(1) SEPTEMBER 30,
----------------------- ---------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PAR:
Revenues.............................. $43,909 $38,915 $42,684 $29,806 $36,439
Income from operations................ 2,548 1,380 1,883 663 3,482
UNION POWER:
Revenues.............................. 12,614 25,636 42,792 22,147 37,202
Income from operations................ 478 1,754 3,060 752 3,538
TRANS TECH:
Revenues.............................. 18,807 21,397 24,414 16,575 24,278
Income from operations................ 224 824 2,140 1,592 3,229
POTELCO:
Revenues.............................. 6,463 17,147 14,549 10,173 13,248
Income from operations................ 357 200 632 139 2,055
</TABLE>
- --------
(1) The fiscal years presented above are the years ended December 31, 1994,
1995 and 1996, except with respect to Union Power for which the fiscal
years presented are the years ended August 31, 1995, 1996 and 1997.
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in the following risk factors, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business" and elsewhere in
this Prospectus.
Absence of Combined Operating History. Quanta was founded in August 1997 but
has conducted no operations and generated no revenues to date. Quanta has
entered into agreements to acquire the Founding Companies simultaneously with,
and as a condition to, 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 the operations of these businesses successfully or to institute the
necessary systems and procedures, including accounting and financial reporting
systems, to manage the combined enterprise on a profitable basis and to report
the results of operations of the combined entities on a timely basis. In
addition, there can be no assurance that the recently assembled management
group will be able to successfully manage 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 Quanta 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 companies acquired in
the future into one organization in a profitable manner. The inability of the
Company to successfully integrate the Founding Companies and to coordinate and
integrate certain operational, 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. See
"Business--Strategy" and "Management."
Risks Related to Acquisition Strategy. One of the Company's principal growth
strategies is to increase its revenues and the markets it serves through the
acquisition of additional electric and telecommunications infrastructure
contracting companies. The Company expects to face competition for acquisition
candidates, which may limit the number of acquisition opportunities and may
lead to higher acquisition prices. There can be no assurance that the Company
will be able to identify, acquire or profitably manage additional businesses
or to integrate successfully any acquired businesses into the Company without
substantial costs, delays or other operational or financial problems. Further,
acquisitions involve a number of special risks, including failure of the
acquired business to achieve expected results, diversion of management's
attention, failure to retain key personnel of the acquired business and risks
associated with unanticipated events or liabilities, some or all of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Customer dissatisfaction or performance
problems at a single acquired company could have an adverse effect on the
reputation of the Company generally. In addition, there can be no assurance
that the Founding Companies or other businesses acquired in the future will
achieve anticipated revenues and earnings. See "Business--Strategy."
Risks Related to Acquisition Financing. The timing, size and success of the
Company's acquisition efforts and the associated capital commitments cannot be
readily predicted. The Company intends to use its Common Stock for all or a
portion of the consideration for future acquisitions. If the Common Stock does
not maintain a sufficient market value 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
9
<PAGE>
capital through future debt or equity financings. Using cash to complete
acquisitions and finance internal growth could substantially limit the
Company's financial flexibility, using debt could result in financial
covenants that limit the Company's operations and financial flexibility, and
using equity may result in dilution of the ownership interests of the then
existing stockholders of the Company. 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 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 may be unable to pursue its acquisition strategy
successfully. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Combined liquidity and capital resources" and
"Business--Strategy."
Risks Related to Operating and Internal Growth Strategies. A key element of
the Company's strategy is to increase the profitability and revenues of the
Founding Companies and any subsequently acquired businesses. Although the
Company intends to implement this strategy by various means, there can be no
assurance that the Company will be able to do so successfully. A key component
of the Company's strategy is to operate the Founding Companies and
subsequently acquired businesses on a decentralized basis, with local
management retaining responsibility for day-to-day operations, profitability
and the internal growth of the business. If proper overall business controls
are not implemented, this decentralized operating strategy could result in
inconsistent operating and financial practices at the Founding Companies and
subsequently acquired businesses, and the Company's overall profitability
could be adversely affected. The Company's ability to generate internal
earnings growth will be affected by, among other factors, its ability to
expand the range of services offered to customers, attract new customers,
increase the number of projects performed for existing customers, hire and
retain employees, open additional facilities and reduce operating and overhead
expenses. Many of these factors are beyond the control of the Company, and
there can be no assurance that the Company's strategies will be successful or
that it will be able to generate cash flow sufficient to fund its operations
and to support internal growth. The Company's inability to achieve internal
earnings growth could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Strategy."
Management of Growth. The Company expects to grow both 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 additional
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. To the extent that the Company is unable to
manage its growth efficiently and effectively, or is unable to attract and
retain additional qualified management, the Company's financial condition and
results of operations could be materially adversely affected. See "Business--
Strategy."
Availability of Qualified Employees. The Company's ability to provide high-
quality services on a timely basis requires an adequate supply of skilled
electricians, journeymen linemen and project managers. Accordingly, the
Company's ability to increase its productivity and profitability will be
limited by its ability to employ, train and retain skilled personnel necessary
to meet the Company's requirements. Many companies in the Company's industry
are currently experiencing shortages of qualified personnel, 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
personnel or that the Company will not have to curtail its planned internal
growth as a result of labor shortages. See "Business--Employees" and "--
Training, Quality Assurance and Safety."
10
<PAGE>
Unionized Workforce. Approximately 90% of the Company's employees are
covered by collective bargaining agreements. Although the majority of these
agreements prohibit strikes and work stoppages, there can be no assurance that
strikes or work stoppages will not occur in the future. Strikes or work
stoppages and the resultant adverse impact on the Company's relationship with
its customers could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company's
acquisition strategy could be adversely affected because of its union status
for a variety of reasons, including without limitation incompatibility with a
target's existing unions and reluctance of non-union targets to become
affiliated with a union based company. See "Business--Employees."
Competition. The electric and telecommunications infrastructure contracting
industry is highly competitive and is served by numerous small, owner-operated
private companies, public companies and several large regional companies. In
addition, there are relatively few, if any, barriers to entry into the market
in which the Company operates and, as a result, any organization that has
adequate financial resources and access to technical expertise may become a
competitor to the Company, including public utilities. Competition in the
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.
In addition, some of the Company's competitors are larger and have greater
resources than the Company. There can be no assurance that the Company's
competitors will not develop the expertise, experience and resources to
provide services that are equal or superior in both price and quality to the
Company's services, or that the Company will be able to maintain or enhance
its competitive position. The Company may also face competition from the in-
house service organizations of its existing or prospective customers,
including electric utility and telecommunications services providers, which
employ personnel who perform some of the same types of services as those
provided by the Company. There can be no assurance that existing or
prospective customers of the Company will continue to outsource services in
the future. See "Business--Competition."
Contract Bidding Risks. A significant portion of the Company's revenues are,
and will continue to be, generated under fixed price contracts. The Company
must estimate the costs of completing a particular project, and the cost of
labor and materials may vary from the costs originally estimated by the
Company. These variations and other risks inherent in performing fixed price
contracts may result in revenue and gross profits different from those
originally estimated, which could result in reduced profitability or losses on
projects. Depending upon the size of a particular project, variations from
estimated contract costs can have a significant impact on the Company's
operating results for any fiscal quarter or year. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Introduction."
Certain of the Company's contracts are master service agreements pursuant to
which work is assigned on a project by project basis. There is generally no
obligation on the part of the Company's customers to assign work to the
Company under these agreements and there can be no assurance that customers
will continue to assign work to the Company. A significant decline in work
assigned pursuant to these contracts could have a material adverse effect on
the results of operations of the Company.
Seasonality; Fluctuations of Quarterly Results. The electric and
telecommunications infrastructure contracting business can be subject to
seasonal variations. Generally, during the winter months, demand for new
projects and maintenance services may be lower due to reduced construction
activity during inclement weather, while demand for electrical service and
repairs may be higher due to damage caused by inclement weather. Additionally,
the industry can be highly cyclical. As a result, the Company's volume of
business may be adversely affected by declines in new projects in various
geographic regions of the U.S. Quarterly results may also be materially
affected by the timing of acquisitions, variations in the margins of projects
performed during any particular quarter, the timing and magnitude of
acquisition assimilation costs and regional economic conditions. Accordingly,
the Company's operating results in any particular quarter may not be
indicative of the results that can be expected for any other quarter or for
11
<PAGE>
the entire year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality and Fluctuations in Quarterly
Results."
Potential Exposure to Environmental Liabilities. The Company's operations are
subject to various environmental laws and regulations, including those dealing
with handling and disposal of waste products, polychlorinated biphenyls, fuel
storage and air quality. As a result of past and future operations at its
facilities, the Company may be required to incur remediation costs and other
expenses related thereto. In addition, although the Company intends to conduct
appropriate due diligence with respect to environmental matters in connection
with future acquisitions, there can be no assurance that the Company will be
able to identify or be indemnified for all potential environmental liabilities
relating to any acquired business.
Control by Existing Management and Stockholders. Following consummation of
the Acquisitions and the Offering, the Company's executive officers and
directors, former stockholders of the Founding Companies and entities
affiliated with them will beneficially own approximately 9.1 million shares of
Common Stock and Limited Vote Common Stock, representing approximately 57.3% of
the aggregate outstanding shares of Common Stock and Limited Vote Common Stock
(55.0% if the Underwriters' over-allotment option is exercised in full). The
initial stockholders of the Company, certain members of management and others
own 3,345,333 shares of Limited Vote Common Stock. Shares of Limited Vote
Common Stock are entitled to elect one member of the Company's Board of
Directors and are entitled to 0.10 of one vote for each share held on all other
matters on which holders of Common Stock are entitled to vote. Holders of
Limited Vote Common Stock are not entitled to vote on the election of any other
directors. The Company's executive officers and directors and former
stockholders of the Founding Companies will control in the aggregate
approximately 60.0% of all shares of Common Stock (which percentage excludes
shares of Limited Vote Common Stock) and, if acting in concert, will be able to
control the Company's affairs, elect all except one of the members of the Board
of Directors and control the outcome of any matter submitted to a vote of
stockholders. See "Principal Stockholders."
Dependence on Key Personnel. The Company's operations are dependent on the
continued efforts of its executive officers and on senior management of the
Founding Companies. Furthermore, the Company will likely be dependent on the
senior management of companies that it may acquire in the future. Although the
Company will enter into an employment agreement with each of the Company's
executive officers and other key employees, 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. The Company does not intend to carry key-
person life insurance on any of its employees. See "Management."
Proceeds of Offering Payable to Affiliates. A portion of the net proceeds of
this Offering will be used to pay the cash portion of the Acquisition
Consideration to the owners of the Founding Companies (many of whom will become
officers, directors or key employees of the Company). A portion of the
remaining net proceeds will be used to repay all or some of the indebtedness of
the Founding Companies, although the exact amount that will be repaid has not
yet been determined. Approximately $7.8 million of such indebtedness was
incurred to make the S Corporation Distributions. Additionally, Main Street
Merchant Partners II, L.P. ("Main Street") has agreed to advance to Quanta
until consummation of the Acquisitions and the Offering such funds as are
necessary to effect the Acquisitions and the Offering and will be reimbursed
from the proceeds of the Offering for these advances. See "Use of Proceeds" and
"Certain Transactions." Additionally, the Company has entered into leases of
real property and equipment with owners of certain of the Founding Companies,
who will become directors of the Company following the Offering, or their
respective affiliates. Because of these relationships between the parties,
these leases have not been negotiated at arm's length. See "Certain
Transactions."
Shares Eligible for Future Sale. Simultaneously with the closing of the
Offering, the stockholders of the Founding Companies will receive, in the
aggregate, 7,527,000 shares of Common Stock as a portion
12
<PAGE>
of the consideration for their businesses. Additionally, the initial
stockholders of the Company, certain members of management and others own
3,345,333 shares of Limited Vote Common Stock. None of these shares was or
will be issued in a transaction registered under the Securities Act of 1933,
as amended (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 exemption contained in Rule 144
under the Securities Act. When these shares become eligible for sale, 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 stockholders of
the Founding Companies have certain registration rights with respect to their
shares to be received that may be exercised after the expiration of the two-
year lock-up period described below. If such stockholders, by exercising such
registration rights, cause a large number of shares to be registered and sold
in the public market, such sales may have an adverse effect on the market
price of the Common Stock. See "Shares Eligible for Future Sale."
Upon the closing of this Offering, the Company also expects to have
outstanding options to purchase up to a total of 1,500,000 shares of Common
Stock issued pursuant to the Company's 1997 Stock Option Plan (the "1997 Stock
Option Plan"). The number of shares issuable pursuant to such plan is the
greater of 2,380,850 shares or 15% of the outstanding Common Stock. The
Company intends to register all the shares subject to these options under the
Securities Act for public resale. See "Management--1997 Stock Option Plan."
The Company has agreed that it will not offer, sell or issue any shares of
Common Stock or options, rights or warrants to acquire any Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of BT Alex. Brown Incorporated, except for the grant of employee stock
options and for shares issued (i) in connection with acquisitions and (ii)
pursuant to the exercise of options granted under the 1997 Stock Option Plan.
Further, the Company's directors, executive officers and certain stockholders
who beneficially own 10,872,333 shares of Common Stock and Limited Vote Common
Stock in the aggregate have agreed not to directly or indirectly offer for
sale, sell or otherwise dispose of any Common Stock or Limited Vote Common
Stock for a period of two years after the date of this Prospectus without the
prior written consent of BT Alex. Brown Incorporated.
The Company currently intends to file a Registration Statement on Form S-1
covering up to an additional 5,000,000 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 effect, if any, of the availability for sale, or sale, of the shares of
Common Stock eligible for future sale on the market price of the Common Stock
prevailing from time to time is unpredictable, and no assurance can be given
that the effect will not be adverse.
No Prior Market; Possible Volatility of Stock Price. Prior to the Offering,
there has been no public market for the Common Stock. The initial public
offering price of the Common Stock will be determined through negotiations
between the Company and the Representatives of the Underwriters and may not be
indicative of the price at which the Common Stock will trade after the
Offering. See "Underwriting" for a description of the factors to be considered
in determining the initial public offering price. The securities markets have,
from time to time, experienced significant price and volume fluctuations that
may be unrelated to the operating performance of particular companies. These
fluctuations often substantially affect the market price of a company's stock.
The Company will make application to list the Common Stock on the NYSE,
although no assurance can be given that an active trading market for the
Common Stock will develop or, if developed, will continue after the Offering.
The market price of the Common Stock could be subject to significant
fluctuations in response to numerous factors, including the timing of
acquisitions by the Company, variations in financial results or announcements
of material events by the Company or its competitors. Regulatory changes,
developments in the Company's industry or changes in general conditions in the
economy or the financial markets could also adversely affect the market price
of the Common Stock.
13
<PAGE>
Certain Anti-Takeover Provisions. Certain provisions of the Company's
Amended and Restated Certificate of Incorporation and Bylaws and Delaware law
could, together or separately, discourage potential acquisition proposals,
delay or prevent a change in control of the Company or limit the price that
certain investors may be willing to pay in the future for shares of the Common
Stock. The Amended and Restated Certificate of Incorporation permits the Board
of Directors to determine the rights, preferences and restrictions of unissued
series of the Company's authorized Preferred Stock and to fix the number and
the designation of shares thereunder and to adopt amendments to the Bylaws.
The Bylaws contain restrictions regarding the right of stockholders to
nominate directors and to submit proposals to be considered at stockholder
meetings. Also, the Amended and Restated Certificate of Incorporation and
Bylaws restrict the right of stockholders to call a special meeting of
stockholders and to act by written consent. The Company also is subject to
Section 203 of the Delaware General Corporation Law (the "DGCL"), which,
subject to certain exceptions, prohibits a Delaware corporation from engaging
in any of a broad range of business transactions with an "interested
stockholder" for a period of three years following the date such stockholder
became an interested stockholder. See "Description of Capital Stock."
Immediate and Substantial Dilution. Purchasers of shares of the Common Stock
offered hereby will experience immediate and substantial dilution in the net
tangible book value of their shares in the amount of $6.78 per share from the
initial offering price. See "Dilution." In the event the Company issues
additional Common Stock in the future, including shares that may be issued in
connection with future 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.
Absence of Dividends. The Company has never paid any cash dividends and does
not anticipate paying cash dividends on its Common Stock in the immediate
future. See "Dividend Policy."
Forward-Looking Statements. There are a number of statements in this
Prospectus that address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such matters
as the Company's strategy for internal growth and improved profitability,
additional capital expenditures (including the amount and nature thereof),
acquisitions of assets and businesses, industry trends and other such matters.
These statements are based on certain assumptions and analyses made by the
Company in light of its perception of historical trends, current business and
economic conditions and expected future developments as well as other factors
it believes are reasonable or appropriate. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including the risk factors
discussed in this Prospectus; general economic, market or business conditions;
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company; changes in laws or regulations and other factors, most
of which are beyond the control of the Company. Consequently, there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations.
14
<PAGE>
THE COMPANY
Quanta was founded in August 1997 to create a leading provider of specialty
electric and telecommunications infrastructure contracting services.
Concurrently with and as a condition to the closing of the Offering, Quanta
will acquire the four Founding Companies. For the year ended December 31,
1996, the Founding Companies, which have been in business an average of 35
years, had pro forma combined annual revenues of approximately $108.1 million.
A brief description of each of the Founding Companies is set forth below.
PAR. PAR was founded in 1954 and is headquartered in North Kansas City,
Missouri. PAR maintains additional offices in Topeka, Kansas; Coal, Missouri;
Des Moines, Iowa; Aurora, Colorado and El Cajon, California and in 1996
provided services to customers in Missouri, Iowa, Colorado, Kansas, Nebraska,
California, Montana, Illinois, Hawaii, Utah and Wyoming. PAR had revenues of
approximately $42.7 million for the year ended December 31, 1996 and currently
has approximately 450 employees. PAR provides full electric infrastructure
contracting services, including installation of electrical transmission lines,
both underground and above ground, and distribution lines and construction of
electric substations. In addition, PAR provides emergency electrical
restoration services and other routine electrical system maintenance services.
John R. Colson, former President of PAR and the Chief Executive Officer of the
Company, will become a director of the Company following consummation of the
Offering. John R. Wilson, who is President of PAR, will become a director of
the Company following consummation of the Offering. Both of those individuals
will enter into three-year employment agreements with the Company.
UNION POWER. Union Power was founded in 1946 and is headquartered in
Englewood, Colorado. Union Power maintains additional offices in Las Vegas and
Reno, Nevada and Vacaville, California and in 1996 provided services to
customers in Colorado, Nevada, California, Oregon, Washington and Utah. Union
Power had revenues of approximately $42.8 million for the year ended August
31, 1997 and currently has approximately 300 employees. Union Power provides
electric infrastructure contracting services, including installation of
electrical transmission lines, both underground and above ground, and
distribution lines and construction of electric substations. In addition,
Union Power provides electrical repair and maintenance services. Timothy A.
Soule and Ronald W. Soule, who are officers of Union Power, will enter into
three-year employment agreements with the Company, and Mr. Timothy Soule will
become a director of the Company following consummation of the Offering.
TRANS TECH. TRANS TECH was founded in 1983, is headquartered in South Bend,
Indiana and in 1996 provided services to customers in Indiana, Kentucky and
Michigan. TRANS TECH had revenues of approximately $24.4 million for the year
ended December 31, 1996 and currently has approximately 205 employees. TRANS
TECH installs, maintains and repairs traffic signals, signage, highway control
systems components, highway and airport lighting and fiber optics for states
and other governmental entities. The company also performs traditional
electrical contracting services for private and public entities in the
commercial and industrial market. Robert J. Urbanski and John A. Martell, who
are officers and founders of TRANS TECH, will enter into three-year employment
agreements with the Company, and Mr. Martell will become a director of the
Company following consummation of the Offering.
POTELCO. Potelco was founded in 1961 and is headquartered near Seattle,
Washington. Potelco maintains an additional office in Spokane, Washington and
in 1996 provided services to customers in Washington, Oregon and Idaho.
Potelco had revenues of approximately $14.5 million for the year ended
December 31, 1996 and currently has approximately 145 employees. Potelco
provides electric and telecommunication infrastructure contracting services,
including installation of overhead and underground lines and facilities for
the power, telecommunications and cable television industries. In addition,
Potelco provides electrical and telecommunication installation, maintenance
and repair services to the commercial and industrial market. Gary A. Tucci,
President of Potelco, will enter into a three-year employment agreement with
the Company and will become a director of the Company following consummation
of the Offering.
Quanta was incorporated in Delaware in August 1997. Its executive offices
are located at 3555 Timmons Lane, Suite 610, Houston, Texas 77027, and its
telephone number at that address is (713) 629-7600.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting underwriting discounts and commissions and
estimated Offering and Acquisitions expenses) are estimated to be $38.9
million ($45.2 million if the Underwriters' over-allotment option is exercised
in full), assuming an initial public offering price of $9.00 per share.
Of the net proceeds, the Company estimates that approximately $21.0 million
will be used to pay the cash portion of the Acquisition Consideration, all of
which will be paid to former stockholders of the Founding Companies and some
of which will be paid to persons who will become directors of the Company upon
consummation of the Offering. In addition, the Company may use up to $17.6
million to repay outstanding indebtedness of the Founding Companies, although
the exact amount and specific debt to be repaid has not been determined at
this time. The 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 remaining net proceeds 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 presently has no binding agreements to effect any
mergers or acquisitions other than the Acquisitions.
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.
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 cash dividends on
the Common Stock in the immediate future. The declaration, payment and amount
of future cash 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 Company expects that the terms of any credit facility
that it may obtain in the future will include restrictions on payment of cash
dividends by the Company without the consent of the lender.
Prior to the Acquisitions, certain of the Founding Companies will make the S
Corporation Distributions to their stockholders in the amount of approximately
$7.8 million.
16
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and the capitalization as of September 30, 1997 of the Company (i)
on a pro forma basis after giving effect to the Acquisitions and related
transactions and (ii) on a pro forma combined basis, as adjusted to give
effect to both the Acquisitions and related transactions and the Offering and
the application of 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" and the Unaudited
Pro Forma Combined Financial Statements of the Company and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
SEPTEMBER 30, 1997
---------------------------
COMBINED(1) AS ADJUSTED(4)
----------- --------------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term obligations(3)..... $41,016(2) $ 7,841
======= =======
Long-term debt, less current maturities............ $ 5,421 $ --
------- -------
Stockholders' equity:
Preferred Stock: $0.00001 par value, 10,000,000
shares authorized; none issued or outstanding... -- --
Common Stock: $0.00001 par value, 40,000,000
shares authorized; 7,527,000 issued and
outstanding, pro forma combined; and 12,527,000
shares issued and outstanding, pro forma as
adjusted(4)..................................... -- --
Limited Vote Common Stock; $0.00001 par value,
3,345,333 shares authorized, issued and
outstanding(5).................................. -- --
Additional paid-in capital....................... 45,400 84,280
Unrealized loss on securities.................... (56) (56)
Retained earnings................................ 10,913 10,913
------- -------
Total stockholders' equity..................... 56,257 95,137
------- -------
Total capitalization......................... $61,678 $95,137
======= =======
</TABLE>
- --------
(1) Combines the respective accounts of Quanta and the Founding Companies as
reflected in the Unaudited Pro Forma Combined Balance Sheet as of
September 30, 1997 prior to the Offering.
(2) Includes $21.0 million payable to the owners of the Founding Companies,
which represents the cash portion of the Acquisition Consideration to be
paid from a portion of the net proceeds of the Offering. The cash portion
of the Acquisition Consideration will be adjusted based on the initial
public offering price of the Common Stock offered hereby.
(3) Includes $7.8 million borrowed to fund the S Corporation Distributions.
(4) Adjusted to reflect the sale of 5,000,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." Excludes options to purchase 1,500,000 shares of Common
Stock that are expected to be granted upon consummation of the Offering.
See "Management--1997 Stock Option Plan."
(5) All of such shares of Limited Vote Common Stock have been issued to the
initial stockholders and certain management of the Company. See "Certain
Transactions" and "Description of Capital Stock."
17
<PAGE>
DILUTION
The deficit in pro forma combined net tangible book value of the Company at
September 30, 1997 was approximately $(3.7) million, or $(0.34) per share of
Common Stock. The deficit in pro forma combined net tangible book value per
share is determined by dividing the pro forma net tangible book value of the
Company (pro forma combined net tangible assets less pro forma combined total
liabilities) by the number of shares of Common Stock to be outstanding after
giving effect to the Acquisitions. The number of shares includes the
10,872,333 shares outstanding after the Acquisitions but prior to the
Offering. After giving effect to the sale by the Company of 5,000,000 shares
of Common Stock in the Offering and assuming an initial offering price of
$9.00 per share, after deduction of the underwriting discounts and commissions
and estimated Offering and Acquisitions expenses, the pro forma combined net
tangible book value of the Company at September 30, 1997 would have been $35.2
million or $2.22 per share. This represents an immediate increase in pro forma
net tangible book value of $2.56 per share to existing stockholders and an
immediate dilution to new investors purchasing Common Stock in the Offering of
$6.78 per share. The following table illustrates the per share dilution to new
investors purchasing Common Stock in the Offering:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $9.00
Pro forma combined deficit in net tangible book value per share
prior to the Offering......................................... $(0.34)
Increase in pro forma net tangible book value per share
attributable to new investors................................. 2.56
------
Pro forma net tangible book value per share after the Offering. 2.22
-----
Dilution in net tangible book value per share to new investors... $6.78
=====
</TABLE>
The following table sets forth, on a pro forma combined basis to give effect
to the Acquisitions at September 30, 1997, the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by (i) existing stockholders, (ii) stockholders of the
Founding Companies and (iii) the new investors purchasing shares from the
Company in the Offering (before deducting underwriting discounts and
commissions and estimated Offering and Acquisition expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED AVERAGE
------------------ TOTAL PRICE
NUMBER PERCENT CONSIDERATION(2) PER SHARE
---------- ------- --------------- ---------
<S> <C> <C> <C> <C>
Existing stockholders and
stockholders of Founding
Companies(1).................... 10,872,333 68.5% $(3,658,000) $(0.34)
New investors.................... 5,000,000 31.5 45,000,000 9.00
---------- ----- -----------
Total.......................... 15,872,333 100.0% $41,342,000
========== ===== ===========
</TABLE>
- --------
(1) See "Certain Transactions" for a discussion of the issuance of Common
Stock to the initial stockholders of Quanta and certain management of
Quanta.
(2) 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 $21.0
million in cash to the stockholders of the Founding Companies as part of
the Acquisition Consideration and (ii) the S Corporation Distributions.
18
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quanta will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. For financial statement
presentation purposes, however, PAR has been identified as the "accounting
acquiror," as its stockholders will represent the largest stockholding
interest within the Company. The following selected historical financial data
for PAR as of December 31, 1996 and September 30, 1997 and for each of the
three years in the period ended December 31, 1996, and the nine months ended
September 30, 1997, have been derived from the audited financial statements of
PAR included elsewhere in this Prospectus. The following selected historical
financial data for PAR as of December 31, 1992, 1993, 1994, and 1995 and for
each of the two years in the period ended December 31, 1993 and as of and for
the nine months ended September 30, 1996 have been derived from the unaudited
financial statements of PAR, which have been prepared on the same basis as the
audited financial statements and, in the opinion of PAR's management, reflect
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of such data. The results of operations for the nine
months ended September 30, 1997 should not be regarded as indicative of the
results that may be expected for the full year.
The selected 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 January 1, 1996, and are not necessarily indicative of the results
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 should be read in conjunction with the other financial
information included elsewhere in this Prospectus. See Unaudited Pro Forma
Combined Financial Statements and the notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
OPERATIONS DATA:
PAR
Revenues.............. $23,803 $26,553 $43,909 $38,915 $42,684 $29,806 $36,439
Cost of services
(including
depreciation)........ 19,571 22,834 36,525 33,193 35,789 25,583 27,944
------- ------- ------- ------- ------- ------- -------
Gross profit.......... 4,232 3,719 7,384 5,722 6,895 4,223 8,495
Selling, general and
administrative ex-
penses............... 3,325 2,895 4,836 4,342 5,012 3,560 5,013
------- ------- ------- ------- ------- ------- -------
Income from
operations........... 907 824 2,548 1,380 1,883 663 3,482
Other income
(expense), net....... (216) (251) (412) (512) (646) (458) (567)
------- ------- ------- ------- ------- ------- -------
Income before
provision for income
taxes................ 691 573 2,136 868 1,237 205 2,915
Provision for income
taxes................ 181 152 867 353 487 82 1,172
------- ------- ------- ------- ------- ------- -------
Net income............ $ 510 $ 421 $ 1,269 $ 515 $ 750 $ 123 $ 1,743
======= ======= ======= ======= ======= ======= =======
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
PRO FORMA COMBINED:
Revenues.......................................... $108,143 $108,666
Cost of services (including depreciation)......... 91,769 87,296
-------- --------
Gross profit...................................... 16,374 21,370
Selling, general and administrative expenses(1)... 8,394 7,293
Goodwill amortization(2).......................... 1,498 1,123
-------- --------
Income from operations............................ 6,482 12,954
Other income (expense), net(3).................... (400) (178)
-------- --------
Income before income tax expense.................. 6,082 12,776
Provision for income taxes(4)..................... 2,994 5,424
-------- --------
Net income........................................ $ 3,088 $ 7,352
======== ========
Net income per share.............................. $ 0.20 $ 0.46
======== ========
Shares used in computing pro forma income per
share(5)......................................... 15,835 15,835
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------------- --------------------------
DECEMBER 31, SEPTEMBER 30, 1997
--------------------------------------- --------------------------
SEPTEMBER 30, AS
1992 1993 1994 1995 1996 1997 COMBINED(6) ADJUSTED(7)
------- ------- ------- ------- ------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(8)
Working capital
(deficit)............ $ 1,157 $ 1,162 $ 1,794 $ 1,344 $ 653 $ (549) $(19,473)(9) $13,986
Total assets.......... 11,610 11,786 18,365 18,595 20,699 27,438 125,842 126,126
Long-term debt, net of
current maturities... 2,194 1,225 3,532 2,932 2,000 1,867 5,421 --
Total stockholders'
equity............... 4,753 5,174 6,443 6,958 7,708 9,451 56,257 95,137
</TABLE>
- --------
(1) The unaudited pro forma combined statement of operations data reflect an
aggregate of approximately $0.9 million and $1.8 million for the year
ended December 31, 1996 and the nine months ended September 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. Additionally, excludes the $11.5 million non-recurring,
non-cash charge recognized by Quanta related to the issuance of stock to
an initial stockholder and management. See "Certain Transactions."
(2) 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.
(3) Reflects the reduction for interest expense of $1.4 million and $1.0
million for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively, attributable to the repayment of $17.6
million of historical debt with proceeds from the Offering, net of
additional interest expense discussed in Note 8 below. Additionally,
reflects reductions in expenses associated with certain non-operating
assets that will be transferred to the Founding Companies prior to the
Acquisitions.
(4) Assumes all pretax income before non-deductible goodwill and other
permanent items is subject to an estimated 39.0% combined tax rate.
(5) Includes (i) 7,527,000 shares to be issued to the owners of the Founding
Companies, (ii) 3,345,333 shares of Limited Vote Common Stock issued to
the initial stockholders and certain management
20
<PAGE>
personnel of the Company and (iii) 4,962,259 shares of the 5,000,000 shares
to be sold in the Offering to pay the cash portion of the Acquisition
Consideration, to repay expenses incurred in connection with the
organization of Quanta and the Offering and to retire debt.
(6) Reflects the Acquisitions and related transactions as if they had occurred
on September 30, 1997 as described in the notes to the Unaudited Pro Forma
Combined Financial Statements. The unaudited pro forma combined balance
sheet data should be read in conjunction with the other financial
information and historical financial statements, and notes thereto,
included elsewhere in this Prospectus.
(7) Reflects the closing of the Offering and the Company's application of the
net proceeds therefrom to fund the cash portion of the Acquisition
Consideration and to repay certain indebtedness of the Founding Companies.
See "Use of Proceeds" and "Certain Transactions."
(8) Two of the Founding Companies have historically elected S corporation
status for tax purposes. Prior to the Acquisitions, these Founding
Companies will make the S Corporation Distributions to their stockholders
totaling approximately $7.8 million. In order to fund the S Corporation
Distributions, the Company will borrow approximately $7.8 million.
Accordingly, pro forma interest expense has been increased by $0.7 million
for the year ended December 31, 1996 and $0.5 million for the nine months
ended September 30, 1997 and pro forma stockholders' equity has been
reduced by approximately $7.8 million.
(9) Includes the estimated $21.0 million payable to owners of the Founding
Companies, representing the actual cash portion of the Acquisition
Consideration to be paid from a portion of the net proceeds from the
Offering. The cash portion of the Acquisition Consideration will be
determined based on the initial public offering price of the Common Stock
offered hereby.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the
actual events or results may differ materially from the results discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk
Factors," as well as those discussed elsewhere in this Prospectus. The
historical results set forth in this discussion and analysis are not
indicative of trends with respect to any actual or projected future financial
performance of the Company. This discussion and analysis should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements, the
Founding Companies' Financial Statements and the related Notes thereto
included elsewhere in this Prospectus.
INTRODUCTION
The Company's revenues are derived from providing specialty electrical
contracting and maintenance services related to electric and
telecommunications infrastructure, providing electrical contracting services
to the commercial and industrial markets and installing transportation control
and lighting systems. The Company's services include the installation, repair
and maintenance of electric power transmission and distribution lines and
telecommunication and cable television lines, the construction of electric
substations, the erection of cellular telephone, PCS(R) and microwave towers,
the installation of highway lighting and traffic control systems, design and
engineering services, as well as the provision of specialty contracting
services for electric, video, security, fire, voice and data systems. The
Company's customers include electric utilities, telecommunication and cable
television system operators, governmental entities, general contractors and
owners and managers of commercial and industrial properties. The Company had
pro forma combined revenues for 1996 of $108.1 million, of which 71% was
attributable to electric utility infrastructure services, 7% was attributable
to telecommunications infrastructure services, 11% was attributable to
commercial and industrial services and 11% was attributable to transportation
control and lighting systems services.
The Company enters into contracts principally on the basis of competitive
bids, the final terms and prices of which are frequently negotiated with the
customer. Although the terms of the contracts undertaken by the Company vary
considerably, the contracts are usually on either a lump sum or unit price
basis in which the Company agrees to do the work for a fixed amount for the
entire project (lump sum) or for units of work performed (unit price). Most
installation projects are completed within one year, while maintenance and
repair work is frequently provided under open-ended, unit price master service
agreements which are renewable annually. Revenues from lump sum contracts are
generally recorded on a percentage-of-completion basis, using the cost-to-cost
method based on the percentage of total costs incurred to date in proportion
to total estimated costs to complete the contract. Certain of the Company's
customers require the Company to post performance and payment bonds upon
execution of the contract, depending upon the nature of the work to be
performed. The Company's fixed price contracts often include payment
provisions pursuant to which the customer withholds a 5% to 10% retainage from
each progress payment and forwards the retainage to the Company upon
completion and approval of the work.
Costs of services consist primarily of salaries and benefits to employees,
depreciation, fuel and other vehicle expenses, equipment rentals,
subcontracted services, materials, parts and supplies. The Company's gross
margin, which is gross profit expressed as a percentage of revenues, is
typically higher on projects where labor, rather than materials, constitutes a
greater portion of the cost of services. Labor costs can be calculated with
relatively less accuracy than materials costs. Therefore, to compensate for
the potential
22
<PAGE>
variability of labor costs, the Company seeks to maintain higher margins on
its labor-intensive projects. Selling, general and administrative expenses
consist primarily of compensation and related benefits to owners,
administrative salaries and benefits, marketing, office rent and utilities,
communications and professional fees.
The Founding Companies have operated throughout the periods presented as
independent, privately-owned entities, and their results of operations reflect
varying tax structures (S Corporations or C Corporations) which have
influenced the historical level of owners' compensation. Gross profits and
selling, general and administrative expenses as a percentage of revenues may
not be comparable among the individual Founding Companies. In connection with
the Acquisitions, certain owners of the Founding Companies have agreed to
reductions in their compensation and related benefits totaling $0.9 million
versus 1996 levels. Such reductions have been reflected as a pro forma
adjustment in the Unaudited Pro Forma Combined Statement of Operations and in
the terms of the employment agreements to be entered into between these
persons and 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, marketing, communications and
professional fees, (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. It is anticipated that costs
related to the Company's new corporate management, being a public company and
integrating the Acquisitions will offset these savings. The Company believes
that neither these savings nor the costs associated therewith can be
quantified because the Acquisitions have not yet occurred, and there have been
no combined operating results upon which to base any assumptions. As a result,
these savings and associated costs have not been included in the pro forma
financial information included herein.
In November 1997, the Company sold 1.7 million shares of Limited Vote Common
Stock to management and an initial stockholder. As a result, the Company will
record a non-recurring, non-cash compensation charge of $11.5 million,
representing the difference between the amount paid for the shares and the
estimated fair value of the shares on the date of sale (the "Compensation
Charge"). The non-cash charge has been estimated based on a fair value that is
discounted from the estimated initial public offering price. This non-
recurring Compensation Charge is not included in the Unaudited Pro Forma
Combined Financial Statements.
The Acquisitions will be accounted for using the purchase method of
accounting. PAR has been designated as the "accounting acquiror" in the
Acquisitions. Accordingly, the excess of the fair value of the consideration
paid for the Acquisitions of $37.3 million over the fair value of the net
assets acquired by PAR from the other Founding Companies will be recorded as
"goodwill." In addition, goodwill of $22.6 million will be recorded
attributable to the 3.3 million shares of Limited Vote Common Stock issued to
initial stockholders and management. Together, this goodwill, totaling $59.9
million, will be amortized over its estimated useful life of 40 years as a
non-cash charge to operating income. The pro forma effect of this amortization
expense, which is not deductible for tax purposes, is expected to be
approximately $1.5 million per year. The amount of goodwill to be recorded and
the related amortization expense will depend in part on the actual Offering
price. See "Certain Transactions--Organization of the Company."
REGULATORY MATTERS
The Company's operations are subject to the authority of various state and
municipal regulatory bodies concerned with the licensing of contractors. The
Company has experienced no material difficulty in complying with the
requirements imposed on it by such regulatory bodies. See "Business--
Regulation."
23
<PAGE>
SEASONALITY; FLUCTUATIONS OF QUARTERLY RESULTS
The Company's results of operations can be subject to seasonal variations.
Generally, during the winter months, demand for new projects and maintenance
services may be lower due to reduced construction activity during inclement
weather, while demand for electrical service and repairs may be higher due to
damage caused by inclement weather. Additionally, the industry can be highly
cyclical. As a result, the Company's volume of business may be adversely
affected by declines in new projects in various geographic regions in the U.S.
Quarterly results may also be materially affected by the timing of
acquisitions, variations in the margins of projects performed during any
particular quarter, the timing and magnitude of acquisition assimilation costs
and regional economic conditions. Accordingly, the Company's operating results
in any particular quarter may not be indicative of the results that can be
expected for any other quarter or for the entire year.
SUPPLEMENTAL UNAUDITED COMBINED FINANCIAL INFORMATION
The following supplemental unaudited combined financial information for the
periods presented do not purport to present the combined results of the
Founding Companies in accordance with generally 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 Financial Statements appearing elsewhere in this
Prospectus. Selling, general and administrative expenses for periods prior to
the Acquisitions reflect the effects of salary and bonus payments to the
owners of the Founding Companies. The data may 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 (two S corporations and two C corporations)
during the periods presented, (ii) the Company will use the purchase method of
accounting to record the Acquisitions, (iii) the Company will incur
incremental costs for its new corporate management and the costs of being a
public company and (iv) the combined data do not reflect the Compensation
Charge or 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 combined
financial information for the periods indicated and such results as a
percentage of revenues:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED(1) SEPTEMBER 30,
------------------------------ -----------------------------
1995 1996 1996 1997
-------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $103,095 100.0% $120,051 100.0% $75,447 100.0% $108,666 100.0%
Cost of services........ 90,810 88.1 102,539 85.4 65,511 86.8 87,296 80.3
-------- ----- -------- ----- ------- ----- -------- -----
Gross profit.......... 12,285 11.9 17,512 14.6 9,936 13.2 21,370 19.7
-------- ----- -------- ----- ------- ----- -------- -----
Selling, general and
administrative
expenses(2)............ 8,127 7.9 9,797 8.2 6,790 9.0 9,066 8.3
-------- ----- -------- ----- ------- ----- -------- -----
Income from operations.. $ 4,158 4.0% $ 7,715 6.4% $ 3,146 4.2% $ 12,304 11.4%
======== ===== ======== ===== ======= ===== ======== =====
</TABLE>
- --------
(1) The fiscal years presented are the years ended December 31 for all
Founding Companies except for Union Power, for which the fiscal years
presented are the years ended August 31, 1996 and 1997.
(2) Excludes the $11.5 million non-recurring non-cash charge recognized by
Quanta related to the issuance of stock to an initial stockholder and
management in November 1997.
24
<PAGE>
Combined results for the nine months ended September 30, 1997 compared to the
nine months ended September 30, 1996
Revenues. Revenues increased $33.3 million, or 44.2%, from $75.4 million for
the nine months ended September 30, 1996 to $108.7 million for the nine months
ended September 30, 1997. The increase in combined revenues occurred across
all Founding Companies. PAR's revenues increased $6.6 million or 22.2%,
primarily due to increased demand for the Company's services in Colorado and,
to a lesser extent, in California. Union Power's revenues increased $15.1
million, or 68.0%, primarily due to increased demand for the Company's
services in Nevada, a higher volume of work in Colorado and increased
outsourcing of required services by utility customers in certain of its
markets. TRANS TECH's revenues increased $7.7 million, or 46.5%, due to a
100.0% increase in services provided to commercial and industrial customers
coupled with a 14.0% increase in transportation control and lighting systems
services provided for state and local governments. Potelco's revenues
increased $3.1 million, or 30.2%, primarily as a result of a higher volume of
projects and activity in Washington.
Gross profit. Gross profit increased $11.5 million, or 116.2%, from $9.9
million for the nine months ended September 30, 1996, to $21.4 million for the
nine months ended September 30, 1997. The increase was due primarily to
increases at PAR and Union Power as well as smaller increases at Potelco and
TRANS TECH. Gross margin as a percentage of revenue increased from 13.2% to
19.7%. Gross margins as a percentage of revenues at PAR improved from 14.2% to
23.3% due to increased labor productivity, renegotiated unit pricing on
certain long-term contracts, lower insurance expense and lower equipment
rental expense as PAR replaced rental equipment on certain projects with
company-owned equipment. Union Power's gross margins increased from 9.0% of
revenues to 14.7% due to increased labor productivity, renegotiated unit
pricing on certain long-term contracts and improved asset utilization.
Potelco's gross margins improved from 8.2% of revenues to 21.4% due to the
projects performed during 1997 having a relatively higher labor component and
therefore resulting in higher gross margins, as compared to the projects
performed during 1996 which had a relatively higher proportion of low margin
materials costs.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.3 million, or 33.8%, from $6.8 million
for the nine months ended September 30, 1996 to $9.1 million for the nine
months ended September 30, 1997. The increase occurred primarily due to
increases of $1.5 million at PAR and $0.7 million at Union Power. The
increases were primarily attributable to increased administrative support
required by the higher level of revenues and increases in owner compensation.
As a percentage of combined revenues, combined selling, general and
administrative expenses decreased from 9.3% to 8.0% due to economies of scale.
Combined results for the year ended December 31, 1996 compared to the year
ended December 31, 1995
Revenues. Revenues increased approximately $17.0 million, or 16.5%, from
$103.1 million for the year ended December 31, 1995 to $120.1 million for the
year ended December 31, 1996. The increase in combined revenues occurred
primarily at Union Power and to a lesser extent at PAR and TRANS TECH,
partially offset by a decrease in revenues at Potelco. Union Power's revenues
increased $17.2 million due to increased demand for the Company's services in
Nevada, a higher volume of work in California and increased outsourcing of
required services by utility customers in certain of its markets.
Gross profit. Gross profit increased approximately $5.2 million, or 42.3%,
from $12.3 million for the year ended December 31, 1995 to $17.5 million for
the year ended December 31, 1996, while the gross margin as a percentage of
revenue increased from 11.9% to 14.6%. The increased gross margin percentage
was due to increased labor productivity at PAR and TRANS TECH and a relatively
higher labor component
25
<PAGE>
at Potelco. These increases were slightly offset by a decrease in gross margin
at Union Power due to higher costs than anticipated on certain contracts.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased approximately $1.7 million, or 21.0%, from
$8.1 million for the year ended December 31, 1995 to $9.8 million for the year
ended December 31, 1996. The increase in combined selling, general and
administrative expenses occurred across all Founding Companies and was
primarily attributable to increased administrative payroll expenses required
to support the higher level of revenues generated from an increased volume of
projects. As a percentage of combined revenues, combined selling, general and
administrative expenses remained relatively constant.
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 $2.5 million of pro forma cash and cash equivalents, $14.0 million
of pro forma working capital and no outstanding indebtedness other than debt
relating to the S Corporation Distributions. It is anticipated that the
Founding Companies' historical indebtedness of $17.6 million will be repaid
from the proceeds of the Offering. See discussion of individual Founding
Companies' liquidity and capital resources included elsewhere herein.
In connection with and prior to the Acquisitions, certain Founding Companies
will make the S Corporation Distributions to their owners of substantially all
of their previously-taxed undistributed earnings. The pro forma combined
financial statements as of September 30, 1997 included elsewhere in this
Prospectus reflect pro forma adjustments for the estimated amount of these S
Corporation Distributions had they occurred in their entirety as of September
30, 1997. These pro forma adjustments reflect $7.8 million of S Corporation
Distributions.
The Company is currently negotiating with a group of banks to obtain a
credit facility which would be available upon the consummation of the
Offering. According to the proposed terms, the Company would have an unsecured
revolving line of credit that may be used for post-Offering acquisitions,
capital expenditures, working capital and general corporate purposes. 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 upon the consummation of the
Offering, the Company believes that sufficient alternative sources of
financing will be available to the Company on reasonable terms.
As part of its growth strategy, the Company intends to pursue an acquisition
program. 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, issuances of additional equity,
borrowings, including any unborrowed portion of the proposed credit facility,
as well as cash flow from operations. 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 $5.5 million in fiscal 1996.
Due to relatively low levels of inflation experienced during the years ended
December 31, 1995 and 1996 and the first nine months of 1997, inflation did
not have a significant effect on the results of the combined Founding
Companies in those periods.
26
<PAGE>
INDIVIDUAL FOUNDING COMPANIES
The selected historical financial information presented in the tables below
is derived from the respective audited financial statements of the Founding
Companies included elsewhere herein. The following discussion should be read
in conjunction with the Financial Statements of the Founding Companies and the
notes thereto appearing elsewhere in this Prospectus.
For financial statement presentation purposes, as required by the rules and
regulations of the Securities Act, PAR has been identified as the accounting
acquiror, as its shareholders will represent the largest shareholding interest
in Quanta.
PAR RESULTS OF OPERATIONS
PAR was founded in 1954 and is headquartered in North Kansas City, Missouri.
It operates primarily throughout the Midwestern and Western United States and
maintains divisional offices in Topeka, Kansas; Coal, Missouri; Des Moines,
Iowa; Aurora, Colorado and El Cajon, California. PAR focuses on providing full
electric infrastructure contracting services, including installation of
electric transmission lines, both underground and above ground, distribution
lines and construction of electric substations. In 1996, PAR provided services
in Missouri, Iowa, Colorado, Kansas, Nebraska, California, Montana, Illinois,
Hawaii, Utah and Wyoming.
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $43,909 100.0% $38,915 100.0% $42,684 100.0% $29,806 100.0% $36,439 100.0%
Cost of services........ 36,525 83.2 33,193 85.3 35,789 83.8 25,583 85.8 27,944 76.7
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit.......... 7,384 16.8 5,722 14.7 6,895 16.2 4,223 14.2 8,495 23.3
Selling, general and
administrative
expenses............... 4,836 11.0 4,342 11.2 5,012 11.7 3,560 11.9 5,013 13.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from operations.. $ 2,548 5.8% $ 1,380 3.5% $ 1,883 4.5% $ 663 2.3% $ 3,482 9.5%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
PAR results for the nine months ended September 30, 1997 compared to the nine
months ended September 30, 1996
Revenues. Revenues increased $6.6 million, or 22.1%, from $29.8 million for
the nine months ended September 30, 1996 to $36.4 million for the nine months
ended September 30, 1997, primarily as a result of an increased demand for the
Company's services in Colorado and, to a lesser extent, in California.
Gross profit. Gross profit increased $4.3 million, or 102.4%, from $4.2
million for the nine months ended September 30, 1996 to $8.5 million for the
nine months ended September 30, 1997. As a percentage of revenues, gross
profit increased from 14.2% to 23.3%. The increase in gross profit and gross
margin is primarily due to increased labor productivity, renegotiated unit
pricing on certain long-term contracts, lower insurance expense and lower
equipment rental expense as PAR replaced rental equipment on certain projects
with company-owned equipment.
27
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.4 million, or 38.9%, from $3.6 million
for the nine months ended September 30, 1996 to $5.0 million for the nine
months ended September 30, 1997, primarily due to increased administrative
support required by the higher level of revenues and increases in owner
compensation. As a percentage of revenues, selling, general and administrative
expenses remained relatively constant.
PAR results for the year ended December 31, 1996 compared to the year ended
December 31, 1995
Revenues. Revenues increased $3.8 million, or 9.8%, from $38.9 million for
the year ended December 31, 1995 to $42.7 million for the year ended December
31, 1996, primarily as a result of increased demand for the company's services
in Colorado and, to a lesser extent, in California, but were partially offset
by decreased activity in Missouri.
Gross profit. Gross profit increased $1.2 million, or 21.1%, from $5.7
million for the year ended December 31, 1995 to $6.9 million for the year
ended December 31, 1996. As a percentage of revenues, gross profit increased
from 14.7% to 16.2%. This increase in gross profit was a result of improved
labor productivity and asset utilization but was partially offset by increases
in insurance costs and higher costs than anticipated on certain contracts.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.7 million, or 16.3%, from $4.3 million
for the year ended December 31, 1995 to $5.0 million for the year ended
December 31, 1996, primarily due to increases in administrative salaries
required to support the higher level of revenues generated from an increased
volume of projects and increases in owner compensation. As a percentage of
revenues, selling, general, and administrative expenses increased from 11.2%
to 11.7%.
PAR results for the year ended December 31, 1995 compared to the year ended
December 31, 1994
Revenues. Revenues decreased $5.0 million, or 11.4%, from $43.9 million for
the year ended December 31, 1994 to $38.9 million for the year ended December
31, 1995, primarily due to severe winter weather in the Midwest during 1994,
which caused extraordinary damage to power transmission and distribution
lines, creating the need for increased repair work in 1994 when compared to
1995. Also, merger activity between utilities in Iowa in 1995 resulted in a
lower volume of activity by certain customers. The declines were partially
offset by increased demand for services in Missouri, Kansas and Colorado.
Gross profit. Gross profit decreased $1.7 million, or 23.0%, from $7.4
million for the year ended December 31, 1994 to $5.7 million for the year
ended December 31, 1995. As a percentage of revenues, gross profit decreased
to 14.7% from 16.8%. This decrease in gross profit margin was primarily due to
the decreased level of revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.5 million, or 11.6%, from $4.8 million
for the year ended December 31, 1994 to $4.3 million for the year ended
December 31, 1995, primarily due to a decrease in owner compensation. As a
percentage of revenues, selling, general and administrative expenses remained
relatively constant.
PAR liquidity and capital resources
PAR generated $3.0 million of net cash from operating activities for the
nine months ended September 30, 1997. Net cash used in investing activities
was approximately $4.6 million, primarily for the purchase of operating
equipment and vehicles. Net cash provided by financing activities of $1.1
million resulted from net borrowings of long-term debt and borrowings under
PAR's line of credit for purchases of operating equipment and vehicles.
28
<PAGE>
At September 30, 1997, PAR had a working capital deficit of $0.5 million and
total long-term debt of $1.9 million outstanding. PAR generated $2.7 million
in net cash from operating activities for the twelve months ended December 31,
1996. Net cash used in investing activities was approximately $2.6 million,
principally for the purchase of operating equipment. Net cash used in
financing activities of $0.4 million resulted from repayments of long-term
debt.
At December 31, 1996, PAR had working capital of $0.7 million and $2.0
million of total long-term debt outstanding.
UNION POWER RESULTS OF OPERATIONS
Union Power was founded in 1946, and is headquartered in Englewood,
Colorado. It operates primarily west of the Mississippi River and in 1996
provided services to customers in California, Colorado, Nevada, Oregon, Utah
and Washington. Union Power is primarily involved in providing electric
infrastructure contracting services, including installation of electrical
transmission lines, both underground and above ground, and distribution lines
and construction of electric substations. In addition, Union Power provides
electrical repair and maintenance services.
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 AUGUST 31,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... $12,614 100.0% $25,636 100.0% $42,792 100.0%
Cost of services.................. 10,240 81.2 22,319 87.1 37,766 88.3
------- ----- ------- ----- ------- -----
Gross profit.................... 2,374 18.8 3,317 12.9 5,026 11.7
Selling, general and
administrative expenses.......... 1,896 15.0 1,563 6.1 1,966 4.6
------- ----- ------- ----- ------- -----
Income from operations............ $ 478 3.8% $ 1,754 6.8% $ 3,060 7.1%
======= ===== ======= ===== ======= =====
</TABLE>
Union Power results for the year ended August 31, 1997 compared to the year
ended August 31, 1996
Revenues. Revenues increased $17.2 million, or 67.2%, from $25.6 million for
the year ended August 31, 1996 to $42.8 million for the year ended August 31,
1997, primarily due to increased demand for the Company's services in Nevada,
a higher volume of work in California and increased outsourcing of required
services by utility customers, which resulted in a higher component of
subcontracted work.
Gross profit. Gross profit increased $1.7 million, or 51.5%, from $3.3
million for the year ended August 31, 1996 to $5.0 million for the year ended
August 31, 1997. As a percentage of revenues, gross profit decreased to 11.7%
from 12.9% primarily as a result of a higher percentage of work being
subcontracted at lower margins and higher costs than anticipated on certain
projects.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.4 million, or 25.0%, from $1.6 million
for the year ended August 31, 1996 to $2.0 million for the year ended August
31, 1997 due to the continued expansion into the California and Nevada
markets. As a percentage of revenues, selling, general and administrative
expenses decreased as a percentage of revenues from 6.1% to 4.6% primarily due
to economies of scale.
Union Power results for the year ended August 31, 1996 compared to the year
ended August 31, 1995
Revenues. Revenues increased $13.0 million, or 103.2%, from $12.6 million
for the year ended August 31, 1995 to $25.6 million for the year ended August
31, 1996, primarily as a result of an increase in the overall demand for the
company's services in Nevada and California.
29
<PAGE>
Gross profit. Gross profit increased $0.9 million, or 37.5%, from $2.4
million for the year ended August 31, 1995 to $3.3 million for the year ended
August 31, 1996. As a percentage of revenues, gross profit decreased to 12.9%
from 18.8% primarily as a result of higher costs than anticipated on a
specific contract in 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.3 million, or 15.8%, from $1.9 million
for the year ended August 31, 1995 to $1.6 million for the year ended December
31, 1996 due to lower owner compensation and employee bonuses in 1996. As a
percentage of revenues, selling, general and administrative expenses decreased
from 15.0% to 6.1%.
Union Power liquidity and capital resources
Union Power generated $1.0 million of net cash from operating activities for
the year ended August 31, 1997. Net cash used in investing activities was
approximately $1.5 million, primarily for the purchase of operating equipment.
Net cash provided by financing activities of $.2 million resulted from
advances on the company's line of credit.
At August 31, 1997, Union Power had working capital of $2.8 milion and $0.7
million of total long term debt outstanding.
TRANS TECH RESULTS OF OPERATIONS
TRANS TECH was founded in 1983, is headquartered in South Bend, Indiana and
in 1996 provided services to customers in Indiana, Kentucky and Michigan.
TRANS TECH installs, maintains and repairs traffic signals, signage, highway
control systems components, highway and airport lighting and fiber optics for
states and other governmental entities, and also performs traditional
electrical contracting services for private and public entities in the
commercial and industrial market.
The following table sets forth selected statements of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------------------
1995 1996 1996 1997
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $21,397 100.0% $24,414 100.0% $16,575 100.0% $24,278 100.0%
Cost of services........ 18,934 88.5 20,426 83.7 13,683 82.6 19,687 81.1
------- ----- ------- ----- ------- ----- ------- -----
Gross profit.......... 2.463 11.5 3,988 16.3 2,892 17.4 4,591 18.9
Selling, general and
administrative
expenses............... 1,639 7.7 1,848 7.6 1,300 7.8 1,362 5.6
------- ----- ------- ----- ------- ----- ------- -----
Income from operations.. $ 824 3.8% $ 2,140 8.7% $ 1,592 9.6% $ 3,229 13.3%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
TRANS TECH results for the nine months ended September 30, 1997 compared to
the nine months ended September 30, 1996.
Revenues. Revenues increased $7.7 million, or 46.4%, from $16.6 million for
the nine months ended September 30, 1996 to $24.3 million for the nine months
ended September 30, 1997, primarily as a result of an increase in demand for
services provided by commercial and institutional customers and, to a lesser
extent, by transportation control and lighting systems customers.
Gross profit. Gross profit increased $1.7 million, or 58.6%, from $2.9
million for the nine months ended September 30, 1996 to $4.6 million for the
nine months ended September 30, 1997. As a
30
<PAGE>
percentage of total revenue, gross margin increased from 17.4% for the nine
months ended September 30, 1996 to 18.9% for the nine months ended September
30, 1997 primarily as a result of improved labor productivity and asset
utilization.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.1 million, or 7.7%, from $1.3 million for
the nine months ended September 30, 1996 to $1.4 million for the nine months
ended September 30, 1997, primarily due to increased administrative salaries
required by the higher level of revenues and increases in owner compensation.
As a percentage of revenues, selling, general and administrative expenses
decreased from 7.8% to 5.6% due to economies of scale.
TRANS TECH results for the year ended December 31, 1996 compared to the year
ended December 31, 1995
Revenues. Revenues increased $3.0 million, or 14.0%, from $21.4 million for
the year ended December 31, 1995 to $24.4 million for the year ended December
31, 1996, primarily as a result of increased volume of work for commercial and
industrial customers offset partially by a decrease in activity in the
transportation control and lighting systems market.
Gross profit. Gross profit increased $1.5 million, or 61.9%, for the year
ended December 31, 1995 to $4.0 million for the year ended December 31, 1996.
As a percentage of total revenue, gross margin increased from 11.5% for the
year ended December 31, 1995 to 16.3% for the year ended December 31, 1996 as
a result of increased labor productivity and a decrease in materials cost as a
percentage of revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.2 million, or 12.5%, from $1.6 million
for the year ended December 31, 1995 to $1.8 million for the year ended
December 31, 1996, primarily due to the addition of administrative positions
and increased marketing expenses. As a percentage of revenues, selling,
general and administrative expenses remained relatively constant.
TRANS TECH liquidity and capital resources
TRANS TECH generated $1.3 million of net cash from operating activities for
the nine months ended September 30, 1997. Net cash used in investing
activities was approximately $0.8 million, primarily for the purchase of
operating equipment. Net cash used in financing activities of $28,000 resulted
primarily from distributions to shareholders of $1.5 million, net of
borrowings on the line of credit of $1.4 million.
At September 30, 1997, TRANS TECH had working capital of $4.0 million and
$0.5 million of total long-term debt outstanding.
TRANS TECH generated $2.9 million in net cash from operating activities for
the year ended December 31, 1996. Net cash used in investing activities was
approximately $0.9 million, principally for purchases of operating equipment.
Net cash used in financing activities of $2.1 million resulted from repayments
of debt and distributions to shareholders.
At December 31, 1996, TRANS TECH had working capital of $2.8 million and
$0.6 million of total long-term debt outstanding.
POTELCO RESULTS OF OPERATIONS
Potelco was founded in 1965, is headquartered near Seattle, Washington and
operates primarily in Washington, Oregon and Idaho. Potelco provides electric
and telecommunications infrastructure
31
<PAGE>
contracting services, including installation of overhead and underground lines
and facilities for the power, telecommunications and cable television
industries. In addition, Potelco provides electrical and telecommunications
installation, maintenance and repair services to the commercial and industrial
market.
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, ----------------------------
1996 1996 1997
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... $14,549 100.0% $10,173 100.0% $13,248 100.0%
Cost of services.................. 12,946 89.0 9,343 91.8 10,416 78.6
------- ----- ------- ----- ------- -----
Gross profit.................... 1,603 11.0 830 8.2 2,832 21.4
Selling, general and
administrative expenses.......... 971 6.7 691 6.8 777 5.9
------- ----- ------- ----- ------- -----
Income from operations............ $ 632 4.3% $ 139 1.4% $ 2,055 15.5%
======= ===== ======= ===== ======= =====
</TABLE>
Potelco results for the nine months ended September 30, 1997 compared to the
nine months ended September 30, 1996
Revenues. Revenues increased $3.0 million, or 29.4%, from $10.2 million for
the nine months ended September 30, 1996 to $13.2 million for the nine months
ended September 30, 1997, primarily as a result of an increase in the demand
for services by telecommunications infrastructure and commerical and
industrial customers to either upgrade their telecommunication systems from
cable to fiber optic or to install new systems.
Gross profit. Gross profit increased $2.0 million, or 250.0%, from $.8
million for the nine months ended September 30, 1996 to $2.8 million for the
nine months ended September 30, 1997. As a percentage of revenues, Potelco's
gross margins improved from 8.2% to 21.4% due to the projects performed during
1997 having a relatively higher labor component and therefore resulting in
higher gross margins, as compared to the projects performed during 1996 which
had a relatively higher proportion of low margin materials costs.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.1 million, or 14.3%, from $0.7 million
for the nine months ended September 30, 1996 to $0.8 million for the nine
months ended September 30, 1997, primarily due to increases in office salaries
and profit sharing contributions. As a percentage of revenues, these selling,
general and administrative expenses decreased from 6.8% to 5.9% due to
economies of scale.
Potelco liquidity and capital resources
Potelco generated $0.6 million of net cash from operating activities for the
nine months ended September 30, 1997. Net cash used in investing activities
was approximately $0.6 million, primarily for the purchase of property and
equipment. Net cash provided by financing activities of $0.2 million resulted
primarily from additional proceeds received from a note payable to a bank.
At September 30, 1997, Potelco had working capital of $2.1 million and $1.4
million of total long-term debt outstanding.
32
<PAGE>
BUSINESS
GENERAL
Quanta was founded in August 1997 to create a leading provider of specialty
electrical contracting and maintenance services primarily related to electric
and telecommunications infrastructure in North America. In addition, the
Company provides electrical contracting services to the commercial and
industrial markets and installs transportation control and lighting systems.
The Company's services include the installation, repair and maintenance of
electric power transmission and distribution lines and telecommunication and
cable television lines, the construction of electric substations, the erection
of cellular telephone, PCS(R) and microwave towers, the installation of highway
lighting and traffic control systems, design and engineering services, and the
provision of specialty contracting services for electric, video, security,
fire, voice and data systems. The Company's customers include electric
utilities, telecommunication and cable television system operators,
governmental entities, general contractors and owners and managers of
commercial and industrial properties.
Concurrently with the closing of the Offering, Quanta will acquire the four
Founding Companies, making it one of the largest providers of electric and
telecommunications infrastructure contracting services in its markets. The
Company maintains a total of 13 offices in eight states, and performed work in
18 states during 1996. The Company believes that its size, geographical
diversity of operations, industry relationships, design and engineering
capability, expertise in specialty services and number of skilled personnel
provide the Company significant competitive advantages. During 1996, the
Company generated pro forma combined revenues, operating income and net income
of $108.1 million, $6.5 million and $3.1 million, respectively. During the
first nine months of 1997, the Company generated pro forma combined revenues,
operating income and net income of $108.7 million, $13.0 million and $7.4
million, respectively.
INDUSTRY OVERVIEW
The Company estimates that the electrical and telecommunications contracting
industry generates annual revenues in excess of $40 billion. The Company
believes that growth in this industry is being positively affected by the
following trends:
Deregulation. The wholesale electricity market, including sales of
electricity between utilities and other generators, is regulated by the Federal
Energy Regulatory Commission ("FERC"). In 1996, FERC accelerated the
deregulation of the electric power industry by issuing Order nos. 888 and 889,
which require shareholder-owned utilities (of which there were approximately
223 in 1997) to provide non-utility electricity suppliers with access to
transmission services. Management expects the deregulation of the electric
power industry to increase competition among suppliers of electricity, which
will lead utilities to lower their costs by outsourcing non-core functions such
as the installation, construction, maintenance and repair of electric
transmission and distribution systems and electric substations, services that
have traditionally been performed by the utilities themselves.
The Telecommunications Act of 1996 preempted state and local government
control over access to the telecommunications market, eliminating barriers to
entry and opening the markets to new entrants. Management expects the
elimination of such barriers to lead to increased construction of competing
telecommunications networks as competitive telecommunications providers,
existing as well as new, expand into new markets and offer services that once
were reserved for incumbents.
Upgrading and Expanding Existing Infrastructure. As access to electric
transmission services increases, the Company believes that financial penalties
will be imposed upon electric utilities in the event of transmission and
distribution system downtime attributable to the utilities. As a result, the
Company
33
<PAGE>
expects that utilities will modernize existing transmission systems, which
will increase the amount of upgrading and repair work available to outside
contractors. The Company also expects commercial and industrial companies to
continue to upgrade and expand their existing electrical infrastructure as a
result of (i) increasing levels of modernization activity, (ii) the effects of
more stringent electric codes, which establish minimum power and safety
requirements, (iii) revised national energy standards, (iv) increases in use
of electric power and (v) increased installation of electrical capacity in
excess of minimum code requirements in order to facilitate marketing of
properties.
The amount of traditional voice and data traffic has increased steadily, and
growth in the use of personal computers and modems has created significant
data traffic from a wide variety of sources. Because of the physical
limitations of the existing communications network facilities, the Company
believes there is an immediate need to upgrade and expand facilities with new
and innovative technology, expanding, and in many cases, replacing existing
telecommunications and cable television infrastructure to allow for increases
in the volume of traffic. The need to upgrade and expand telecommunications
infrastructure as a result of deregulation and the growth in consumer demand
for enhanced telecommunications services is expected to continue to prompt
telecommunications providers to increase the current level of outsourcing to
independent contractors who serve the industry.
Increased Outsourcing. The outsourcing trend has largely been driven by the
efforts of electric utilities and telecommunications providers to reduce costs
and focus on their core competencies. The Company believes that electric
utilities and telecommunications providers will increasingly seek
comprehensive solutions to their infrastructure needs by utilizing fewer
qualified contractors that can provide the full range of new construction,
installation, repair, maintenance and emergency services.
The Company believes that its industry is highly fragmented. According to
the Department of Commerce, there are more than 50,000 electrical and
telecommunications contracting businesses, consisting of a small number of
regional or national providers and a large number of relatively small, owner-
operated businesses that have limited access to capital and that offer a
limited range of services. The Company believes that the fragmented nature of
the industry presents substantial consolidation and growth opportunities for
companies with a disciplined acquisition program, a decentralized operating
strategy and access to financial resources. The Company also believes that the
prominence and operating strength of the Founding Companies and the experience
of its executive management will provide the Company with significant
competitive advantages to capitalize on these opportunities.
STRATEGY
The Company plans to achieve its goal of becoming a leading provider of
electric and telecommunications infrastructure contracting services by
implementing its operating strategy, emphasizing continued internal growth and
expanding through acquisitions.
OPERATING STRATEGY. The key elements of the Company's operating strategy
are:
Operate on a Decentralized Basis. The Company intends to manage its
operations on a decentralized basis while maintaining operating and
financial controls. Local management will retain responsibility for the
operations, profitability and growth of its business. The Company believes
that, while maintaining operating and financial controls, a decentralized
operating structure will retain the entrepreneurial spirit of each of the
Founding Companies and will permit the Company to capitalize on the
Founding Companies' local and regional market knowledge, specialized skills
and customer relationships. In addition, the Company believes that its
operating efficiency, financial strength, technical expertise, presence in
key geographic areas and reputation for quality and reliability provide
competitive advantages in bidding for, winning and executing new contracts
for infrastructure projects. While local management will retain control of
the operations of its business, the Company's executive management will
have responsibility for corporate strategy and acquisitions, financing,
insurance, investor relations and employee benefit plans.
34
<PAGE>
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
achieve more efficient asset utilization and realize savings in overhead
and other expenses. The Company intends to use its increased purchasing
power to gain volume discounts in areas such as vehicles and equipment,
electrical materials, marketing, 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 expand
the use of management information systems to facilitate financial control,
project costing and asset utilization. At some locations, the larger
combined workforce will provide additional staffing flexibility.
INTERNAL GROWTH. The Company is focused on continuing its strong internal
growth by (i) increasing the volume of services provided to existing
customers, (ii) expanding the scope of services provided to existing
customers, (iii) broadening its customer base and (iv) geographically
expanding its service area. The Company believes it will be able to expand the
services it offers in its markets by leveraging the specialized strengths of
individual Founding Companies. Such services include design and engineering,
where the contractor applies in-house engineering expertise to design the most
cost-effective system, and the application of new technologies, such as a
robotic arm that can be used to facilitate the repair of high voltage power
transmission lines without taking them out of service.
ACQUISITIONS. The Company believes that the increasing trend toward the
outsourcing of services to the electric and telecommunications infrastructure
contracting industry will result in a competitive disadvantage for small and
mid-sized companies that do not have access to capital and cannot provide a
broad range of speciality contracting services on a national basis. In
addition, the Company expects that there will continue to be a large number of
attractive acquisition candidates due to the highly fragmented nature of the
industry, the inability of many companies to expand and modernize due to
capital constraints and the desire of owners for liquidity. The Company
believes that its financial strength and experienced management will be
attractive to acquisition candidates. The key elements of the Company's
acquisition strategy are:
Enter New Geographic Markets. The Company intends to expand into
geographic markets not currently served by the Founding Companies by
selectively acquiring well-established specialty electrical and
telecommunications contractors that, like the Founding Companies, are
leaders in their regional markets, are financially stable, have a strong
customer base, have senior management committed to participating in the
future growth of the Company and can serve as "platforms" for the future
growth of the Company.
Expand Within Existing Markets. The Company intends to explore
acquisition opportunities in the geographic markets it already serves as
well as geographic markets served by businesses the Company acquires in the
future. Once the Company has entered a specific geographic market, it will
seek to acquire other well-established companies in that particular market
to deepen its market penetration and expand the range of services offered
to its customers. The Company will also pursue "tuck-in" acquisitions of
smaller companies whose operations can be integrated into and leveraged
with an existing operation.
ACQUISITION PROGRAM
The Company believes it will be regarded by acquisition candidates as an
attractive acquiror because of (i) the Company's strategy for creating a
national, comprehensive and professionally managed specialty electric and
telecommunications infrastructure contracting business, (ii) the Company's
decentralized operating strategy and opportunities to participate in a larger
organization, (iii) the Company's access to financial resources as a public
company, (iv) the potential for increased profitability due to centralizing
certain administrative functions, enhanced systems capabilities and economies
of scale and (v) the
35
<PAGE>
potential for owners of the businesses being acquired to participate in the
Company's planned growth while realizing liquidity. The Company believes that
the management of the Founding Companies will be instrumental in identifying
and assisting in the completion of future acquisitions.
The Company has developed a set of financial, geographic and management
criteria designed to assist management in the evaluation of acquisition
candidates. These criteria evaluate a variety of factors, including, but not
limited to (i) historical and projected financial performance, (ii) internal
rate of return, return on assets and return on revenue, (iii) experience and
reputation of the candidate's management and operations, (iv) composition and
size of the candidate's customer base, (v) whether the geographic location of
the candidate will enhance or expand the Company's market area or ability to
attract other acquisition candidates, (vi) whether the acquisition will
augment or increase the Company's market share or services offered or help
protect the Company's existing customer base, (vii) potential synergies gained
by combining the acquisition candidate with the Company's existing operations
and (viii) liabilities, contingent or otherwise, of the candidate. The Company
anticipates that acquisition candidates in the target markets and industries
will have annual revenues ranging from $10 million to $100 million. At the
present time, the Company has no binding agreements to effect any mergers or
acquisitions other than the Acquisitions.
As consideration for future acquisitions, the Company expects to utilize a
combination of cash, Common Stock and debt. The purchase price for each future
acquisition will vary. The major factors in establishing the purchase price
will be historical earnings, strength of management, future prospects of the
acquiree and the ability of the acquiree to complement or leverage the
services already offered by the Company. Following the Offering, the Company
intends to register 5,000,000 additional shares of Common Stock under the
Securities Act, which shares will be offered in connection with future
acquisitions.
SERVICES
The Company provides a broad range of services, including the installation,
repair and maintenance of electric power transmission and distribution lines
and telecommunications and cable television lines, the construction of
electric substations, the erection of cellular telephone, PCS(R) and microwave
towers, the installation of highway lighting and traffic control systems,
design and engineering services and the provision of specialty contracting
services for electric, video, security, fire, voice and data systems. The
Company currently provides four broad business services: electric utility
infrastructure services; telecommunications infrastructure services;
transportation control and lighting systems services; and commercial and
industrial services. The Company had pro forma combined revenues for 1996 of
$108.1 million, of which 71% was attributable to electric utility
infrastructure services, 7% was attributable to telecommunications
infrastructure services, 11% was attributable to commercial and industrial
services and 11% was attributable to transportation control and lighting
systems services.
ELECTRIC UTILITY INFRASTRUCTURE SERVICES. The Company performs specialty
electrical contracting services for electric utilities. These services include
installing, repairing and maintaining electric transmission and distribution
lines, principally above ground, maintaining street lights and other system
components, constructing electric substations and erecting transmission
towers. The work performed often involves the splicing of high voltage lines
and, on occasion, the installation of underground high voltage distribution
systems. The Company also repairs and replaces lines which have been damaged
or destroyed as a result of adverse weather conditions.
TELECOMMUNICATIONS INFRASTRUCTURE SERVICES. The Company provides a variety
of services in connection with telecommunications, cable television and other
data transmission. The Company installs fiber optic, coaxial and copper cable
both above and below ground on behalf of telecommunications and cable service
providers. The services provided by the Company include the placing and
splicing of cable, excavation of trenches in which to place the cable,
placement of related structures such as poles, anchors,
36
<PAGE>
conduits, manholes, cabinets and closures, placement of drop lines from the
main distribution lines to an individual residence or business and maintenance
and removal of these fiber optic, coaxial and copper lines and related
structures. The Company has the ability to directionally bore and place
cables, a highly specialized method of positioning buried cable which is often
required in congested urban and suburban markets where trenching may be
impractical. In addition, the Company is involved in the engineering, design
and erection of communications towers, including cellular telephone, PCS(R)
and microwave towers.
COMMERCIAL AND INDUSTRIAL SERVICES. The Company designs, installs, maintains
and repairs electrical wiring, telephone and data copper wiring, fiber optic
cabling and building control and automation systems for commercial and
industrial customers.
TRANSPORTATION CONTROL AND LIGHTING SYSTEMS SERVICES. The Company installs,
maintains and repairs traffic and highway control systems, such as signals,
signage, lighting and freeway management systems components. In addition, the
Company installs overhead cable and control systems for light rail lines,
smart highway control systems and airport lighting.
CUSTOMERS
The Company's customers include electric utilities, telecommunications and
cable television system operators, governmental entities, general contractors
and builders, owners and managers of commercial and industrial properties. The
Company's customer base is highly concentrated, with its top three customers
in 1996 accounting in the aggregate for approximately 16%, 9% and 5%,
respectively, of the Company's total revenues. For the nine months ended
September 30, 1997, approximately 11% of the Company's total revenues were
derived from Public Service of Colorado, 4% from Nevada Power and 4% from
Pacific Telecom, Inc. Electric utilities, in the aggregate, represent the
largest customer base of the Company. General contractors, as a group, account
for a significant portion of customers for the Company's commercial and
industrial work. The Company believes that a substantial portion of its total
revenues and operating income will continue to be derived from a concentrated
group of customers. The loss of any of these customers could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Management at each of the Founding Companies has been responsible for
developing and maintaining successful long-term relationships with key
customers. The Company relies heavily on repeat customers and uses both the
written and verbal referrals of its satisfied customers to help generate new
business. Many of the Company's customers or prospective customers have a
qualification procedure for becoming an approved bidder or vendor based upon
the satisfaction of particular performance and safety standards set by the
customer. Such customers often maintain a list of vendors meeting such
standards and award contracts for individual jobs only to such vendors. The
Company strives to maintain its status as a preferred or qualified vendor to
such customers.
EMPLOYEES
As of November 30, 1997, the Company had approximately 95 salaried
employees, including executive officers, project managers or engineers, job
superintendents, staff and clerical personnel and approximately 1,000 hourly
rated employees, the number of which fluctuates depending upon the number and
size of the projects undertaken by the Company at any particular time. The
Company does not anticipate any overall reductions in staff as a result of the
consolidation of the Founding Companies, although there may be some job
realignments and new assignments in an effort to eliminate overlapping and
redundant positions.
Three of the Founding Companies are signatories to master collective
bargaining agreements with the International Brotherhood of Electrical Workers
(the "IBEW"). The other Founding Company is a signatory to various local IBEW
agreements as well as local agreements with the Laborers International Union
and the Operating Engineers Union. Under these agreements, the Founding
Companies agree to pay specified wages to its union employees, observe certain
workplace rules and make employee benefit payments to
37
<PAGE>
multi-employer pension plans and employee benefit trusts rather than
administering the funds on behalf of their employees. IBEW covered employees
are represented by numerous local unions under various agreements with varying
terms and expiration dates. Such local agreements are entered into by and
between the IBEW local and the National Electrical Contractors Association
("NECA"), of which the Company is a member. The majority of the collective
bargaining agreements contain provisions that prohibit work stoppages or
strikes, even during specified negotiation periods relating to agreement
renewal, and provide for binding arbitration dispute resolution in the event
of prolonged disagreement; however, there can be no assurance that work
stoppages or strikes will not occur at any given time.
Each of the Founding Companies provides a variety of health, welfare and
benefit plans for their employees who are not covered by collective bargaining
agreements. Following consummation of the Acquisitions, these various employee
benefits plans will be replaced by a single plan covering all of the Company's
non-bargaining employees.
The electric and telecommunications infrastructure contracting industry is
experiencing a shortage of skilled craftsmen. In response to the shortage, the
Company seeks to take advantage of various IBEW and NECA referral programs and
hire graduates of the joint IBEW/NECA apprenticeship program for training
qualified electricians. As a union employer, the Company believes that its
access to qualified personnel through these and other union sources will
afford it a distinct advantage over non-union employers in attracting much
needed skilled craftsmen in an ever-tightening labor market. None of the
Founding Companies has experienced any strikes or work stoppages in the past
20 years. The Company believes its relationships with its employees and union
representatives is satisfactory.
TRAINING, QUALITY ASSURANCE AND SAFETY
Performance of the Company's services requires the use of equipment and
exposure to conditions that can be dangerous. Although the Company is
committed to a policy of operating safely and prudently, the Company has been
and is subject to claims by employees, customers and third parties for
property damage and personal injuries resulting from performance of the
Company's services. The Company performs on-site services using employees who
have completed applicable Company safety and training programs. The Company's
policies require that employees complete a prescribed training and service
program with the Company in addition to those required by NECA and the IBEW
prior to performing more sophisticated and technical jobs. For example, all
journeymen linemen are required by the IBEW and NECA to complete a minimum of
8,000 hours of on-the-job training, approximately 200 hours of classroom
education and extensive testing and certification. The Company requires
additional training, depending upon the sophistication and technical
requirements of each particular job. Following completion of the Offering,
management intends to establish Company-wide training and educational
programs, as well as comprehensive safety policies and regulations, by sharing
"best practices" throughout its operations.
EQUIPMENT AND FACILITIES
The Company operates a fleet of owned and leased trucks and trailers,
support vehicles and specialty construction equipment, such as backhoes,
excavators, trenchers, generators, boring machines, cranes and wire pullers
and tensioners. The total size of the rolling-stock fleet approximates 2,600
units. Most of this fleet is serviced by the Company's own mechanics who work
at various maintenance sites and facilities. The Company believes that these
vehicles generally are well maintained and adequate for its present
operations. Management believes that in the future it will be able to lease or
purchase this equipment at lower prices due to its larger size and the volume
of its leasing and purchasing activity.
After the consummation of the Offering, the Company expects to lease its
corporate headquarters in Houston, Texas. The Company operates 13 sites in
North Kansas City and Clinton, Missouri; South Bend, Indiana; Las Vegas and
Reno, Nevada; Topeka, Kansas; Des Moines, Iowa; Aurora and Englewood,
Colorado; El Cajon and Vacaville, California; and Sumner and Spokane,
Washington. This space is used for
38
<PAGE>
offices, warehousing, storage and vehicle shops. The Company owns some of the
facilities it occupies and leases others. The Company believes that its
facilities are sufficient for its current needs. See "Certain Transactions."
REGULATION
The Company's operations are subject to various federal, state and local
laws and regulations including (i) licensing requirements applicable to
electricians and engineers, (ii) building and electrical codes, (iii)
permitting and inspection requirements applicable to construction projects,
(iv) regulations relating to worker safety and environmental protection and
(v) special bidding and procurement requirements on government projects.
The Company believes that it has all the 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 and/or revocation of the Company's operating
licenses. Many state and local regulations governing electrical construction
require permits and licenses to be held by individuals who typically have
passed an examination or met other requirements. 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 are held by at least
two Company employees.
COMPETITION
The markets in which the Company operates are highly competitive, requiring
substantial resources and skilled and experienced personnel. The Company
competes with other independent contractors in most of the markets in which it
operates, several of which are large domestic companies that have greater
financial, technical and marketing resources than the Company. In addition,
there are relatively few, if any, barriers to entry into the markets in which
the Company operates and, as a result, any organization that has adequate
financial resources and access to technical expertise may become a competitor
to the Company. A significant portion of the Company's revenues are currently
derived from master service agreements and price is often an important factor
in the award of such agreements. Accordingly, the Company could be outbid by
its competitors in an effort to procure such business. There can be no
assurance that the Company's competitors will not develop the expertise,
experience and resources to provide services that are equal or superior in
both price and quality to the Company's services, or that the Company will be
able to maintain or enhance its competitive position. The Company may also
face competition from the in-house service organizations of its existing or
prospective customers, including electric utility and telecommunications
providers, which employ personnel who perform some of the same types of
services as those provided by the Company. Although a significant portion of
these services is currently outsourced, there can be no assurance that
existing or prospective customers of the Company will continue to outsource
services in the future.
RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS
The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. The Company maintains automobile and
general liability insurance for third party bodily injury and property damage
and workers' compensation coverage which it considers sufficient to insure
against these risks, subject to self-insured amounts. After the consummation
of the Offering, the Company intends to consolidate the purchase of insurance,
which management believes will result in savings from the amounts paid by the
Founding Companies prior to the Acquisitions.
Contracts in the electrical contracting industry may require performance
bonds or other means of financial assurance to secure contractual performance.
If the Company were unable to obtain surety bonds or letters of credit in
sufficient amounts or at acceptable rates, it may be precluded from entering
into additional contracts with certain of its customers.
39
<PAGE>
LEGAL PROCEEDINGS
The Company is, from to time, a party to litigation or administrative
proceedings that arise in the normal course of its business. The Company does
not have pending any litigation that, separately or in the aggregate, if
adversely determined, would have a material adverse effect on the Company's
results of operations or financial condition.
40
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain 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
---- --- --------
<C> <C> <S>
John R. Colson*....................... 50 Chief Executive Officer, Director
James H. Haddox....................... 49 Chief Financial Officer
Derrick A. Jensen..................... 27 Vice President and Controller
John R. Wilson*....................... 47 President of PAR, Director
Vice President of Union Power,
Timothy A. Soule*..................... 50 Director
Vice President of TRANS TECH,
John A. Martell*...................... 42 Director
Gary A. Tucci*........................ 41 President of Potelco, Director
Vincent D. Foster..................... 41 Director
Rodney R. Proto*...................... 48 Director
Michael T. Willis*.................... 52 Director
Ronald W. Soule....................... 53 President of Union Power
Robert J. Urbanski.................... 46 President of TRANS TECH
</TABLE>
- --------
* Election as a director of the Company effective upon the consummation of the
Offering.
John R. Colson was elected Chief Executive Officer of the Company in December
1997 and will become a director of the Company effective upon the consummation
of the Offering. He joined PAR in 1971 and became President in 1991. He is
currently a member of the Council of Industrial Relations, governor of the
Missouri Valley chapter of NECA and a director of the Missouri Valley Line
Apprenticeship Program.
James H. Haddox has been Chief Financial Officer of the Company since
November 1997. From March 1996 until joining the Company, Mr. Haddox was Senior
Vice President--Finance of Corporate Express Delivery Systems, Inc., a national
provider of same day delivery services. From January 1994 to March 1996, Mr.
Haddox held various positions, including Chief Accounting Officer and Vice
President-- Finance, with U.S. Delivery Systems, Inc., a NYSE listed company
which was the largest provider of sameday delivery services in the U.S. prior
to its merger with Corporate Express, Inc. in March 1996. From 1991 to 1994 Mr.
Haddox was an independent business consultant providing management services.
From 1987 to 1991, Mr. Haddox held various financial positions, including Chief
Financial Officer and Chief Accounting Officer, at Allwaste, Inc., a NYSE
listed national environmental services company. Mr. Haddox is a Certified
Public Accountant.
Derrick A. Jensen has been Vice President and Controller of the Company since
December 1997. Prior to joining the Company, he was employed by Arthur Andersen
LLP ("Arthur Andersen"), serving most recently as audit manager focusing on
clients in consolidating industries.
John R. Wilson was elected President of PAR in 1997. He joined PAR in 1977
and became an Executive Vice President in 1991. Mr. Wilson will become a
director of the Company effective upon the consummation of the Offering.
Timothy A. Soule joined Union Power in 1972 and became Vice President in
1975. He is also a member of the Board of Trustees for the joint NECA/IBEW Line
Construction Benefit Fund, Union Power's representative to the Rocky Mountain
Electrical League, and a member of the Board of Directors of Power and
Communication Contractors Association. Mr. Soule will become a director of the
Company effective upon the consummation of the Offering.
41
<PAGE>
John A. Martell founded TRANS TECH in 1983 and serves as Vice President. He
is currently a member of the National Fire Protection Association and the
Illuminating Engineering Society. Mr. Martell is a Registered Professional
Engineer. Mr. Martell will become a director of the Company effective upon the
consummation of the Offering.
Gary A. Tucci joined Potelco in 1975 and became President in 1988. He is a
member of the Joint IBEW/NECA Apprenticeship and Training Committee as well as
the labor relations board. Mr. Tucci will become a director of the Company
effective upon the consummation of the Offering.
Vincent D. Foster has been a director of the Company since November 1997 and
will become non-executive Chairman of the Board upon consummation of the
Offering. Mr. Foster is a Managing Director of Main Street Merchant Partners
II, L.P., a merchant banking firm which is a principal stockholder of the
Company. From September 1988 through October 1997, Mr. Foster was a partner of
Andersen Worldwide and Arthur Andersen. Mr. Foster was the Director of the
Corporate Finance and Mergers and Acquisitions practices of Arthur Andersen
for the southwestern U.S., specializing in structuring and executing "roll-up"
transactions and in providing merger and acquisition and corporate finance
advisory services to clients in consolidating industries. Mr. Foster holds a
J.D. degree and is a Certified Public Accountant.
Rodney R. Proto has been President, Chief Operating Officer and a director
of USA Waste Services, Inc. ("USA Waste"), the third largest solid waste
services company in North America, since August 1996. Prior thereto, he was
President, Chief Operating Officer and a director of Sanifill, Inc.
("Sanifill") a solid waste management company acquired by USA Waste in August
1996. Mr. Proto joined Sanifill in February 1992. Before joining Sanifill, he
was employed by Browning-Ferris Industries, Inc. for 12 years where he served,
among other positions, as Chairman of BFI Overseas from 1985 to 1987 and
President of Browning-Ferris Industries Europe, Inc. from 1987 through 1991.
Mr. Proto will become a director of the Company effective upon the
consummation of the Offering.
Michael T. Willis is Chairman of the Board, Chief Executive Officer and
President of CoreStaff, Inc. ("CoreStaff"), one of the largest information
technology and staffing companies in the U.S. Prior to founding CoreStaff in
1993, Mr. Willis served as Chief Executive Officer and President of The Talent
Tree Corporation ("Talent Tree"), which he founded in 1976 and built into one
of the largest temporary services companies in the U.S. Mr. Willis sold Talent
Tree to Hestair plc in 1987 and then continued as President and Chief
Executive Officer until April 1993. Mr. Willis is also a director of the
Southwest Bank of Texas, a publicly-traded financial institution. Mr. Willis
will become a director of the Company effective upon the consummation of the
Offering.
Ronald W. Soule joined Union Power in 1963 and became President in 1987. He
is a member of the Board of Directors of the Colorado NECA/IBEW Negotiation
Committee, the Western Line Constructors Chapter of NECA, and the Mountain
States Joint Apprenticeship and Training Committee. He is also Union Power's
representative to NECA and the Past President of Western Line Constructors
Chapter of NECA.
Robert J. Urbanski founded TRANS TECH in 1983 and serves as President. He is
a member of the Institute of Transportation Engineers and the International
Municipal Sign Association.
Upon consummation of the Offering, the Board of Directors of the Company
shall consist of eight members. The Bylaws of the Company permit the Board of
Directors to increase the size of the Board. Each director will serve a one-
year term. At each annual meeting of stockholders, all except one of the
directors will be elected by the holders of the Common Stock and one director
will be elected by the holders of the Limited Vote Common Stock.
The Board of Directors has established an Audit Committee and a Compensation
Committee. The members of these committees will be determined following
consummation of the Offering.
42
<PAGE>
DIRECTORS' COMPENSATION
Directors who also are employees of the Company or any of its subsidiaries
will not receive additional compensation for serving as directors. Each
director who is not an employee of the Company or any of its subsidiaries will
receive a fee of $1,000 for attendance at each meeting of the Board of
Directors or any committee thereof (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 the committees thereof, and for other expenses reasonably
incurred in their capacity as directors of the Company. Each non-employee
director will receive an option to purchase 10,000 shares of Common Stock upon
such person's initial election to the Board of Directors and an annual grant
of an option to purchase 5,000 shares of Common Stock at each annual meeting
of the Company's stockholders thereafter at which such director is re-elected
or remains a director. See "--1997 Stock Option Plan."
EXECUTIVE COMPENSATION
The Company was incorporated in August 1997 and has not conducted any
operations other than those 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 $150,000
for each executive officer. As part of Mr. Haddox's employment arrangement
with the Company, he purchased 100,000 shares of Limited Vote Common Stock for
nominal consideration and will receive an option under the 1997 Stock Option
Plan to purchase 125,000 shares of Common Stock at the initial public offering
price. As part of Mr. Jensen's employment arrangement with the Company, he
purchased 37,500 shares of Limited Vote Common Stock for nominal consideration
and will receive an option under the 1997 Stock Option Plan to purchase 62,500
shares of Common Stock at the initial public offering price.
EMPLOYMENT AGREEMENTS
Upon consummation of the Offering, the Company will enter into an employment
agreement with each executive officer and certain key employees of the Company
that prohibits such individual from disclosing the Company's confidential
information and trade secrets and generally restricts these individuals from
competing with the Company for a period of five years after the date of the
individual's employment agreement. Each of the agreements has an initial term
of three years, provides for an automatic annual extension at the end of its
initial term and is terminable by the Company for "good cause" upon ten days'
written notice and without "good 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 "good cause," such officer
will be entitled to receive a lump-sum severance payment at the effective time
of termination equal to the officer's base salary at the rate then in effect
for the greater of (i) the time period remaining under the initial term of the
agreement or (ii) one year. In addition, all employment agreements provide
that in the event of termination without "good cause," the non-competition
provision will not apply for any time period in which the employee is not
receiving or has not received severance compensation.
The employment agreements contain certain provisions concerning a change-in-
control of the Company, including the following: (i) in the event five days'
advance notice of the transaction giving rise to the change-in-control is not
received by the Company and such officer, the change-in-control will be deemed
a termination of the employment agreement by the Company without "good cause,"
and the provisions of the employment agreement governing the same will apply,
except that the severance amount otherwise payable (discussed in the preceding
paragraph) shall be tripled and the provisions which restrict competition with
the Company shall not apply and (ii) the officer must be given sufficient time
and opportunity to elect whether to exercise all or any of his or her options
to purchase Common Stock, including any options with accelerated vesting under
the provisions of the 1997 Stock Option Plan, such that the officer may
acquire the Common Stock at or prior to the closing of the transaction giving
rise to the change-in-control, if he or she so desires.
43
<PAGE>
1997 STOCK OPTION PLAN
In December 1997, the Board of Directors adopted, and the stockholders of
the Company approved, the 1997 Stock Option Plan. The purpose of the 1997
Stock Option Plan is to provide directors, key employees, officers and certain
advisors with additional incentives by increasing their proprietary interest
in the Company. The aggregate amount of Common Stock of the Company with
respect to which options may be granted may not exceed the greater of
2,380,850 shares or 15% of the outstanding shares of Common Stock.
The 1997 Stock Option Plan provides for the grant of incentive stock options
("ISOs") as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and nonqualified stock options (collectively, the
"Awards"). The amount of ISOs that may be granted under the 1997 Stock Option
Plan is limited to 2,380,850 shares. The 1997 Stock Option Plan is
administered by the Compensation Committee of the Board of Directors. The
Compensation Committee has, subject to the terms of the 1997 Stock Option
Plan, the sole authority to grant Awards under the 1997 Stock Option Plan, to
construe and interpret the 1997 Stock Option Plan, and to make all other
determinations and take any and all actions necessary or advisable for the
administration of the 1997 Stock Option Plan.
All of the Company's employees, nonemployee directors, officers and advisors
are eligible to receive Awards under the 1997 Stock Option Plan, but only
employees of the Company are eligible to receive ISOs. Options will be
exercisable during the period specified in each option agreement and will
generally become exercisable in installments pursuant to a vesting schedule
designated by the Compensation Committee. In the discretion of the
Compensation Committee, option agreements may provide that options will become
immediately exercisable in the event of a "change in control" (as defined in
the 1997 Stock Option Plan) of the Company. No ISO will remain exercisable
later than ten years after the date of grant (or five years in the case of
ISOs granted to employees owning more than 10% of the voting capital stock).
The Company expects to have outstanding options to purchase up to a total of
1,500,000 shares of Common Stock issued pursuant to the 1997 Stock Option Plan
following the Offering at an exercise price equal to or greater than the
initial public offering price.
The 1997 Stock Option Plan also provides for automatic option grants to
directors who are not otherwise employed by the Company or its subsidiaries.
Upon commencement of service, a non-employee director will receive a non-
qualified option to purchase 10,000 shares of Common Stock, and each
continuing non-employee director annually will receive an option to purchase
5,000 shares of Common Stock. Options granted to non-employee directors are
fully exercisable following the expiration of six months from the date of
grant.
The exercise price for ISOs granted under the 1997 Stock Option Plan may be
no less than the fair market value of a share of the Common Stock on the date
of grant (or 110% in the case of ISOs granted to employees owning more than
10% of the voting capital stock).
44
<PAGE>
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
Quanta was initially capitalized in August 1997 by a group of investors,
including Midwest Acquisition Support, LLC, Kevin D. Miller, Steven P. Colmar,
and William G. Parkhouse, an advisory director of the Company, who
collectively have acted as co-founders of Quanta and paid nominal cash
consideration for 1,693,779 shares of Limited Vote Common Stock. In September
1997, a corporation affiliated with this group agreed to advance up to
$125,000 to the Company in consideration for receiving, at the closing of the
Offering, a number of shares of Limited Vote Common Stock equal to $375,000
divided by the Offering price per share. In addition, in November 1997 Main
Street purchased 1,551,554 shares of Limited Vote Common Stock for nominal
cash consideration (both Main Street and the group of investors described
above, the "Initial Stockholders"). The Limited Vote Common Stock held by the
Initial Stockholders includes approximately 170,000 shares of Limited Vote
Common Stock held for the benefit of certain members of management, investors
in the corporation referred to above and certain consultants. The Initial
Stockholders disclaim beneficial ownership of these 170,000 shares. Since
November 1997, Main Street has advanced funds to Quanta to enable Quanta to
pay various expenses incurred in connection with its efforts to complete the
Acquisitions and consummate the Offering. All of Main Street's advances will
be repaid from the net proceeds of the Offering.
Simultaneously with the closing of the Offering, Quanta will acquire all of
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 Acquisition Consideration consists of (i)
an estimated $21.0 million in cash and (ii) 7,527,000 shares of Common Stock.
The following table sets forth for each Founding Company the approximate
consideration to be paid by Quanta to the stockholders of the Founding
Companies (i) in cash and (ii) in shares of Common Stock.
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
----------- ------------
<S> <C> <C>
PAR.................................................... $ 8,370,000 3,000,000
Union Power............................................ 5,348,430 1,917,000
TRANS TECH............................................. 4,362,862 1,563,750
Potelco................................................ 2,919,038 1,046,250
----------- ---------
Total................................................ $21,000,330 7,527,000
=========== =========
</TABLE>
In addition, immediately prior to consummation of the Acquisitions, the
Founding Companies will make the S Corporation Distributions of approximately
$7.8 million in the aggregate. Prior to consummation of the Acquisitions, the
Founding Companies will also transfer, for cash consideration in an amount
equal to their respective book values, certain non-operating assets with an
aggregate net book value of approximately $0.9 million.
The consummation of each Acquisition is subject to customary conditions.
These conditions include, among others, the accuracy on the closing date of
the Acquisitions of the representations and warranties of the Founding
Companies, their stockholders and of the Company, the performance by each of
the parties of their respective covenants and the absence of a material
adverse change in the business, results of operations or financial condition
of any of the Founding Companies.
The agreements relating to the Acquisitions may be terminated under certain
circumstances prior to the consummation of the Offering. Specifically, the
agreements may be terminated (i) by the mutual consent of the board of
directors of the Company and each Founding Company; (ii) if the Offering and
the Acquisitions are not consummated by June 1, 1998; or (iii) if a material
breach or default under the agreements shall exist and is not cured or waived.
There can be no assurance that the conditions to the
45
<PAGE>
closing of the Acquisitions will be satisfied or waived or that the agreements
relating to the Acquisitions will not be terminated prior to the closing.
However, if the Acquisitions are not completed, the Offering will not be
completed.
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 five years commencing on the date of closing of the Acquisitions.
Individuals who are or will become executive officers or directors of the
Company will receive the following consideration in the Acquisitions for their
interests in the Founding Companies, subject to adjustments as described
above.
<TABLE>
<CAPTION>
SHARES OF
CASH(1) COMMON STOCK
---------- ------------
<S> <C> <C>
PAR
John R. Colson........................................ $5,859,000 2,100,000
John R. Wilson........................................ 2,511,000 900,000
Union Power
Timothy A. Soule...................................... 935,975 335,475
TRANS TECH
John A. Martell....................................... 2,181,430 781,875
Potelco
Gary A. Tucci......................................... 2,919,038 1,046,250
</TABLE>
- --------
(1) Excludes distributions representing previously taxed S Corporation
earnings to be made to S Corporation stockholders. The anticipated amount
of such distributions to the former owners of the Founding Companies
aggregates approximately $7.8 million.
TRANSACTIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS
Certain stockholders of certain of the Founding Companies who will become
directors, executive officers or key employees of the Company upon
consummation of the Offering have guaranteed indebtedness, performance bonds
and other obligations of each of their respective Founding Companies. These
guarantees are expected to be terminated within 90 days following the
completion of the Offering.
Prior to consummation of the Offering, the stockholders of Union Power will
purchase certain non-operating assets from that company at a price equal to
the book value of such assets, estimated to be $183,000 in the aggregate.
Prior to consummation of the Offering, the stockholders of PAR will purchase
certain non-operating assets from that company at a price equal to the book
value of such assets, estimated to be $742,000 in the aggregate.
Union Power leases its main office facilities located in Englewood, Colorado
from Soule Trusts Partnership, which is controlled by affiliates of Ronald and
Timothy Soule, and a branch facility located in North Las Vegas, Nevada from
RTS Partnership, which is owned by Ronald and Timothy Soule. Ronald and
Timothy Soule are President and Vice President of Union Power, respectively,
and Timothy Soule will become a director of the Company upon consummation of
the Offering. The Englewood office lease provides for a five-year term that
will terminate in the year 2002 with an option to renew the lease for a five-
year term, and covers approximately 3,500 square feet of office space on 4.8
acres, at a monthly rental rate of $3,500. The North Las Vegas office lease
will terminate on May 31, 2006 with provision for automatic 1-year renewal
periods. Such lease covers 2.69 acres and the leasehold improvements located
on such land for a monthly rent rate of $4,700. In addition, Union Power will
lease two directional drilling rigs from Mountain Drilling Equipment Co.,
which is owned by Ronald and Timothy Soule. The equipment
46
<PAGE>
lease with Mountain Drilling Equipment Co. provides for a one-year term which
will terminate on August 1, 1998, and a monthly rental rate of $8,000. The
Company believes that the economic terms of these leases do not exceed fair
market value.
Following the Acquisitions, Potelco will enter into written leases for its
main office with the father of Gary A. Tucci and for another office in
Washington with Gary A. Tucci, who will remain as President of Potelco and
will become a director of the Company upon consummation of the Offering.
Currently, both leases are oral and on a month to month basis. The main office
lease is for a 15,000 square foot building on five acres, at a rent of $2,000
per month. The other lease is for a 2,200 square foot office with a 6,000
square foot maintenance facility on 1.5 acres, at a rent of $2,800 per month.
The Company believes that the economic terms of these leases do not exceed
fair market value.
Following the Acquisitions, TRANS TECH will lease its main office from TRANS
TECH Properties, which is partially owned by Robert J. Urbanski and John A.
Martell, who are President and Vice President of TRANS TECH, respectively.
Additionally, Mr. Martell will become a director of the Company upon
consummation of the Offering. The main office of TRANS TECH is located in
South Bend, Indiana, and the facilities consist of approximately 7.5 acres of
real property, a 4,350 square foot office attached to a 10,560 square foot
heated warehouse, a 3,480 square foot detached unheated warehouse and a 3,000
square foot detached vehicle maintenance facility, at a rent of $5,900 per
month for the first five years of the lease and $6,500 per month for the last
five years of the lease, plus the payment of all taxes, insurance and
maintenance on the property. The lease term expires on January 31, 2008. The
Company believes that the economic terms of this lease do not exceed fair
market value.
Union Power has notes outstanding to various affiliates in the aggregate
amount of approximately $460,000. The Company intends to use a portion of the
proceeds of the Offering to repay these notes.
Potelco owes approximately $1.1 million to its sole stockholder and his
father pursuant to a promissory note and other arrangements. The Company
intends to use a portion of the proceeds of the Offering to repay this
indebtedness.
Following completion of the Offering, the Company may repay up to $17.6
million of the Founding Companies' outstanding debt, although the exact amount
and specific debt to be repaid has not been determined at this time.
COMPANY POLICY
In the future, any transactions with directors, officers, employees or
affiliates of the Company are anticipated to be minimal and will, in any case,
be approved by a majority of the Board of Directors, including a majority of
disinterested members of the Board of Directors.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's voting capital stock by (i) each person
known by the Company to be a beneficial owner of more than 5% of any class of
the Company's voting capital stock, (ii) each director, nominee for director,
person who has consented to be named as a director ("named directors") and
executive officer of the Company and (iii) all directors, director nominees,
and executive officers of the Company as a group. Except as otherwise indicated
below, the persons named in the table have advised the Company that they have
sole voting and investment power with respect to the shares of capital stock
shown as beneficially owned by them. Unless otherwise indicated, each person or
group has sole voting and investment power with respect to all such shares.
Unless otherwise indicated, the number of shares and percentage of ownership of
Common Stock for each of the named stockholders, directors and executive
officers assumes that shares of Common Stock that the stockholders directors
and executive officers may acquire within 60 days are outstanding.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY
OWNED
SHARES -----------------
BENEFICIALLY PRIOR TO AFTER
NAME OWNED OFFERING OFFERING
- ---- ------------ -------- --------
<S> <C> <C> <C>
John R. Colson(1).............................. 2,100,000 15.7% 13.2%
Main Street Merchant Partners II, L.P.......... 1,472,191(a) 11.0 9.3
Vincent D. Foster(2)........................... 1,472,191(a) 11.0 9.3
Gary A. Tucci(3)............................... 1,046,250 7.8 6.6
John R. Wilson(4).............................. 900,000 6.7 5.7
John A. Martell(5)............................. 781,875 5.8 4.9
Timothy A. Soule(6)............................ 335,475 2.5 2.1
James H. Haddox(1)............................. 100,000(a) * *
Derrick A. Jensen(1)........................... 37,500(a) * *
Rodney R. Proto(1)............................. -- -- --
Michael T. Willis(1)........................... -- -- --
All directors, director nominees and executive
officers as a group
(9 persons)(7)................................ 6,773,291 62.3 42.7
</TABLE>
- --------
* Less than 1%.
(a) Consists entirely of Limited Vote Common Stock. See "Description of Capital
Stock" for a description of the Limited Vote Common Stock.
(1) The address for Messrs. Colson, Proto, Haddox, Jensen and Willis is 3555
Timmons Lane, Suite 610, Houston, Texas 77027.
(2) Includes 1,472,191 shares issued to Main Street. Mr. Foster is a Managing
Director of Main Street. The address for Main Street and Mr. Foster is 1360
Post Oak Blvd., Suite 800, Houston, Texas 77056.
(3) The address for Mr. Tucci is 14103 Eight Street East, Sumner, Washington
98390.
(4) The address for Mr. Wilson is 1440 Iron Street, P.O. Box 12520, North
Kansas City, Missouri 64116.
(5) The address for Mr. Martell is 4601 Cleveland Road, P.O. Box 3915, South
Bend, Indiana 46619. Includes 174,310 shares owned by trusts for the
benefit of minor children of Mr. Martell, of which he disclaims beneficial
ownership.
(6) The address for Mr. Soule is 2045 W. Union Avenue, Englewood, Colorado
80110.
(7) Includes 1,609,691 shares of Limited Vote Common Stock.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering, the authorized capital stock of the Company
will consist of 40,000,000 shares of Common Stock, par value $.00001 per
share, including 3,345,333 shares of Limited Vote Common Stock. The Company
has also authorized the issuance of 10,000,000 shares of Preferred Stock, par
value $.00001 per share ("Preferred Stock"). The following discussion is
qualified in its entirety by reference to the Amended and Restated Certificate
of Incorporation of the Company, which is included as an exhibit to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK AND LIMITED VOTE 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 the directors standing for election.
Holders of Limited Vote Common Stock, voting together as a single class, are
entitled to elect one director. Holders of Limited Vote Common Stock are not
entitled to vote on the election of any other directors. Only the holders of
the Limited Vote Common Stock may remove the director such holders are
entitled to elect. Holders of Limited Vote Common Stock are entitled to 0.10
of one vote for each share held on all other matters on which they are
entitled to vote.
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock and Limited Vote 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 Limited Vote 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
Limited Vote 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 Limited Vote Common Stock are not subject to any redemption
provisions and are convertible into Common Stock as described below.
Each share of Limited Vote 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 Limited Vote 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.
The Company has made application to list the Common Stock on the NYSE.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the 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, exchange 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
49
<PAGE>
any class or series of the Preferred Stock, in each case without any further
action or vote by the holders of Common Stock.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might
impede a business combination by including class voting rights that would
enable the holders to block such a transaction; or such issuance might
facilitate a business combination by including voting rights that would
provide a required percentage vote of the stockholders. In addition, under
certain circumstances, the issuance of Preferred Stock could adversely affect
the voting power of the holders of the Common Stock. Although the Board of
Directors is required to make any determination to issue such stock based on
its judgment as to the best interests of the stockholders of the Company, the
Board of Directors could act in a manner that would discourage an acquisition
attempt or other transaction that some or a majority of the stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then-market price of such stock. The Board of
Directors does not at present intend to seek stockholder approval prior to any
issuance of currently authorized stock, unless otherwise required by law or
the rules of any market on which the Company's securities are traded.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents a Delaware corporation from engaging in
a "business combination" (as defined) with an "interested stockholder"
(defined generally as a person owning 15% or more of a corporation's
outstanding voting stock or affiliate or associate) for three years following
the time such stockholder became an interested stockholder unless (i) before
such person became an interested stockholder, the board of directors of the
corporation approved the business combination or the transaction in which the
interested stockholder became an interested stockholder, (ii) upon
consummation of the transaction which resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer) or (iii) at or subsequent
to the time such person became an interested stockholder, the business
combination was approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. Under Section 203, the restrictions described above
also do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became
an interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
LIMITATION ON DIRECTORS' LIABILITY
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care.
50
<PAGE>
Delaware law enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The Amended and Restated
Certificate of Incorporation limits the liability of directors of the Company
to the Company or its stockholders to the fullest extent permitted by Delaware
law. Specifically, directors of the Company will not be personally liable to
the Company or its stockholders for monetary damages for breach of a
director's fiduciary duty as a director, except for liability for breach of
the duty of loyalty, for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the DGCL or for any transaction in which a director has derived an
improper personal benefit.
The Amended and Restated Certificate of Incorporation provides that each
officer and director of the Company will be indemnified and held harmless, to
the fullest extent permitted by Delaware law (as amended from time to time),
against all expenses, liabilities and losses reasonably suffered in connection
with any action, suit or proceeding by reason of the fact that he or she is or
was a director or officer of the Company or, while being at the time a
director or officer of the Company, is or was serving at the request of the
Company as a director, trustee, officer, employee or agent of another entity.
The Company is not, however, permitted to indemnify any person in connection
with a proceeding initiated by that person unless such proceeding was
authorized by the Board of Directors. The Bylaws also provide for mandatory
advancement of expenses of officers and directors incurred in defending any
covered proceeding in advance of its final disposition.
The inclusion of these provisions in the Amended and Restated Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefitted the Company and its stockholders. The Company's Bylaws provide
indemnification to the Company's officers and directors and certain other
persons with respect to certain matters.
OTHER MATTERS
The Amended and Restated Certificate of Incorporation provides that the
number of directors shall be as determined by the Board of Directors from time
to time, but shall be at least one and not more than nineteen. It also
provides that directors may be removed only for cause, and then only by the
affirmative vote of the holders of at least a majority of all outstanding
voting stock entitled to vote. This provision, in conjunction with the
provision of the Bylaws authorizing the Board of Directors to fill vacant
directorships, will prevent stockholders from removing incumbent directors
without cause and filling the resulting vacancies with their own nominees.
The Amended and Restated Certificate of Incorporation provides that upon
consummation of the Offering stockholders may act only at an annual or special
meeting of stockholders and may not act by written consent. The Amended and
Restated Certificate of Incorporation provides that special meetings of the
stockholders can be called only by the Chairman of the Board pursuant to a
resolution approved by a majority of the whole Board of Directors.
STOCKHOLDER PROPOSALS
The Company's Bylaws contain provisions (i) requiring that advance notice be
delivered to the Company of any business to be brought by a stockholder before
an annual meeting of stockholders and (ii) establishing certain procedures to
be followed by stockholders in nominating persons for election to the Board of
Directors. Generally, such advance notice provisions provide that written
notice must be given to the Secretary of the Company by a stockholder (a) in
the event of business to be brought by a stockholder before, (i) an annual
meeting, not less than 90 nor more than 180 days prior to the earlier of the
date of the meeting or the anniversary date of the immediately preceding
annual meeting of stockholders and (ii) a special meeting, not less than 40
nor more than 60 days prior to the date of such
51
<PAGE>
meeting of stockholders (with certain exceptions if less than 50 days notice or
prior public disclosure of the date of the special meeting is given to
stockholders) and (b) in the event of nominations of persons for election to
the Board of Directors by any stockholder, (i) with respect to an election to
be held at the annual meeting of stockholders, not less than 90 days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders, and (ii) with respect to an election to be held at a special
meeting of stockholders for the election of directors, not later than the close
of business on the 10th day following the day on which notice of the date of
the special meeting was mailed to stockholders or public disclosure of the date
of the special meeting was made, whichever first occurs. Such notice must set
forth specific information regarding such stockholder and such business or
director nominee, as described in the Company's Bylaws. The foregoing summary
is qualified in its entirety by reference to the Company's Bylaws, which are
included as an exhibit to the Registration Statement of which this Prospectus
is a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Acquisitions and completion of the Offering, the
Company will have outstanding 15,872,333 shares of Common Stock (16,622,333 if
the Underwriters' over-allotment option is exercised in full) of which the
5,000,000 shares sold in the Offering (5,750,000 if the Underwriters' over-
allotment option is exercised in full) will be freely tradable without
restriction or further registration under the Securities Act, except for those
held by "affiliates" (as defined in the Securities Act) of the Company, which
shares will be subject to the resale limitations of Rule 144 under the
Securities Act. The remaining 10,872,333 shares of Common Stock are deemed
"restricted securities" under Rule 144 in that they were originally issued and
sold by the Company in private transactions in reliance upon exemptions under
the Securities Act, and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 promulgated under the
Securities Act as described below.
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of restricted
securities from the issuer or from an affiliate of the issuer, the acquiror or
subsequent holder would be entitled to sell within any three-month period a
number of those shares that does not exceed the greater of one percent of the
number of shares of such class of stock then outstanding or the average weekly
trading volume of the shares of such class of stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information
about the issuer. In addition, if a period of at least two years has elapsed
since the later of the date of acquisition of restricted securities from the
issuer or from any affiliate of the issuer, and the acquiror or subsequent
holder thereof is deemed not to have been an affiliate of the issuer of such
restricted securities at any time during the 90 days preceding a sale, such
person would be entitled to sell such restricted securities under Rule 144(k)
without regard to the requirements described above. Rule 144 does not require
the same person to have held the securities for the applicable periods. The
foregoing summary of Rule 144 is not intended to be a complete description
thereof. The Securities and Exchange Commission (the "Commission") has
proposed certain amendments to Rule 144 that would, among other things,
eliminate the manner of sale requirements and revise the notice provisions of
that rule. The Commission has also solicited comments on other possible
changes to Rule 144, including possible revisions to the one- and two-year
holding periods and the volume limitations referred to above.
As of the closing of this Offering, options to purchase an aggregate of
1,500,000 shares of Common Stock are expected to be issued under the 1997
Stock Option Plan. In general, pursuant to 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, which
permit non-affiliates to sell such shares without compliance with the public
information, holding period, volume limitation or notice provisions of Rule
144, and permit affiliates to sell such shares without compliance with the
holding period provisions of Rule 144, in each case commencing 90 days after
the date of this Prospectus. In addition, the Company intends to file a
Registration Statement on Form S-8 covering the shares issuable upon exercise
of stock options that may be granted in the future under the 1997 Stock Option
Plan, in which case such shares of Common Stock generally will be freely
tradable by non-affiliates in the public market without restriction under the
Securities Act.
The Company, its executive officers, directors, current stockholders and
persons acquiring shares of common stock in connection with the Acquisitions
have agreed not to offer, sell, contract to sell, grant any option or other
right for the sale of, or otherwise dispose of any shares of Common Stock or
any securities, indebtedness or other rights exercisable for or convertible or
exchangeable into Common Stock owned or acquired in the future in any manner
for a period of two years following the date of this Prospectus (the "Lockup
Period") without the prior written consent of BT Alex. Brown Incorporated,
except that the Company may, subject to certain conditions, issue Common Stock
in connection with
53
<PAGE>
acquisitions, upon conversion of Limited Vote Common Stock into Common Stock
and may grant Awards (or Common Stock upon exercise of Awards) under the 1997
Stock Option Plan. See "Underwriting." These restrictions will be applicable
to any shares acquired by any of those persons in the Offering or otherwise
during the Lockup Period. In connection with the Acquisitions, the Company has
granted registration rights to stockholders of the Founding Companies in
connection with registrations of sales of Common Stock by the Company
following the Lockup Period (other than registrations in connection with
acquisitions and pursuant to employee benefit plans).
Prior to the Offering, there has been no established public market for the
Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144, or otherwise, or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time
after the Offering. The Company is unable to estimate the number of shares
that may be sold in the public market under Rule 144, or otherwise, because
such amount will depend on the trading volume in, and market price for, the
Common Stock and other factors. Nevertheless, sales of substantial amounts of
the Common Stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the Common Stock of the
Company and the Company's future ability to raise equity capital and complete
any additional acquisitions for Common Stock. See "Underwriting."
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
BT Alex. Brown Incorporated, BancAmerica Robertson Stephens and Sanders Morris
Mundy Inc. (together, the "Representatives"), have severally agreed to
purchase from the Company the following respective number of shares of Common
Stock at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
BT Alex. Brown Incorporated...........................................
BancAmerica Robertson Stephens........................................
Sanders Morris Mundy Inc..............................................
---------
Total............................................................... 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of Common Stock offered hereby if any of such
shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose 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 re-allow, a concession
not in excess of $ per share to certain other dealers. After commencement of
the initial public offering, the offering price and other selling terms may be
changed by the Representatives.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 750,000
additional shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it in the above table bears to 5,000,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters.
The Underwriters may exercise such option only to cover over-allotments made
in connection with the sale of the Common Stock offered
55
<PAGE>
hereby. If purchased, the Underwriters will offer such additional shares on the
same terms as those on which the 5,000,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company regarding certain liabilities,
including liabilities under the Securities Act.
To facilitate the Offering, the Underwriters may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Specifically, the Underwriters may over-allot shares of the Common Stock in
connection with the Offering, thereby creating a short position in the
Underwriters' syndicate account. Additionally, to cover such over-allotments or
to stabilize the market price of the Common Stock, the Underwriters may bid
for, and purchase, shares of the Common Stock in the open market. Any of these
activities may maintain the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. The Underwriters are not
required to engage in these activities, and, if commenced, any such activities
may be discontinued at any time. The Representatives, on behalf of the
Underwriters, also may reclaim selling concessions allowed to an Underwriter or
dealer, if the syndicate repurchases shares distributed by that Underwriter or
dealer.
The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period
of 180 days after the date of this Prospectus without the prior written consent
of BT Alex. Brown Incorporated, except for shares issued (i) in connection with
acquisitions, (ii) pursuant to the exercise of options granted under the 1997
Stock Option Plan and (iii) upon conversion of shares of Limited Vote Common
Stock. Further, the Company's directors, officers and certain stockholders who
beneficially own 10,872,333 shares in the aggregate have agreed not to directly
or indirectly sell or offer for sale or otherwise dispose of any Common Stock
for a period of two years after the date of this Prospectus without the prior
written consent of BT Alex. Brown Incorporated.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Two shareholders and directors of Sanders Morris Mundy Inc. are limited
partners in Main Street. The shares of Common Stock beneficially owned by these
two individuals represent less than 1% of the Common Stock to be outstanding
after the consummation of the Offering.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock has been
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations were prevailing market conditions,
the results of operations of the Founding Companies in recent periods, the
market capitalization and stages of development or other companies which the
Company and the Representatives believed to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant by the Company and the
Representatives.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Jackson Walker L.L.P., Dallas, Texas. Certain legal matters
in connection with the sale of the Common Stock offered hereby will be passed
upon for the Underwriters by Piper & Marbury L.L.P., Baltimore, Maryland.
56
<PAGE>
EXPERTS
The financial statements of Quanta and the Founding Companies, included in
this Prospectus and elsewhere in this 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.
The Common Stock issued in connection with the Acquisitions may not be sold
to the public and the holders of those shares are restricted from selling
those shares to the public for a period of at least two years after
consummation of the Acquisitions. An independent valuation study was rendered
to Quanta by Willamette Management Associates, Inc., independent appraisers,
to assist Quanta in determining the discount to be applied to the Common Stock
issued in connection with the Acquisitions and Limited Vote Common Stock in
reliance upon the authority of such firm as experts in rendering said
valuation study.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all exhibits, schedules and amendments relating thereto,
the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, filed 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. Statements contained in this
Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement accurately describes the material
provisions of such document and are qualified in their entirety by reference
to such exhibits for complete statements of their provisions. All of these
documents may be inspected without charge at the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following regional offices of the
Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies can also be obtained from the Public Reference Section of the
Commission at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Upon effectiveness of the Registration Statement, the Company will
become subject to the informational and periodic reporting requirements of the
Exchange Act, and in accordance therewith, will file periodic reports, proxy
statements, and other information with the Commission. Such periodic reports,
proxy statements, and other information will be available for inspection and
copying at the public reference facilities and other regional offices referred
to above. The Company intends to register the securities offered by the
Registration Statement under the Exchange Act simultaneously with the
effectiveness of the Registration Statement and to furnish its stockholders
with annual reports containing audited financial statements and such other
reports as may be required from time to time by law or the NYSE.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUANTA SERVICES, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements....... F-2
Unaudited Pro Forma Combined Balance Sheet.............................. F-3
Unaudited Pro Forma Combined Statements of Operations................... F-4
Notes to Unaudited Pro Forma Combined Financial Statements.............. F-6
PAR ELECTRICAL CONTRACTORS, INC.
Report of Independent Public Accountants................................ F-12
Balance Sheets.......................................................... F-13
Statements of Operations................................................ F-14
Statements of Cash Flows................................................ F-15
Statements of Shareholders' Equity...................................... F-16
Notes to Financial Statements........................................... F-17
QUANTA SERVICES, INC.
Report of Independent Public Accountants................................ F-26
Balance Sheet........................................................... F-27
Statement of Operations................................................. F-28
Statement of Stockholders' Equity....................................... F-29
Notes to Financial Statements........................................... F-30
FOUNDING COMPANIES
UNION POWER CONSTRUCTION COMPANY
Report of Independent Public Accountants................................ F-33
Balance Sheets.......................................................... F-34
Statements of Operations................................................ F-35
Statements of Cash Flows................................................ F-36
Statements of Stockholders' Equity...................................... F-37
Notes to Financial Statements........................................... F-38
TRANS TECH ELECTRIC, INC.
Report of Independent Public Accountants................................ F-46
Balance Sheets.......................................................... F-47
Statements of Operations................................................ F-48
Statements of Cash Flows................................................ F-49
Statements of Shareholders' Equity...................................... F-50
Notes to Financial Statements........................................... F-51
POTELCO, 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 Stockholder's Equity...................................... F-62
Notes to Financial Statements........................................... F-63
</TABLE>
F-1
<PAGE>
QUANTA 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 Quanta Services, Inc. (Quanta), of the outstanding
capital stock of PAR, TRANS TECH, Union Power and Potelco (together, the
Founding Companies), and related transactions and (ii) the Offering. The
acquisitions (the Acquisitions) will occur simultaneously with the closing of
Quanta's initial public offering (the Offering) and will be accounted for using
the purchase method of accounting. PAR has been identified as the accounting
acquiror for financial statement presentation purposes as its stockholders will
represent the largest stockholding interest within Quanta.
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and related transactions, and the Offering, as if they had
occurred on September 30, 1997. The unaudited pro forma combined statements of
operations give effect to these transactions as if they had occurred on January
1, 1996.
Quanta has preliminarily analyzed the savings that is 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, Quanta 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 Quanta'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 Quanta.
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 Quanta'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 Quanta'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-2
<PAGE>
QUANTA SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
TRANS UNION PRO FORMA FORMA POST MERGER AS
PAR POTELCO TECH POWER QUANTA ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
ASSETS ------- ------- ------- ------- ------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents........... $ 34 $ 280 $ 865 $ 74 $ 8 $ 874 $ 2,135 $ 340 $ 2,475
Accounts receivable.... 10,776 5,016 6,297 7,947 -- (651) 29,385 -- 29,385
Less -- Allowance...... 100 47 158 84 -- -- 389 -- 389
------- ------ ------- ------- ---- ------- -------- -------- --------
Accounts receivable,
net.................. 10,676 4,969 6,139 7,863 -- (651) 28,996 -- 28,996
Costs and profits
recognized in excess
of billings........... 1,218 975 4,320 361 -- -- 6,874 -- 6,874
Other receivables...... 148 -- -- -- -- -- 148 -- 148
Inventories............ -- -- 684 -- -- -- 684 -- 684
Prepaid expenses and
other................. 1,130 34 86 279 56 -- 1,585 (56) 1,529
------- ------ ------- ------- ---- ------- -------- -------- --------
Total current assets. 13,206 6,258 12,094 8,577 64 223 40,422 284 40,706
------- ------ ------- ------- ---- ------- -------- -------- --------
PROPERTY AND EQUIPMENT,
NET.................... 13,992 3,206 2,924 6,065 -- (925) 25,262 -- 25,262
OTHER ASSETS............ 240 -- 3 -- -- -- 243 -- 243
GOODWILL................ -- -- -- -- -- 59,915 59,915 -- 59,915
------- ------ ------- ------- ---- ------- -------- -------- --------
Total assets......... $27,438 $9,464 $15,021 $14,642 $ 64 $59,213 $125,842 $ 284 $126,126
======= ====== ======= ======= ==== ======= ======== ======== ========
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of
long-term debt........ $ 6,294 $1,653 $ 2,797 $ 1,138 $-- $ 7,816 $ 19,698 $(11,857) $ 7,841
Accounts payable and
accrued expenses...... 7,376 2,163 5,166 4,330 -- (651) 18,384 18,384
Payables to Founding
Company stockholders.. -- 254 -- -- 64 21,000 21,318 (21,318) --
Billings in excess of
costs and profits
recognized............ 85 74 173 163 -- -- 495 -- 495
------- ------ ------- ------- ---- ------- -------- -------- --------
Total current
liabilities......... $13,755 $4,144 $ 8,136 $ 5,631 $ 64 $28,165 $ 59,895 $(33,175) $ 26,720
------- ------ ------- ------- ---- ------- -------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt, net of
current maturities.... 2,008 1,382 981 1,076 -- (26) 5,421 (5,421) --
Deferred income taxes.. 2,224 -- -- 1,257 -- 788 4,269 -- 4,269
------- ------ ------- ------- ---- ------- -------- -------- --------
Total long-term
liabilities......... 4,232 1,382 981 2,333 -- 762 9,690 (5,421) 4,269
------- ------ ------- ------- ---- ------- -------- -------- --------
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock........... 50 -- 125 25 -- (200) -- -- --
Limited vote common
stock................. -- -- -- -- -- -- -- -- --
Addition paid-in
capital............... -- 160 -- -- -- 45,240 45,400 38,880 84,280
Unrealized loss on
securities............ -- -- -- (56) -- -- (56) -- (56)
Retained earnings...... 10,913 3,778 5,841 6,709 -- (16,328) 10,913 -- 10,913
Treasury stock......... (1,512) -- (62) -- -- 1,574 -- -- --
------- ------ ------- ------- ---- ------- -------- -------- --------
Total stockholders'
equity.............. 9,451 3,938 5,904 6,678 -- 30,286 56,257 $ 38,880 95,137
------- ------ ------- ------- ---- ------- -------- -------- --------
Total liabilities and
stockholders'
equity.............. $27,438 $9,464 $15,021 $14,642 $ 64 $59,213 $125,842 $ 284 $126,126
======= ====== ======= ======= ==== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
QUANTA SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TRANS UNION PRO FORMA
PAR POTELCO TECH POWER QUANTA ADJUSTMENTS TOTAL
------- ------- ------- ------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $42,684 $14,549 $24,414 $30,884 $ -- $(4,388) $108,143
COST OF SERVICES
(including
depreciation).......... 35,789 12,946 20,426 26,996 -- (4,388) 91,769
------- ------- ------- ------- ----- ------- --------
Gross profit.......... 6,895 1,603 3,988 3,888 -- -- 16,374
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 5,012 971 1,848 1,471 -- (908) 8,394
GOODWILL AMORTIZATION... -- -- -- -- -- 1,498 1,498
------- ------- ------- ------- ----- ------- --------
INCOME FROM OPERATIONS.. 1,883 632 2,140 2,417 -- (590) 6,482
OTHER INCOME (EXPENSE):
Interest expense...... (576) (321) (313) (33) -- 661 (582)
Other, net............ (70) (123) 45 166 -- 164 182
------- ------- ------- ------- ----- ------- --------
Other income
(expense), net....... (646) (444) (268) 133 -- 825 (400)
------- ------- ------- ------- ----- ------- --------
INCOME BEFORE INCOME TAX
EXPENSE................ 1,237 188 1,872 2,550 -- 235 6,082
PROVISION FOR INCOME
TAXES:................. 487 -- -- 451 -- 2,056 2,994
------- ------- ------- ------- ----- ------- --------
NET INCOME.............. $ 750 $ 188 $ 1,872 $ 2,099 $ -- $(1,821) $ 3,088
======= ======= ======= ======= ===== ======= ========
NET INCOME PER SHARE.... $ 0.20
========
SHARES USED IN COMPUTING
PRO FORMA INCOME PER
SHARE(1)............... 15,835
========
</TABLE>
- --------
(1) Includes (a) 3,345,333 shares issued to certain management personnel and
the initial stockholders of Quanta, (b) 7,527,000 shares issued to owners
of the Founding Companies and (c) 4,962,259 of the 5,000,000 shares sold
in the Offering to pay the cash portion of the Acquisition consideration,
expenses of the Offering and retirement of debt. The 37,741 shares
excluded reflect net cash to Quanta.
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
QUANTA SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TRANS UNION PRO FORM
PAR POTELCO TECH POWER QUANTA ADJUSTMENTS TOTAL
------- ------- ------- ------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $36,439 $13,248 $24,278 $37,202 $-- $(2,501) $108,666
COST OF SERVICES
(including
depreciation).......... 27,944 10,416 19,687 31,750 -- (2,501) 87,296
------- ------- ------- ------- ---- ------- --------
Gross profit............ 8,495 2,832 4,591 5,452 -- -- 21,370
SELLING, GENERAL AND
ADMINITRATIVE EXPENSES. 5,013 777 1,362 1,914 -- (1,773) 7,293
GOODWILL AMORTIZATION... -- -- -- -- -- 1,123 1,123
------- ------- ------- ------- ---- ------- --------
INCOME FROM OPERATIONS.. 3,482 2,055 3,229 3,538 -- 650 12,954
OTHER INCOME (EXPENSE):
Interest expense...... (470) (185) (232) (115) -- 508 (494)
Other, net............ (97) 20 38 230 -- 125 316
------- ------- ------- ------- ---- ------- --------
Other income
(expense), net....... (567) (165) (194) 115 -- 633 (178)
------- ------- ------- ------- ---- ------- --------
INCOME BEFORE INCOME TAX
EXPENSE................ 2,915 1,890 3,035 3,653 -- 1,283 12,776
PROVISION FOR INCOME
TAXES.................. 1,172 -- -- 1,461 -- 2,791 5,424
------- ------- ------- ------- ---- ------- --------
NET INCOME.............. $ 1,743 $ 1,890 $ 3,035 $ 2,192 $-- $(1,508) $ 7,352
======= ======= ======= ======= ==== ======= ========
NET INCOME PER SHARE.... $ 0.46
========
SHARES USED IN COMPUTING
PRO FORMA INCOME PER
SHARE(1)............... 15,835
========
</TABLE>
- --------
(1) Includes (a) 3,345,333 shares issued to certain management personnel and
the initial stockholders of Quanta, (b) 7,527,000 shares issued to owners
of the Founding Companies and (c) 4,962,259 of the 5,000,000 shares sold
in the Offering to pay the cash portion of the Acquisition consideration,
expenses of the Offering and retirement of debt. The 37,741 shares
excluded reflect net cash to Quanta.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
QUANTA SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
Quanta Services, Inc. (Quanta), was founded to create a leading provider of
specialty electrical contracting and maintenance services related to electric
and telecommunications infrastructure in North America. Quanta 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 September 30, 1997, and for
the year ended December 31, 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, Quanta
will acquire all of the outstanding capital stock of the Founding Companies.
The acquisitions will be accounted for using the purchase method of accounting
with PAR being reflected as the accounting acquiror as its stockholders will
represent the largest stockholding interest within Quanta.
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 (PAR). For purposes of
computing the estimated purchase price for accounting purposes, the value of
the shares was determined using an estimated fair value of $7.20 per share (or
$32.6 million), which is less than the estimated initial public offering price
of $9.00 per share due primarily to restrictions on the sale and
transferability of the shares issued. The total estimated purchase price of
$45.2 million for the acquisition is based upon preliminary estimates and is
subject to certain purchase price adjustments at and following closing. The
table does not reflect distributions totaling $7.8 million consisting of
certain Founding Companies' undistributed earnings previously taxed to their
stockholders (S Corporation Distributions) prior to the Acquisitions.
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
------- ------------
(IN THOUSANDS)
<S> <C> <C>
Potelco.............................................. $ 2,919 1,046
TRANS TECH........................................... 4,363 1,564
Union Power.......................................... 5,348 1,917
------- -----
Total.............................................. $12,630 4,527
======= =====
</TABLE>
Additionally, the Limited Vote Common Stock issued to the initial
stockholders and management has been accounted for by the Company as a
purchase transaction. For purposes of estimating the purchase price for
accounting purposes, the value of the shares was determined using an estimated
fair value of $6.75 per share (or $22.6 million) which is less than the
estimated initial public offering price of $9.00 per share due to restrictions
on the sale and transferability of the shares issued, and the limited vote
provisions applicable to such shares.
F-6
<PAGE>
QUANTA 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 $7.8 million, which is
expected to be distributed using new borrowings of $7.8 million.
(b) Records the liability for the cash portion of the consideration to be
paid to PAR, the accounting acquiror, and the merger of Quanta with
PAR.
(c) Records the transfer of certain net nonoperating assets to the Founding
Companies prior to the Acquisition at a price equal to the net book
value of such assets. Management believes that the historical carrying
value of such net nonoperating assets approximate fair value.
Additionally, reflects the elimination of payables and receivables
between PAR and Union Power.
(d) Records the purchase of the Founding Companies by Quanta consisting of
payables to Founding Company stockholders of $12.6 million (to reflect
the cash consideration payable to the Founders excluding PAR) and 4.53
million shares of Common Stock valued at $7.20 per share (or $32.6
million) for a total estimated purchase price of $45.2 million
resulting in excess purchase price of $37.3 million over the net assets
acquired of $7.9 million (see Note 2). Additionally, records the 3.3
million shares of Limited Vote Common Stock, issued to the sponsors and
management valued at $6.75 per share (or $22.6 million) resulting in
excess purchase price of $22.6 million over the net assets acquired.
Based on its initial assessment, management believes that the
historical carrying value of the Founding Companies' assets and
liabilities will approximate fair value and that there are no other
identifiable intangible assets to which any material purchase price can
be allocated.
The following reconciles the historical net assets of the Founding
Companies to the net assets acquired (in thousands):
<TABLE>
<CAPTION>
ACQUIRED
TOTAL LESS-- FOUNDING
COMBINED PAR COMPANIES
-------- -------- ---------
<S> <C> <C> <C>
Historical net assets..................... $25,183 (9,451) $15,732
S Corporation Distributions (as discussed
elsewhere herein)........................ (7,841) -- (7,841)
------- -------- -------
Net assets after transfers................ $17,342 $ (9,451) $ 7,891
======= ======== =======
</TABLE>
(e) Records the cash proceeds of $38.9 million from the issuance of shares
of Quanta Common Stock (based on an initial public offering price of
$9.00 per share) net of estimated offering costs of $6.1 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 $21.0 million in connection
with the Acquisitions and the expected repayment of outstanding short-
and long-term debt totaling $17.6 million.
F-7
<PAGE>
QUANTA SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes unaudited pro forma combined balance sheet
adjustments (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENT
---------------------------------- PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
ASSETS ------- -------- ------ ------- -----------
<S> <C> <C> <C> <C> <C>
Current assets--
Cash and cash equivalents.... $ -- $ -- $ 874 $ -- $ 874
Accounts receivable.......... -- -- (651) -- (651)
Prepaid expenses and other... -- -- -- -- --
------- -------- ------ ------- --------
Total current assets....... -- -- 223 -- 223
Property and equipment, net.... -- -- (925) -- (925)
Goodwill....................... -- -- -- 59,915 59,915
------- -------- ------ ------- --------
Total assets............... $ -- $ -- $ (702) $59,915 $ 59,213
======= ======== ====== ======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
<S> <C> <C> <C> <C> <C>
Current liabilities--
Current maturities of long-
term debt................... $ 7,841 $ -- $ (25) $ -- $ 7,816
Accounts payable and accrued
expenses.................... -- -- (651) -- (651)
Payables to Founding Company
stockholders................ -- 8,370 -- 12,630 21,000
------- -------- ------ ------- --------
Total current liabilities.. 7,841 8,370 (676) 12,630 28,165
Long-term debt, net of current
maturities.................... -- -- (26) -- (26)
Deferred income taxes.......... -- -- -- 788 788
------- -------- ------ ------- --------
Total liabilities.......... 7,841 8,370 (702) 13,418 28,927
Stockholders' equity--
Common stock................. -- (20) -- (121) (141)
Limited vote common stock.... -- -- -- 33 33
Additional paid-in capital... -- (9,862) -- 54,993 45,131
Retained earnings............ (7,841) -- -- (8,470) (16,311)
Treasury stock............... -- 1,512 -- 62 1,574
------- -------- ------ ------- --------
Total stockholders' equity. (7,841) (8,370) -- 46,497 30,286
------- -------- ------ ------- --------
Total liabilities and
stockholders' equity...... $ -- $ -- $ (702) $59,915 $ 59,213
======= ======== ====== ======= ========
</TABLE>
F-8
<PAGE>
QUANTA SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
ADJUSTMENT
---------------- POST MERGER
(E) (F) ADJUSTMENTS
ASSETS --- -------- -----------
<S> <C> <C> <C>
Current assets--
Cash and cash equivalents....................... $38,936 $(38,596) $ 340
Prepaid expenses and other...................... -- (56) (56)
------- -------- --------
Total current assets.......................... 38,936 (38,652) 284
------- -------- --------
Total assets.................................. $38,936 $(38,652) $ 284
======= ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities--
Current maturities of long-term debt............ $ -- $(11,857) $(11,857)
Payable to Founding Company Stockholders........ -- (21,318) (21,318)
------- -------- --------
Total current liabilities..................... -- (33,175) (33,175)
Long-term debt, net of current maturities......... -- (5,421) (5,421)
------- -------- --------
Total liabilities............................. -- (38,596) (38,596)
------- -------- --------
Stockholders' equity--
Common stock.................................... -- -- --
Limited vote common stock....................... -- -- --
Additional paid-in capital...................... 38,936 (56) 38,880
Retained earnings............................... -- -- --
Treasury stock.................................. -- -- --
------- -------- --------
Total stockholders' equity.................... 38,936 (56) 38,880
------- -------- --------
Total liabilities and stockholders' equity.... $38,936 $(38,652) $ 284
======= ======== ========
</TABLE>
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
YEAR ENDED DECEMBER 31, 1996
(a) Reflects the $.9 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 employment agreements. Such employment agreements are
primarily for three years, contain restrictions related to competition
and provide severance for termination of employment in certain
circumstances. Additionally, reflects reductions in expenses associated
with certain nonoperating assets that will be transferred to Founding
Companies prior to the Acquisition.
(b) Reflects the amortization of goodwill to be recorded as a result of
these Acquisitions over a 40-year estimated life.
(c) Reflects interest expense of $.7 million on borrowings of $7.8 million
necessary to fund the S Corporation Distributions, net of interest
savings of $1.4 million on $17.6 million of debt to be repaid using
proceeds from the Offering or distributed prior to the Acquisitions. The
additional $.7 million of interest expense was calculated utilizing an
annual effective interest rate of approximately 8.5%.
(d) Reflects the elimination of revenues between PAR and Union Power.
F-9
<PAGE>
QUANTA SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(e) Reflects the incremental provision for federal and state income taxes
at an approximate 39.0 percent 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) (E) ADJUSTMENTS
------ ------- ---- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $ -- $ -- $-- $(4,388) $ -- $(4,388)
Cost of service............ -- -- -- (4,388) -- (4,388)
------ ------- ---- ------- ------- -------
Gross profit............. -- -- -- -- -- --
Selling, general and admin-
istrative expenses........ (908) -- -- -- -- (908)
Goodwill amortization...... -- 1,498 -- -- -- 1,498
------ ------- ---- ------- ------- -------
Income (loss) from
operations.............. 908 (1,498) -- -- -- (590)
Other income (expense)--
Interest expense......... -- -- 661 -- -- 661
Other, net............... 164 -- -- -- -- 164
------ ------- ---- ------- ------- -------
Income (loss) before
income taxes............ 1,072 (1,498) 661 -- -- 235
Provision for income taxes. -- -- -- -- 2,056 2,056
------ ------- ---- ------- ------- -------
Net income (loss).......... $1,072 $(1,498) $661 $ -- $(2,056) $(1,821)
====== ======= ==== ======= ======= =======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997
(a) Reflects the $1.8 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 employment agreements. Such employment agreements are
primarily for three years, contain restrictions related to competition
and provide severance for termination of employment in certain
circumstances. Additionally, reflects reductions in expenses associated
with certain nonoperating assets that will be transferred to Founding
Companies prior to the Acquisition.
(b) Reflects the amortization of goodwill to be recorded as a result of
these Acquisitions over a 40-year estimated life.
(c) Reflects interest expense of $0.5 million on borrowings of $7.8 million
necessary to fund the S Corporation Distributions, net of interest
savings of $1.0 million on $17.6 million of debt to be repaid using
proceeds from the Offering. The additional $.5 million of interest
expense was calculated utilizing an annual effective interest rate of
approximately 8.5%.
(d) Reflects the elimination of revenues between PAR and Union Power.
(e) Reflects the incremental provision for federal and state income taxes
at an approximate 39.0 percent 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.
F-10
<PAGE>
QUANTA SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes unaudited pro forma combined statements of
operations adjustments (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENT
-------------------------------------- PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
------ ------- ---- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $ -- $ -- $-- $(2,501) $ -- $(2,501)
Cost of service............ -- -- -- (2,501) -- (2,501)
------ ------- ---- ------- ------- -------
Gross profit........... -- -- -- -- -- --
Selling, general and
administrative expenses... (1,773) -- -- -- -- (1,773)
Goodwill amortization...... -- 1,123 -- -- -- 1,123
------ ------- ---- ------- ------- -------
Income (loss) from
operations............ 1,773 (1,123) -- -- -- 650
Other income (expense)--
Interest expense......... -- -- 508 -- -- 508
Other, net............... 125 -- -- -- -- 125
------ ------- ---- ------- ------- -------
Income (loss) before
income taxes.......... 1,898 (1,123) 508 -- -- 1,283
Provision for income taxes. -- -- -- -- 2,791 2,791
------ ------- ---- ------- ------- -------
Net income (loss).......... $1,898 $(1,123) $508 $ -- $(2,791) $(1,508)
====== ======= ==== ======= ======= =======
</TABLE>
F-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PAR Electrical Contractors, Inc.:
We have audited the accompanying balance sheets of PAR Electrical Contractors,
Inc., a Missouri corporation, as of December 31, 1996, and September 30, 1997,
and the related statements of operations, cash flows and shareholders' equity
for the three years ended December 31, 1996, and the nine months ended
September 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 PAR Electrical Contractors,
Inc., as of December 31, 1996, and September 30, 1997, and the results of its
operations and cash flows for the three years ended December 31, 1996, and the
nine months ended September 30, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 5, 1997
F-12
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
ASSETS ------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 479 $ 34
Accounts receivable--
Trade, net of allowance of $100................. 7,390 10,439
Retainage....................................... 374 237
Other receivables............................... 78 148
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... 663 1,218
Deferred income taxes............................. 160 972
Prepaid expenses and other current assets......... 360 158
------- -------
Total current assets............................ 9,504 13,206
PROPERTY AND EQUIPMENT, net......................... 10,977 13,992
OTHER ASSETS........................................ 218 240
------- -------
Total assets.................................... $20,699 $27,438
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt.............. $ 2,555 $ 1,964
Current portion of capital lease obligations...... 25 55
Bank line of credit............................... 2,378 4,275
Accounts payable and accrued expenses............. 2,725 7,376
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... 1,168 85
------- -------
Total current liabilities....................... 8,851 13,755
LONG-TERM DEBT, net of current maturities........... 2,000 1,867
LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current
maturities......................................... 74 141
DEFERRED INCOME TAXES............................... 2,066 2,224
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $100 par value, 500 shares
authorized, 200 shares issued and outstanding.... 50 50
Retained earnings................................. 9,170 10,913
Treasury stock, 300 shares, at cost............... (1,512) (1,512)
------- -------
Total shareholders' equity...................... 7,708 9,451
------- -------
Total liabilities and shareholders' equity...... $20,699 $27,438
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES....................... $43,909 $38,915 $42,684 $29,806 $36,439
COST OF SERVICES (including
depreciation)................. 36,525 33,193 35,789 25,583 27,944
------- ------- ------- ------- -------
Gross profit................. 7,384 5,722 6,895 4,223 8,495
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES....... 4,836 4,342 5,012 3,560 5,013
------- ------- ------- ------- -------
Income from operations....... 2,548 1,380 1,883 663 3,482
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense............. (375) (568) (576) (411) (470)
Other, net................... (37) 56 (70) (47) (97)
------- ------- ------- ------- -------
Other income (expense),
net....................... (412) (512) (646) (458) (567)
------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR
INCOME TAXES.................. 2,136 868 1,237 205 2,915
PROVISION FOR INCOME TAXES..... 867 353 487 82 1,172
------- ------- ------- ------- -------
NET INCOME..................... $ 1,269 $ 515 $ 750 $ 123 $ 1,743
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ------------------
1994 1995 1996 1996 1997
------ ------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVI-
TIES:
Net income........................ $1,269 $ 515 $ 750 $ 123 $1,743
Adjustments to reconcile net
income to net cash provided by
operating activities--
Depreciation and amortization.... 1,729 1,805 1,935 1,452 1,685
Loss (gain) on sale of property
and equipment................... -- 5 (57) (57) (16)
Deferred income taxes............ 203 166 204 187 (655)
Changes in operating assets and
liabilities--
(Increase) decrease in--
Accounts receivable............ (2,882) 64 (892) (579) (2,982)
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... (115) 154 (531) 132 (555)
Prepaid expenses and other
current assets................ (195) 169 (54) (38) 202
Increase (decrease) in--
Accounts payable and accrued
expenses...................... 1,190 (308) 363 528 4,651
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 311 (362) 983 (185) (1,083)
Other, net..................... 3 (14) (10) (21) (21)
------ ------ ------ ------ ------
Net cash provided by operating
activities................... 1,513 2,194 2,691 1,542 2,969
------ ------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVI-
TIES:
Proceeds from sale of property and
equipment........................ -- 100 57 57 116
Additions of property and
equipment........................ (4,796) (2,427) (2,663) (2,425) (4,671)
------ ------ ------ ------ ------
Net cash used in investing
activities................... (4,796) (2,327) (2,606) (2,368) (4,555)
------ ------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVI-
TIES:
Proceeds from long-term debt...... 4,468 1,501 1,787 312 1,350
Payments of long-term debt........ (1,257) (1,935) (2,395) (800) (2,106)
Net borrowings under bank lines of
credit........................... 295 655 238 670 1,897
------ ------ ------ ------ ------
Net cash provided by (used in)
financing activities......... 3,506 221 (370) 182 1,141
------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. 223 88 (285) (644) (445)
CASH AND CASH EQUIVALENTS,
beginning of period............... 453 676 764 764 479
------ ------ ------ ------ ------
CASH AND CASH EQUIVALENTS, end of
period............................ $ 676 $ 764 $ 479 $ 120 $ 34
====== ====== ====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for--
Interest......................... $ 378 $ 575 $ 572 $ 429 $ 464
Income taxes, net of refunds..... 351 553 279 34 89
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------- RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT EARNINGS STOCK EQUITY
------ ------ -------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........ 200 $50 $ 6,636 $1,512 $5,174
Net income...................... -- -- 1,269 -- 1,269
--- --- ------- ------ ------
BALANCE, December 31, 1994........ 200 50 7,905 1,512 6,443
Net income...................... -- -- 515 -- 515
--- --- ------- ------ ------
BALANCE, December 31, 1995........ 200 50 8,420 1,512 6,958
Net income...................... -- -- 750 -- 750
--- --- ------- ------ ------
BALANCE, December 31, 1996........ 200 50 9,170 1,512 7,708
Net income...................... -- -- 1,743 -- 1,743
--- --- ------- ------ ------
BALANCE, September 30, 1997....... 200 $50 $10,913 $1,512 $9,451
=== === ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
PAR Electrical Contractors, Inc., a Missouri corporation (the Company),
focuses on providing electrical contractor services primarily for utility
companies, municipal and commercial companies. The Company performs the
majority of its contract work under cost-plus-fee and fixed price contracts
with contract terms generally ranging from four to 36 months. The Company
performs the majority of its work in the Midwest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements for the nine months ended September 30,
1996, 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 footnote disclosures 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
The Company had noncash investing and financing activities related to
capital leases of approximately $111,000 and $129,000 during the year ended
December 31, 1996, and the nine months ended September 30, 1997. There were no
noncash investing activities for the years ended December 31, 1994 and 1995.
Accounts Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts when collection is
considered doubtful.
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 approximately $1,729,000, $1,805,000, $1,935,000 and
$1,685,000 for the years ended December 31, 1994, 1995 and 1996, and the nine
months ended September 30, 1997, 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 fixed price or cost plus fee contract. Revenues
from fixed price or cost plus fee
F-17
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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, labor and subcontract
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.
The balances billed but not paid by customers pursuant to retainage
provisions in fixed price or cost plus fee 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 generally 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. An
accrual for warranty costs is recorded based upon the historical level of
warranty claims and management's estimate of future costs.
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." 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 the enacted tax rates and laws that will be in effect when
the underlying assets or liabilities are recovered or settled.
Collective Bargaining Agreements
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements
expire at various times through the year 2000.
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
certain estimates reflected in the Company's financial statements.
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
F-18
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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. 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
USEFUL LIVES DECEMBER 31, SEPTEMBER 30,
IN YEARS 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Land................................. -- $ 1,105 $ 1,221
Buildings and leasehold improvements. 5-31 1,255 1,255
Operating equipment and vehicles..... 5-10 21,980 25,821
Office equipment, furniture and fix-
tures............................... 5 386 529
------- -------
24,726 28,826
Less--Accumulated depreciation and
amortization........................ (13,749) (14,834)
------- -------
Property and equipment, net........ $10,977 $13,992
======= =======
</TABLE>
4.DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Accounts payable, trade............................ $1,068 $1,572
Accrued compensation and other expenses............ 1,657 5,804
------ ------
$2,725 $7,376
====== ======
</TABLE>
Contracts in progress are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Costs incurred on contracts in progress........... $ 9,926 $ 16,439
Estimated earnings, net of losses................. 2,322 2,386
-------- --------
12,248 18,825
Less--Billings to date............................ (12,753) (17,692)
-------- --------
$ (505) $ 1,133
======== ========
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... $ 663 $ 1,218
Less--Billings in excess of costs and estimated
earnings on uncompleted contracts................ (1,168) (85)
-------- --------
$ (505) $ 1,133
======== ========
</TABLE>
5.DEBT:
The Company has an $8,000,000 bank revolving line of credit bearing interest
at the bank's prime rate (8.5 percent at September 30, 1997), of which
$2,378,000 and $4,275,000 was outstanding as of
F-19
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
December 31, 1996, and September 30, 1997, respectively. With regard to the
line of credit, the Company has outstanding a $1,000,000 letter of credit
outstanding related to its workman's compensation insurance program (see Note
11 for discussion related to the Company self-insuring for certain workers'
compensation insurance). The Company also has a $4,000,000 equipment fixed
line of credit bearing interest at the bank's prime rate (8.5 percent at
September 30, 1997). These lines of credit expire in May 1998.
The Company's long-term debt obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank, prime plus 1%, interest rate,
due $79,359 monthly including interest with final
maturity October 1997............................. $ 797 $ 119
Note payable to bank, prime plus.75%, interest
rate, due $47,968 monthly including interest with
final maturity December 1997...................... 551 145
Note payable to bank, prime plus .50% interest
rate, due $47,795 monthly including interest with
final maturity December 1998...................... 1,042 671
Note payable to bank, prime plus .50% interest
rate, due $31,747 monthly including interest with
final maturity May 1999........................... 825 589
Note payable to bank, prime plus .50% interest
rate, due $25,391 monthly including interest with
final maturity December 1999...................... 800 620
Note payable to bank, prime interest rate, due
$42,695 monthly including interest with final
maturity April 2000............................... -- 1,183
Installment note payable to bank, fixed 9.75%
interest rate, due $3,631 monthly including
interest with balance due December 1999;
collateralized by real estate..................... 318 308
Installment note payable, fixed 9% interest rate,
due $100,000 in December 1997 and $45,000 in
December 1998; unsecured.......................... 145 145
Installment note payable, fixed 6.5% interest rate,
due $25,500 annually plus interest with final ma-
turity January 1999; collateralized by real es-
tate.............................................. 77 51
------ ------
4,555 3,831
Less--Current maturities........................... (2,555) (1,964)
------ ------
Total long-term debt........................... $2,000 $1,867
====== ======
</TABLE>
The loan agreement covering the notes payables to bank and the bank lines of
credit contains various covenants, including a minimum net worth requirement
and a compensating balance requirement.
The notes payables to bank and the bank lines of credit are collateralized
by all equipment, receivables and other assets. The Company's two shareholders
have pledged their stock as security to the bank on this indebtedness.
The maturities of long-term debt as of September 30, 1997, are as follows
(in thousands):
<TABLE>
<S> <C>
Year ending September 30--
1998........................................................... $1,964
1999........................................................... 1,219
2000........................................................... 648
------
$3,831
======
</TABLE>
F-20
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. LEASES:
Obligations Under Capital Leases
The Company leases various equipment under noncancelable capital leases and
the leased assets are included as part of "Property and equipment." Details of
the capital leased assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Automobiles........................................ $ 44 $ 44
Operating equipment and vehicles................... 540 669
----- -----
584 713
Less--Accumulated depreciation..................... (479) (495)
----- -----
Net capitalized leased assets...................... $ 105 $ 218
===== =====
</TABLE>
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 September 30, 1997 (in thousands):
<TABLE>
<S> <C>
Year ending September 30--
1998.................................................................. $ 68
1999.................................................................. 68
2000.................................................................. 60
2001.................................................................. 20
----
Total minimum lease payments........................................ 216
Less--Amounts representing interest..................................... (20)
Present value of minimum lease payments............................. 196
Less--Current portion................................................... (55)
----
Long-term obligation................................................ $141
====
</TABLE>
Operating Leases
The Company 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 $20,000, $21,000, $205,000 and
$453,000 for the years ended December 31, 1994, 1995 and 1996, and nine months
ended September 30, 1997, respectively.
Future minimum lease payments under these noncancelable operating leases are
as follows (in thousands):
<TABLE>
<S> <C>
Year ending September 30--
1998................................................................ $ 615
1999................................................................ 402
2000................................................................ 147
2001................................................................ 24
2002................................................................ 8
------
$1,196
======
</TABLE>
F-21
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES:
Federal and state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- -----------------
1994 1995 1996 1997
---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Federal--
Current.............................. $550 $154 $234 $1,513
Deferred............................. 168 138 169 (542)
State--
Current.............................. 114 33 49 314
Deferred............................. 35 28 35 (113)
---- ---- ---- ------
$867 $353 $487 $1,172
==== ==== ==== ======
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) before provision for income taxes as follows (in thousands):
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- -------------
1994 1995 1996 1997
---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Provision at the statutory rate........ $748 $304 $433 $1,017
Increase resulting from--
State income tax, net of related tax
effect.............................. 96 40 54 130
Nondeductible expenses............... 23 9 -- 25
---- ---- ---- ------
$867 $353 $487 $1,172
==== ==== ==== ======
</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>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Deferred income tax liabilities--
Property and equipment............................. $ (2,066) $(2,224)
State taxes........................................ 9 9
Other.............................................. (156) (164)
-------- -------
Total deferred income tax liabilities............ (2,213) (2,379)
-------- -------
Deferred income tax assets--
Bad debt reserves.................................. 42 42
State taxes........................................ (18) (68)
Other accruals not currently deductible............ 283 1,153
-------- -------
Total deferred income tax assets................. 307 1,127
Valuation allowance................................ -- --
-------- -------
Total deferred income tax liabilities............ $ (1,906) $(1,252)
======== =======
</TABLE>
F-22
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Deferred tax assets--
Current............................................ $ 307 $ 1,127
Long-term.......................................... -- --
------- -------
Total............................................ 307 1,127
------- -------
Deferred tax liabilities--
Current............................................ (147) (155)
Long-term.......................................... (2,066) (2,224)
------- -------
Total............................................ (2,213) (2,379)
------- -------
Net deferred income tax liabilities.............. $(1,906) $(1,252)
======= =======
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
As of December 31, 1996 and September 30, 1997, the Company had a $45,000
note receivable due from one of its shareholders. The note receivable included
in "Accounts receivable--other receivables" in the accompanying balance sheet
as of September 30, 1997, was paid in full by the shareholder in October 1997.
9. EMPLOYEE BENEFIT PLAN:
In connection with its collective bargaining agreements with various
electrical unions, the Company participates with other companies in the
unions' multi-employer pension plans. These plans cover all of the Company's
employees who are members of such unions. The Employee Retirement Income
Security Act of 1974, as amended by the Multi-Employer Pension Plan Amendments
Act of 1980, imposes certain liabilities upon employers who are contributors
to a multi-employer plan in the event of the employer's withdrawal from, or
upon termination of such plan. The Company has no plans to withdraw from these
plans. The plans do not maintain information on net assets and actuarial
present value of the accumulated share of the plans' unfunded vested benefits
allocable to the Company, and amounts, if any, for which the Company may be
contingently liable is not ascertainable at this time.
The Company has a 401(k) plan and profit sharing plan covering substantially
all nonbargaining employees. Participant contributions to be in the 401(k)
plan are limited to 6.6 percent of total compensation paid to participants
during the plan year. The Company may also make discretionary contributions.
Contributions to the plan were approximately $243,000, $230,000, $182,000 and
$125,000 for the years ended December 31, 1994, 1995, 1996 and the nine months
ended September 30, 1997, respectively, and had accrued approximately $182,000
and $125,000 at December 31, 1996 and September 30, 1997, respectively.
In addition to the 401(k) plan and profit sharing plan, the financial
statements include discretionary bonuses to employees of $1,035,000, $564,000,
$1,087,000 and $1,763,000 for the years ended December 31, 1994, 1995 and 1996
and for the nine months ended September 30, 1997, respectively.
F-23
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, lines of credit, accounts payable, notes payable and
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, business property liability, workers' compensation, general
liability and an umbrella policy.
Effective January 1, 1996, the Company began self-insuring for certain
workers' compensation risks up to $1,000,000 per occurrence. In October 1997,
the Company reduced the deductible to $500,000 per occurrence. The Company has
accrued for the estimated probable claims costs in satisfying the deductible
provisions of the insurance policies for claims occurring through September
30, 1997. The accrual is based on known facts and historical trends, and
management believes such accrual to be adequate.
Product Rights
In May 1997, the Company entered into an agreement with a third party which
gives the Company exclusive rights for 30 months to the use of a patented
product used in the construction, maintenance, repair and improvement of
energized transmission and distribution lines in all states west of the
Mississippi River. The product is a telescoping robotic arm for temporarily
supporting energized power lines to enable repair or replacement of
transmission poles, cross-arms, insulators and the like while maintaining an
energized connection. In exchange for the exclusive rights, the Company agrees
to pay the third party a fixed fee and a percentage of gross profits generated
from the use of the product. As of September 30, 1997, the Company had made
payments totaling $150,000 related to fees for the use of such product.
Performance Bonds
In certain circumstances, the Company is required to provide performance
bonds in connection with its contract commitments which are personally
guaranteed by certain stockholders of the Company.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales greater than 10 percent of total sales to two major
customers (comprising approximately 25 percent and 16 percent of total sales),
three major customers (comprising approximately 16 percent, 15 percent and 11
percent of total sales), three major customers (comprising approximately 23
percent, 12 percent and 10 percent of total sales) and three major customers
(comprising approximately 19 percent, 12 percent and 11 percent of total
sales) during the years ended December 1994, 1995 and 1996, and for the nine
months ended September 30, 1997, respectively.
The Company grants credit, generally without collateral, to its customers,
which include utility companies, municipalities and commercial companies
located primarily in the Midwestern region of the United States. Consequently,
the Company is subject to potential credit risk related to changes in business
F-24
<PAGE>
PAR ELECTRICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and economic factors within the Midwestern region of the United States.
However, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk.
13. SUBSEQUENT EVENTS TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In December 1997, the Company and its shareholders entered into a definitive
agreement with Quanta Services, Inc. (Quanta), subject to certain conditions,
pursuant to which all outstanding shares of the Company's common stock will be
exchanged for cash and shares of Quanta common stock, concurrent with the
consummation of an initial public offering (the Offering) of additional common
stock by Quanta. In addition, the two executives of the Company will enter
into employment agreements with the Company and Quanta which have an initial
term of three years and generally restrict the disclosure of confidential
information as well as restrict competition with the Company and Quanta for a
period of five years from the date of the employment agreement.
Upon signing the definitive agreement, the shareholders of the Company will
purchase a portion of land and equipment from the Company. The net book value
of the land and the equipment to be purchased is approximately $759,000 and
$742,000 at December 31, 1996, and September 30, 1997, respectively. Proceeds
received from the sale of the land and the equipment will be netted against
the installment note payable assumed related to the land. The installment note
payable was $77,000 and $51,000 at December 31, 1996, and September 30, 1997,
respectively.
F-25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Quanta Services, Inc.:
We have audited the accompanying balance sheet of Quanta Services, Inc., a
Delaware corporation, as of September 30, 1997, and the related statement of
operations, and stockholders' equity for the period from inception (August 19,
1997) through September 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 Quanta Services, Inc., as of
September 30, 1997, and the results of its operations for the period from
inception (August 19, 1997) through September 30, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 5, 1997
F-26
<PAGE>
QUANTA SERVICES, INC.
BALANCE SHEET--SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS................................................... $ 8
DEFERRED OFFERING COSTS..................................................... 56
---
Total assets............................................................ $64
===
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
ACCRUED LIABILITIES AND AMOUNTS DUE TO STOCKHOLDER......................... $64
STOCKHOLDERS' EQUITY:
Preferred stock, $.00001 par value, 10,000,000 authorized, none issued
and outstanding......................................................... --
Common stock, $.00001 par value, 40,000,000 shares authorized, 1,693,779
shares issued and outstanding........................................... --
Additional paid-in capital............................................... --
Retained deficit......................................................... --
---
Total stockholders' equity............................................. --
---
Total liabilities and stockholders' equity............................. $64
===
</TABLE>
Reflects a 1,613.6016 for-one stock split effected in December 1997.
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
QUANTA SERVICES, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
(AUGUST 19, 1997) THROUGH SEPTEMBER 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-28
<PAGE>
QUANTA SERVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION
(AUGUST 19, 1997) THROUGH SEPTEMBER 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,
August 19, 1997............ 1,693,779 $-- $-- $-- $--
NET INCOME (LOSS)........... -- -- -- -- --
--------- --- ---- --- ----
BALANCE, September 30, 1997. 1,693,779 $-- $-- $-- $--
========= === ==== === ====
</TABLE>
Reflects a 1,613.6016 for-one stock split effected in December 1997.
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
QUANTA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Quanta Services, Inc., a Delaware corporation (Quanta or the Company), was
founded in August 1997 to create a leading provider of specialty electrical
contracting and maintenance services related to the electric and
telecommunications infrastructure in North America. Quanta intends to acquire
certain 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.
Quanta 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 the primary stockholders, on behalf of the
Company. The primary stockholders have also committed to fund future
organization expenses and offering costs. As of November 30, 1997, costs of
approximately $1,227,000 have been incurred in connection with the Offering,
and such costs will be treated as a reduction of the proceeds from the
Offering. Quanta has treated costs incurred through September 30, 1997, as
deferred offering costs in the accompanying balance sheet. Quanta 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 Quanta 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 infrastructure services, the effect of business growth, including the
availability of linemen and electricians, and the need for other key
personnel. These risk factors, among others, 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 Quanta,
the Company issued 1,693,779 shares (as restated for the 1,613.6016 for-one
stock split discussed in Note 5) of common stock at $.00001 par value (Common
Stock) for $10.48. Subsequent to September 30, 1997, Quanta issued
approximately 1.7 million shares (as restated for the 1,613.6016 for-one stock
split discussed in Note 5) of Common Stock at $.00001 par value to an initial
stockholder and management of Quanta. As a result of the issuance of shares,
the Company recorded in November 1997, for financial statement presentation
purposes, a nonrecurring, noncash charge of $11.5 million, which has been
estimated based on a fair value which is discounted from the estimated initial
public offering price.
Stock Plan
In December 1997, the Company's board of directors and stockholders approved
the Company's 1997 Stock Option Plan (the Plan), which provides for the
granting or awarding of incentive or nonqualified stock options to directors,
officers, key employees and consultants of the Company. The aggregate amount
of Common Stock of the Company with respect to which options may be granted
may not exceed the greater of 2.38 million shares or 15 percent of the
aggregate number of shares of Common Stock outstanding. The Plan will be
administered by the compensation committee (the Committee) of the Company's
board of directors. The Company intends to file a registration statement on
Form S-8 under the Securities Act of 1933 registering the issuance of shares
upon exercise of options granted under this Plan. Options will be exercisable
during the period specified in each option agreement and will generally become
exercisable in installments pursuant to a vesting schedule designated by the
Committee. No options will remain exercisable later than ten years after the
date of grant. The exercise price of options may be no less than the fair
market value of the Common Stock on the date of grant (or 110 percent in the
case of options granted to employees owning more than 10 percent of the voting
capital stock).
F-30
<PAGE>
QUANTA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Plan also provides for automatic option grants to directors who are not
otherwise employed by the Company or its subsidiaries. Upon commencement of
service, a nonemployee director will receive a nonqualified option to purchase
10,000 shares of Common Stock and continuing nonemployee directors annually
will receive options to purchase 5,000 shares of Common Stock. Options granted
to nonemployee directors are fully exercisable following the expiration of six
months from the date of grant.
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.
4. NEW ACCOUNTING PRONOUNCEMENTS:
SFAS No. 128 requires the presentation of basic earnings per share and
diluted earnings per share in financial statements of public enterprises
rather than primary and fully diluted earnings per share as previously
required. Under the provisions of this statement, basic earnings per share
will be computed based on weighted average shares outstanding and will exclude
dilutive securities such as options, and warrants. Diluted earnings per share
will be computed including the impacts of all potentially dilutive securities.
The Company will adopt this statement in December 1997, but does not
anticipate that the statement will have a material impact on earnings per
share.
SFAS No. 129 requires additional disclosure of information about an entity's
capital structure, including information about dividend and liquidation
preferences, voting rights, contracts to issue additional shares, conversion
and exercise prices, etc. The Company will adopt this statement in December
1997.
SFAS No. 130 requires the presentation of comprehensive income in an
entity's financial statements. Comprehensive income represents all changes in
equity of an entity during the reporting period, including net income and
charges directly to equity which are excluded from net income. This statement
is not anticipated to have a material impact on the Company, or its financial
disclosures, as the Company currently does not plan to enter into any material
transactions which result in charges (or credits) directly to equity (such as
additional minimum pension liability changes, currency translation
adjustments, unrealized gains and losses on available-for-sale securities,
etc.).
5. SUBSEQUENT EVENTS TO THE DATE OF AUDITORS' REPORT (UNAUDITED):
Quanta effected a 1,613.6016 for-one stock split in December 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
40,000,000 and increased the number of authorized shares of $.00001 par value
F-31
<PAGE>
QUANTA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
In December 1997, the 3.3 million shares of Common Stock held by certain
primary stockholders of Quanta were converted into 3.3 million shares of
limited vote common stock. The shares of limited vote 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-tenth of
one vote for each share held on all other matters. Each share of limited vote
common stock will convert into Common Stock (a) upon disposition by the holder
of such shares in accordance with the transfer restrictions applicable to such
shares, and (b) in the event that any person acquires, or offers to acquire,
15 percent or more of the total outstanding shares of Common Stock.
Quanta has signed definitive agreements to acquire the following entities
(the Founding Companies) to be effective concurrently with the Offering. The
entities to be acquired are:
PAR Electrical Contractors, Inc.
Potelco, Inc.
TRANS TECH Electric, Inc.
Union Power Construction Company
The aggregate consideration that will be paid by Quanta to acquire the
Founding Companies is approximately $21.0 million in cash and 7.5 million
shares of Common Stock. The cash portion of the Acquisition Consideration will
be adjusted based on the initial public offering price of Common Stock
offered.
In addition, the Company plans to enter into employment agreements with
certain key executives of the Founding Companies and the executive officers of
Quanta. 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 five years from
the date of the employment agreement. The initial term of these employment
agreements is three years with provisions for annual extensions at the end of
the initial term.
In December 1997, Quanta filed a registration statement on Form S-1 for the
sale of its Common Stock.
F-32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Union Power Construction Company:
We have audited the accompanying balance sheets of Union Power Construction
Company, a Colorado corporation, as of August 31, 1996 and 1997, and the
related statements of operations, cash flows and stockholders' equity for the
three years ended August 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Union Power Construction
Company as of August 31, 1996 and 1997, and the results of its operations and
cash flows for the three years ended August 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 5, 1997
F-33
<PAGE>
UNION POWER CONSTRUCTION COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
AUGUST 31,
---------------
1996 1997
------ -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 612 $ 404
Marketable securities....................................... 101 110
Accounts receivable--
Trade, net of allowance for doubtful accounts of $84,000.. 3,902 8,822
Retainage................................................. 204 498
Related-party receivables................................... 65 32
Costs and estimated earnings in excess of billings on
uncompleted contracts...................................... -- 77
Deferred income taxes....................................... 30 115
Prepaid expenses and other current assets................... 44 95
------ -------
Total current assets.................................... 4,958 10,153
PROPERTY AND EQUIPMENT, net................................... 4,810 5,868
------ -------
Total assets............................................ $9,768 $16,021
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........................ $ 249 $ 663
Current maturities of related-party debt.................... 238 128
Accounts payable and accrued expenses....................... 2,878 6,209
Related-party payable....................................... 22 --
Billings in excess of costs and estimated earnings on
uncompleted contracts...................................... -- 322
------ -------
Total current liabilities............................... 3,387 7,322
LONG-TERM DEBT, net of current maturities..................... 1,065 748
RELATED-PARTY DEBT, net of current maturities................. 38 328
DEFERRED INCOME TAXES......................................... 843 1,257
OTHER LONG-TERM LIABILITIES................................... 20 22
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 25,000 shares authorized,
25,000 shares
issued and outstanding..................................... 25 25
Unrealized loss on securities............................... (62) (56)
Retained earnings........................................... 4,452 6,375
------ -------
Total stockholders' equity.............................. 4,415 6,344
------ -------
Total liabilities and stockholders' equity.............. $9,768 $16,021
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
UNION POWER CONSTRUCTION COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
REVENUES............................................. $12,614 $25,636 $42,792
COST OF SERVICES (including depreciation)............ 10,240 22,319 37,766
------- ------- -------
Gross profit..................................... 2,374 3,317 5,026
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 1,896 1,563 1,966
------- ------- -------
Income from operations........................... 478 1,754 3,060
------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense................................... (7) (84) (110)
Related-party interest expense..................... (10) (6) (22)
Other, net......................................... 142 166 229
------- ------- -------
Other income, net................................ 125 76 97
------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES............. 603 1,830 3,157
PROVISION FOR INCOME TAXES........................... 239 718 1,234
------- ------- -------
NET INCOME........................................... $ 364 $ 1,112 $ 1,923
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
UNION POWER CONSTRUCTION COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 364 $ 1,112 $ 1,923
Adjustments to reconcile net income to net cash
provided by
operating activities--
Depreciation and amortization...................... 217 486 577
Deferred taxes..................................... 137 296 329
Changes in operating assets and liabilities--
(Increase) decrease in--
Accounts receivable.............................. 249 (2,523) (5,180)
Costs and estimated earnings in excess of
billings on uncompleted contracts............... (226) 237 (77)
Prepaid expenses and other current assets........ 12 15 (51)
Increase (decrease) in--
Accounts payable and accrued expenses............ 280 1,578 3,331
Billings in excess of costs and estimated
earnings on uncompleted contracts............... (28) -- 322
Other, net........................................ 80 84 (132)
------ ------- -------
Net cash provided by operating activities........ 1,085 1,285 1,042
------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment........ 41 27 105
Additions of property and equipment................. (605) (2,771) (1,634)
------ ------- -------
Net cash used in investing activities............ (564) (2,744) (1,529)
------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........................ 300 1,432 786
Payments of long-term debt.......................... (272) (239) (507)
------ ------- -------
Net cash provided by financing activities........ 28 1,193 279
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. 549 (266) (208)
CASH AND CASH EQUIVALENTS, beginning of year......... 329 878 612
------ ------- -------
CASH AND CASH EQUIVALENTS, end of year............... $ 878 $ 612 $ 404
====== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for--
Interest......................................... $ 17 $ 90 $ 161
Income taxes..................................... 55 340 831
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
UNION POWER CONSTRUCTION COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
-------------
UNREALIZED TOTAL
RETAINED HOLDING STOCKHOLDERS'
SHARES AMOUNT EARNINGS GAIN (LOSS) EQUITY
------ ------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, August 31, 1994...... 25,000 $25 $2,976 $-- $3,001
Change in market value of
securities................. -- -- -- (70) (70)
Net income.................. -- -- 364 -- 364
------ --- ------ ---- ------
BALANCE, August 31, 1995...... 25,000 25 3,340 (70) 3,295
Change in market value of
securities................. -- -- -- 8 8
Net income.................. -- -- 1,112 -- 1,112
------ --- ------ ---- ------
BALANCE, August 31, 1996...... 25,000 25 4,452 (62) 4,415
Change in market value of
securities................. -- -- -- 6 6
Net income.................. -- -- 1,923 -- 1,923
------ --- ------ ---- ------
BALANCE, August 31, 1997...... 25,000 $25 $6,375 $(56) $6,344
====== === ====== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
UNION POWER CONSTRUCTION COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Union Power Construction Company, a Colorado corporation (the Company or
Union), provides electrical power line installation, repair and maintenance
services for utilities throughout the western United States. The Company
performs the majority of its contract work under time and equipment contracts,
fixed price contracts and unit cost contracts with contract terms generally
ranging from one month to two years. The Company performs the majority of its
work in Colorado, Nevada and California.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 $217,000, $486,000 and $577,000 for the years ended August 31,
1995, 1996 and 1997, 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 fixed price or cost plus fee contract. Revenues
from fixed price or cost plus fee 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, subcontractor 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.
The balances billed but not paid by customers pursuant to retainage
provisions in fixed price or cost plus fee 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 generally warrants labor for one to two
years after project completion. An accrual for warranty costs is recorded
based upon the historical level of warranty claims and management's estimate
of future costs.
F-38
<PAGE>
UNION POWER CONSTRUCTION COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 deemed no
longer probable and an allowance based upon the level of accounts receivable
balances.
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes." 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 the enacted tax rates and laws that will be in effect when
the underlying assets or liabilities are recovered or settled.
Collective Bargaining Agreement
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements
will expire at various times through 2005.
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 Pronouncements
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. Adoption of this standard did not have a material effect on the
financial position or results of operations of the Company.
SFAS No. 130, "Reporting Comprehensive Income" requires the presentation of
comprehensive income in an entity's financial statements. Comprehensive income
represents all changes in equity of an entity during the reporting period,
including net income and charges directly to equity which are excluded from
net income. This statement will be adopted by the Company during fiscal year
1998.
F-39
<PAGE>
UNION POWER CONSTRUCTION COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED AUGUST 31,
USEFUL LIVES ---------------
IN YEARS 1996 1997
------------ ------- -------
<S> <C> <C> <C>
Land.......................................... -- $ 126 $ 126
Operating equipment and vehicles.............. 5-10 9,440 10,497
Leasehold improvements........................ 10 88 113
Office furniture and equipment................ 5 110 145
------- -------
9,764 10,881
Less--Accumulated depreciation and
amortization................................. 4,954 5,013
------- -------
Property and equipment, net................ $4,810 $5,868
======= =======
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts payable and accrued expenses consist of the following (in
thousands):
<CAPTION>
AUGUST 31,
---------------
1996 1997
------- -------
<S> <C> <C> <C>
Accounts payable, trade.................................... $1,750 $3,840
Accrued compensation and benefits.......................... 456 1,300
Other accrued expenses..................................... 672 1,069
------- -------
$2,878 $6,209
======= =======
Contracts in progress are as follows (in thousands):
<CAPTION>
AUGUST 31,
---------------
1996 1997
------- -------
<S> <C> <C> <C>
Costs incurred on contracts in progress.................... $15,529 $45,025
Estimated earnings, net of losses.......................... 603 4,183
------- -------
16,132 49,208
Less--Billings to date..................................... 16,132 49,453
------- -------
$ -- $ (245)
======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ -- $ 77
Less--Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... -- (322)
------- -------
$ -- $ (245)
======= =======
</TABLE>
5. LONG-TERM DEBT:
In August 1995, the Company entered into a $300,000 secured installment loan
with a bank. The loan is due August 1999 and bears interest at 8.27 percent
with monthly payments of $7,400. Amounts outstanding under this loan were
$221,000 and $149,000 at August 31, 1996 and 1997, respectively. In November
1995, the Company entered into a $200,000 secured installment loan with a bank
for the purchase of construction equipment. This loan is due November 1999 and
bears interest at 8.22 percent with monthly payments of $5,000. At August 31,
1996 and 1997, $163,000 and $116,000, respectively, were outstanding under
this agreement.
F-40
<PAGE>
UNION POWER CONSTRUCTION COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company entered into a $1 million secured installment loan with a bank
in August 1996. The loan matures in April 2000 and bears interest at a rate of
8 percent with monthly payments due of $24,000. Amounts outstanding under this
agreement were $929,000 and $682,000 at August 31, 1996 and 1997,
respectively. In April 1997, the Company entered into a $360,000 installment
loan with a bank. This loan matures February 2001 with monthly payments of
$8,800 and an interest rate of 8.25 percent. There was $314,000 outstanding
under this arrangement at August 31, 1997.
The Company has established a $2 million secured revolving line of credit
with a bank effective August 1997. Borrowings under this facility bear
interest at a rate of prime, as defined, minus 1 percent for the first $1
million in borrowings and at prime for any balance over $1 million and are due
February 1998. As of August 31, 1997, $150,000 was outstanding under this
facility.
The Company also has loans outstanding from certain stockholders or other
related parties totaling $277,000 and $456,000 at August 31, 1996 and 1997,
respectively. These loans bear interest at rates ranging from 7 percent to 9
percent and are due at various times from November 1997 to June 2001.
The loan agreement covering the bank line of credit contains various
covenants, including a minimum tangible net worth requirement, a minimum
working capital requirement and various financial ratios.
All of the Company's debt is secured by property and equipment. Two of the
Company's stockholders have personally guaranteed substantially all debt with
banks.
The maturities of long-term debt as of August 31, 1997, are as follows (in
thousands):
<TABLE>
<S> <C>
Year ending August 31 --
1998........................................................... $ 791
1999........................................................... 588
2000........................................................... 406
2001........................................................... 82
------
$1,867
======
</TABLE>
6. LEASES:
Union leases its Denver office and facility from a company which is owned by
the Company's stockholders. The lease is renewable on a monthly basis at
Union's election. Rent paid under this related-party lease was approximately
$42,000 for each of the years ended August 31, 1995, 1996 and 1997.
The Company also leases its Las Vegas, Nevada, office and yard from two of
the Company's stockholders. The lease terminates in June 2006 and rent paid
was $19,000 and $56,000 for each of the years ended August 31, 1996 and 1997,
respectively.
The Company also enters into various vehicle and construction equipment
operating leases. Vehicle lease terms are typically five years or less, and
construction equipment leases typically are short-term (one year or less).
Payments made for vehicle leases were $11,000, $19,000 and $149,000 for the
years ended August 31, 1995, 1996 and 1997, respectively.
Union rents various construction equipment under a one-year operating lease
from a company owned by two of Union's stockholders. Total related-party
equipment rental expense was $96,000 for the year ended August 31, 1997.
F-41
<PAGE>
UNION POWER CONSTRUCTION COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under these noncancelable operating leases are
as follows (in thousands):
<TABLE>
<S> <C>
Year ending August 31 --
1998........................................................... $ 343
1999........................................................... 248
2000........................................................... 240
2001........................................................... 188
2002........................................................... 56
Thereafter..................................................... 215
------
$1,290
======
</TABLE>
7. INCOME TAXES:
Federal and state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------
1995 1996 1997
----------------------
<S> <C> <C> <C>
Federal--
Current............................................. $ 87 $358 $ 745
Deferred............................................ 116 251 303
State--
Current............................................. 15 64 160
Deferred............................................ 21 45 26
------ ------ --------
$239 $718 $1,234
====== ====== ========
</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) before provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------
1995 1996 1997
----------------------
<S> <C> <C> <C>
Provision at the statutory rate...................... $211 $641 $1,106
Increase resulting from--
Permanent differences, mainly meals and
entertainment..................................... 5 7 7
State income tax, net of benefit for federal
deduction......................................... 23 70 121
------ ------ --------
$239 $718 $1,234
====== ====== ========
</TABLE>
F-42
<PAGE>
UNION POWER CONSTRUCTION COMPANY
NOTES TO 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 (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Deferred income tax liabilities--
Property and equipment............................. $ (843) $(1,257)
Other.............................................. (347) (14)
---------- ----------
Total deferred income tax liabilities............ (1,190) (1,271)
Deferred income tax assets--
Property and equipment............................. 5 5
Other accruals not currently deductible............ 377 129
---------- ----------
Total deferred income tax assets................. 382 134
Valuation allowance.................................. (5) (5)
---------- ----------
Total deferred income tax liabilities............ $ (813) $(1,142)
========== ==========
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax assets--
Current............................................ $ 377 $ 129
Long-term.......................................... -- --
---------- ----------
Total............................................ 377 129
---------- ----------
Deferred tax liabilities--
Current............................................ (347) (14)
---------- ----------
Long-term.......................................... (843) (1,257)
---------- ----------
Total............................................ (1,190) (1,271)
---------- ----------
Net deferred income tax liabilities.............. $ (813) $(1,142)
========== ==========
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
Note Receivable
The Company has loaned funds to various entities owned by the Company's
stockholders. Interest income under this arrangement was $15,000, $13,000 and
$3,000 for the years ended August 31, 1995, 1996 and 1997, respectively.
Rental Income
Union has from time to time leased or rented construction equipment on a
short-term basis to various related parties. Total rental revenue under these
arrangements was $4,000 for the year ended August 31, 1996.
Management Fee Income
The Company also receives management fee income from a related-party owned
by two of Union's stockholders for financial and management services rendered.
Total payments received were $7,000, $13,000 and $9,000 for the years ended
August 31, 1995, 1996 and 1997.
F-43
<PAGE>
UNION POWER CONSTRUCTION COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE BENEFIT PLAN:
In connection with its collective bargaining agreements with various
electrical, labor and operating engineer unions, the Company participates with
other companies in the various multiemployer pension plans. These plans cover
all of the Company's employees who are members of such unions. The Employee
Retirement Income Security Act of 1974, as amended by the Multi-Employer
Pension Plan Amendments Act of 1980, imposes certain liabilities upon
employers who are contributors to a multiemployer plan in the event of the
employer's withdrawal from, or upon termination of, such plan. The Company has
no plan to withdraw from these plans. The plans do not maintain information on
net assets and actuarial present value of the accumulated share of the plans'
unfunded vested benefits allocable to the Company, and amounts, if any, for
which the Company may be contingently liable are not ascertainable at this
time. Total contributions to these plans were approximately $1.2 million, $2.3
million and $2.9 million at August 31, 1995, 1996 and 1997, respectively.
The Company has a defined contribution profit-sharing plan for employees not
covered by a union bargaining agreement. The plan provides for the Company to
make discretionary contributions of up to 15 percent of an employee's salary.
Total contributions by the Company under the plan were approximately $127,000,
$130,000 and $155,000 for the years ended August 31, 1995, 1996 and 1997,
respectively.
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, available for sale securities, a line of credit, accounts
payable, notes payable and 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.
Performance Bonds
In certain circumstances, the Company is required to provide performance
bonds in connection with its contract commitments which are personally
guaranteed by certain stockholders of the Company.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales greater than 10 percent of total sales to three major
customers (comprising approximately 27 percent, 17 percent and 16 percent of
total sales), three major customers (comprising approximately 39 percent, 27
percent and 11 percent of total sales) and two major customers (comprising
approximately 40 percent and 34 percent of total sales) during the years ended
August 31, 1995, 1996 and 1997, respectively.
The Company grants credit, generally without collateral, to its customers,
which are major public utilities, located primarily in the western United
States. Consequently, the Company is subject to potential credit risk related
to changes in business and economic factors within the region it operates.
However,
F-44
<PAGE>
UNION POWER CONSTRUCTION COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
management believes that its contract acceptance, billing and collection
policies are adequate to minimize the potential credit risk.
13. CONTRACT CLAIM:
In 1995, the Company received a $970,000 settlement from the Western Area
Power Administrator (WAPA). During the course of the project, the job was shut
down by WAPA for a protracted length of time due to an accident by an
unrelated contractor working on the same project. As a result, the Company
incurred significant idle crew time. The Company presented WAPA with a claim
for costs incurred by the Company for WAPA's actions and received the
settlement, which is included in 1995 revenues.
14. SUBSEQUENT EVENTS:
Construction Contract
In October 1997, the Company was awarded a major contract for construction
of 164 miles of electrical transmission lines and two substation facilities.
The contract requires substantial completion by December 1, 1998, and carries
significant penalties for work not being completed by the substantial
completion date. Work is scheduled to begin in December 1997.
Debt
In November 1997, the Company entered into a $500,000 term loan agreement
due November 2001 with a bank for the purchase of construction equipment. The
loan bears interest at a rate of 8.5 percent and monthly principal and
interest payments of $12,300. The loan is secured by the equipment purchased.
15. SUBSEQUENT EVENTS TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In December 1997, the Company amended its $2 million secured revolving line
of credit to increase total available borrowings under the facility to $3
million. The terms of the facility, including interest and maturity date,
remain unchanged. See discussion of the facility in Note 5.
In December 1997, the Company and its stockholders entered into a definitive
agreement with Quanta Services, Inc. (Quanta), subject to certain conditions,
pursuant to which all outstanding shares of the Company's common stock will be
exchanged for cash and shares of Quanta common stock concurrent with the
consummation of an initial public offering (the Offering) of additional common
stock by Quanta. In addition, the key executives of the Company will enter
into employment agreements with the Company and Quanta which have an initial
term of three years and generally restricts the disclosure of confidential
information as well as competition with the Company and Quanta for a period of
five years following from the date of the employment agreement.
Prior to the consummation of the Offering, two of Company's stockholders
will purchase certain nonoperating assets not used in the business at a price
equal to the net book value of such assets (approximately $183,000 at August
31, 1997).
F-45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TRANS TECH Electric, Inc.:
We have audited the accompanying balance sheets of TRANS TECH Electric, Inc.,
an Indiana Subchapter S corporation, as of December 31, 1996, and September
30, 1997, and the related statements of operations, cash flows and
shareholders' equity for the years ended December 31, 1995 and 1996, and the
nine months ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 TRANS TECH Electric, Inc., as
of December 31, 1996, and September 30, 1997, and the results of its
operations and cash flows for the years ended December 31, 1995 and 1996, and
the nine months ended September 30, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas December 5, 1997
F-46
<PAGE>
TRANS TECH ELECTRIC, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 389 $ 865
Accounts receivable--
Trade, net of allowance of $130 and $158,
respectively................................... 4,484 4,301
Retainage....................................... 1,822 1,838
Inventories....................................... 610 684
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... 1,853 4,320
Prepaid expenses and other current assets......... 66 86
------- -------
Total current assets............................ 9,224 12,094
PROPERTY AND EQUIPMENT, net......................... 2,642 2,924
OTHER ASSETS........................................ 3 3
------- -------
Total assets.................................... $11,869 $15,021
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable...................................... $ 797 $ 2,294
Current maturities of long-term debt.............. 107 89
Current portion of capital lease obligations...... 285 414
Accounts payable and accrued expenses............. 4,465 5,166
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... 728 173
------- -------
Total current liabilities....................... 6,382 8,136
LONG-TERM DEBT, net of current maturities........... 607 543
LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current
obligations........................................ 467 438
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 1,000 shares
authorized, 926 shares issued and outstanding.... 125 125
Retained earnings................................. 4,350 5,841
Treasury stock, 150 shares, at cost............... (62) (62)
------- -------
Total shareholders' equity...................... 4,413 5,904
------- -------
Total liabilities and shareholders' equity...... $11,869 $15,021
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
TRANS TECH ELECTRIC, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ------------------
1995 1996 1996 1997
------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $21,397 $24,414 $16,575 $24,278
COST OF SERVICES (including
depreciation)....................... 18,934 20,426 13,683 19,687
------- ------- -------- --------
Gross profit..................... 2,463 3,988 2,892 4,591
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 1,639 1,848 1,300 1,362
------- ------- -------- --------
Income from operations........... 824 2,140 1,592 3,229
------- ------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense................... (297) (313) (249) (232)
Other, net......................... 34 45 31 38
------- ------- -------- --------
Other income (expense), net...... (263) (268) (218) (194)
------- ------- -------- --------
NET INCOME........................... $ 561 $ 1,872 $ 1,374 $ 3,035
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
TRANS TECH ELECTRIC, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- -------------------
1995 1996 1996 1997
------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 561 $ 1,872 $ 1,374 $ 3,035
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation and amortization......... 442 574 428 496
Gain on sale of property and
equipment............................ (19) (31) (21) (15)
Bad debt expense...................... 83 34 10 38
Changes in operating assets and
liabilities--
(Increase) decrease in --
Accounts receivable................. 827 (2,134) 225 129
Inventories......................... (254) 256 (223) (74)
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... (241) 377 (601) (2,467)
Prepaid expenses and other current
assets............................. (33) (7) 1 (20)
Increase (decrease) in--
Accounts payable and accrued
expenses........................... (878) 1,359 219 701
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (141) 583 (145) (555)
------- ------- ------- -------
Net cash provided by operating
activities........................... 347 2,883 1,267 1,268
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment............................. 46 69 59 92
Additions of property and equipment.... (1,180) (923) (803) (856)
------- ------- ------- -------
Net cash used in investing activities. (1,134) (854) (744) (764)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of
credit................................ 1,139 (2,283) (1,115) 1,496
Proceeds from long-term debt........... 537 1,185 1,185 327
Payments of long-term debt............. (148) (477) (387) (307)
Distributions to shareholders.......... (457) (542) (522) (1,544)
------- ------- ------- -------
Net cash provided by (used in)
financing activities................. 1,071 (2,117) (839) (28)
------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 284 (88) (316) 476
CASH AND CASH EQUIVALENTS, beginning of
period................................. 193 477 477 389
------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of
period................................. $ 477 $ 389 $ 161 $ 865
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest................ $ 310 $ 297 $ 246 $ 233
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
TRANS TECH ELECTRIC, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------- RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT EARNINGS STOCK EQUITY
------ ------ -------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994........ 926 $125 $ 2,916 $(62) $ 2,979
Distributions to shareholders... -- -- (457) -- (457)
Net income...................... -- -- 561 -- 561
--- ---- ------- ---- -------
BALANCE, December 31, 1995........ 926 125 3,020 (62) 3,083
Distributions to shareholders... -- -- (542) -- (542)
Net income...................... -- -- 1,872 -- 1,872
--- ---- ------- ---- -------
BALANCE, December 31, 1996........ 926 125 4,350 (62) 4,413
Distributions to shareholders... -- -- (1,544) -- (1,544)
Net income...................... -- -- 3,035 -- 3,035
--- ---- ------- ---- -------
BALANCE, September 30, 1997....... 926 $125 $ 5,841 $(62) $ 5,904
=== ==== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
TRANS TECH ELECTRIC, INC.
NOTES TO FINANCIAL STATEMENTS
1.BUSINESS AND ORGANIZATION:
TRANS TECH Electric, Inc., an Indiana Subchapter S corporation (the
Company), focuses on providing traffic signals, street and sign lighting
installation and general commercial and industrial electrical construction
primarily for commercial, state and regulatory entities. The Company performs
the majority of its contract work under fixed price contracts, unit-price and
fixed price contracts modified by penalty provisions, with contract terms
generally ranging from six to 18 months. The Company performs the majority of
its work in Indiana and Michigan.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements for the nine months ended September 30, 1996,
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
The Company had the following noncash investing and financing activities
related to capital leases and equipment acquired by seller financing of
approximately $621,000, $485,000 and $327,000 for the years ended December 31,
1995 and 1996, and the nine months ended September 30, 1997.
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
last-in, first-out (LIFO) method. The excess of current costs over the
carrying value of LIFO inventories was $105,000 and $126,000 at December 31,
1996, and September 30, 1997, respectively.
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
deemed probable and an allowance based upon the level of total accounts
receivable balances.
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 $442,000, $574,000 and $496,000 for the years ended December 31,
1995 and 1996, and the nine months ended September 30, 1997, respectively.
F-51
<PAGE>
TRANS TECH ELECTRIC, INC.,
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 fixed price contract. Revenues from fixed price
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, labor and subcontract
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.
The balances billed but not paid by customers pursuant to retainage
provisions in fixed price 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. An accrual for warranty costs is
recorded based upon the historical level of warranty claims and management's
estimate of future costs.
Income Taxes
The Company has elected S corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S corporation status, the shareholders report their shares of
the Company's taxable earnings or losses in their personal tax returns. The
Company will terminate its S corporation status concurrently with the
effective date of the Offering (see Note 12).
Collective Bargaining Agreements
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements
will expire at various times through 2002.
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
F-52
<PAGE>
TRANS TECH ELECTRIC, INC.,
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 certain
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. 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
USEFUL LIVES DECEMBER 31, SEPTEMBER 30,
IN YEARS 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Operating equipment and vehicles.... 5-7 $3,957 $4,559
Leasehold improvements.............. 5-20 384 384
Office furniture and equipment...... 5 317 346
------ ------
4,658 5,289
Less--Accumulated depreciation and
amortization....................... (2,016) (2,365)
------ ------
Property and equipment, net...... $2,642 $2,924
====== ======
</TABLE>
4.DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Accounts payable, trade........................... $3,702 $4,242
Accrued compensation and benefits................. 340 453
Other accrued expenses............................ 423 471
------ ------
$4,465 $5,166
====== ======
</TABLE>
Contracts in progress are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Costs incurred on contracts in progress.......... $9,178 $11,236
Estimated earnings, net of losses................ 1,630 2,534
------ -------
10,808 13,770
Less--Billings to date........................... 9,683 9,623
------ -------
$1,125 $ 4,147
====== =======
Costs and estimated earnings in excess of bill-
ings on uncompleted contracts................... $1,853 $ 4,320
Less--Billings in excess of costs and
estimated earnings on uncompleted contracts.. 728 173
------ -------
$1,125 $ 4,147
====== =======
</TABLE>
F-53
<PAGE>
TRANS TECH ELECTRIC, INC.,
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5.DEBT:
The Company has a $4 million line of credit agreement with a bank bearing
interest at the national prime rate. The line of credit is collateralized by
the Company's receivables, inventory, property and equipment. The Company's
weighted average interest rate for the facility was 8.4 percent and 8.5
percent as of December 31, 1996, and September 30, 1997, respectively. At
December 31, 1996, and September 30, 1997, the outstanding balance on this
facility was $797,000 and $2,294,000, respectively, and is payable upon
demand.
The Company's debt obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank, 8.2% and 8.6% weighted
average interest rate, respectively, due $10,000
monthly with final maturity on May 1, 2001...... $663 $614
Note payable to commercial finance company, 8.1%
interest rate, $3,871 due monthly with final
maturity on March 1, 1998....................... 51 18
---- ----
714 632
Less--Current maturities......................... 107 89
---- ----
Total long-term debt............................. $607 $543
==== ====
</TABLE>
The long-term debt is secured by the Company's receivables, inventory,
property and equipment and is guaranteed by the Company's principal
shareholders. The line of credit and note payable to the bank are subject to
certain financial reporting and financial ratio requirements. The Company was
in compliance with such covenants for all periods presented. In October 1997,
the Company violated its minimum debt to net worth ratio due to the
distribution of the Company's accumulated adjustment account (see Note 11).
The Company has received a waiver, effective through January 1, 1999, from the
bank for this violation.
The maturities of long-term debt as of September 30, 1997, are as follows (in
thousands):
<TABLE>
<S> <C>
Year ending September 30--
1998.............................................................. $89
1999.............................................................. 77
2000.............................................................. 83
2001.............................................................. 383
</TABLE>
6.LEASES:
The Company leases its office and warehouse space from an entity owned
principally by the Company's shareholders. The lease expires in June 2000 and
requires the Company to pay all taxes, insurance and maintenance on the
property. The rent paid on this related-party lease was approximately $49,000,
$59,000 and $44,000 for the years ended December 31, 1995 and 1996, and the
nine months ended September 30, 1997, respectively.
F-54
<PAGE>
TRANS TECH ELECTRIC, INC.,
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company leases various equipment under noncancelable sale-leaseback
capital leases and the leased assets are included as part of "Property and
equipment." Details of the capital leased assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Operating equipment and vehicles.................. $1,022 $1,312
Less--Accumulated depreciation.................... (194) (306)
------ ------
Net capitalized leased assets..................... $ 828 $1,006
====== ======
</TABLE>
At September 30, 1997, the future minimum lease payments under operating and
capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1998....................................................... $ 59 $483
1999....................................................... 59 318
2000....................................................... 44 162
---- ----
Total................................................... $162 963
====
Less--Amount representing interest......................... (111)
----
Present value of minimum lease payments.................... 852
Less--Current maturities................................... (414)
----
Long-term obligations...................................... $438
====
</TABLE>
7.EMPLOYEE BENEFIT PLAN:
In connection with its collective bargaining agreements with various
electrical, labor and operating engineer unions, the Company participates with
other companies in the unions' multiemployer pension plans. These plans cover
all of the Company's employees who are members of such unions. The Employee
Retirement Income Security Act of 1974, as amended by the Multi-Employer
Pension Plan Amendments Act of 1980, imposes certain liabilities upon
employers who are contributors to a multiemployer plan in the event of the
employer's withdrawal from, or upon termination of, such plan. The Company has
no plan to withdraw from these plans. The plans do not maintain information on
net assets and actuarial present value of the accumulated share of the plan's
unfunded vested benefits allocable to the Company, and amounts, if any, for
which the Company may be contingently liable are not ascertainable at this
time. Total contributions to the plans were approximately $403,000, $474,000
and $435,000 for the years ended December 31, 1995 and 1996, and the nine
months ended September 30, 1997, respectively.
The Company has a defined contribution profit-sharing plan. The plan
provides for the Company to match one-half of employee contributions to the
plan up to a maximum of $3,500 per year per employee. Total contributions by
the Company under the plan were approximately $31,000, $30,000 and $16,000 for
the years ended December 31, 1995 and 1996, and the nine months ended
September 30, 1997, respectively. The Company may also make discretionary
contributions. The Company made discretionary contributions of $44,000,
$70,000 and $ -- for the years ended December 31, 1995 and 1996, and the nine
months ended September 30, 1997, respectively.
F-55
<PAGE>
TRANS TECH ELECTRIC, INC.,
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8.FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, a line of credit, accounts payable, notes payable and
debt. The Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.
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 workers'
compensation, business auto liability, general liability and an umbrella
policy. The Company is self-insured for medical claims up to $5,000 per year
per covered individual. The Company has recorded accruals for its estimated
portion of self-insured claims based on estimated claims incurred through
December 31, 1995 and 1996, and September 30, 1997.
Performance Bonds
In certain circumstances, the Company is required to provide performance
bonds in connection with its contract commitments which are personally
guaranteed by certain shareholders of the Company.
10.MAJOR CUSTOMERS AND RISK CONCENTRATION:
During 1995 and 1996, one customer accounted for 17 percent and 21 percent
of the Company's revenue, respectively. During 1997, two customers accounted
for 19 percent and 14 percent of the Company's revenues, respectively.
The Company grants credit, generally without collateral, to its customers,
which include real estate operators, general contractors and state and
regulatory agencies, located primarily in Indiana and Michigan. Consequently,
the Company is subject to potential credit risk related to changes in business
and economic factors within Indiana and Michigan. However, management believes
that its contract acceptance, billing and collection policies are adequate to
minimize the potential credit risk.
11.SUBSEQUENT EVENTS:
In October 1997, the Company made cash distributions of approximately
$5,050,000. The Company entered into a $5,050,000 note payable to a bank
bearing an 8 percent interest rate to finance these cash distributions. The
Company must make monthly payments of interest with final maturity in November
2000. Had this transaction been recorded at September 30, 1997, the effect on
the accompanying balance sheet would be an increase in liabilities of
$5,050,000 and a decrease in shareholders' equity of $5,050,000.
F-56
<PAGE>
TRANS TECH ELECTRIC, INC.,
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. SUBSEQUENT EVENTS TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In December 1997, the Company and its shareholders entered into a definitive
agreement with Quanta Services, Inc. (Quanta), subject to certain conditions
pursuant to which all outstanding shares of the Company's common stock will be
exchanged for cash and shares of Quanta common stock, concurrent with the
consummation of an initial public offering (the Offering) of additional common
stock by Quanta. In addition, two executives of the Company will enter into
employment agreements with the Company and Quanta which have an initial term
of three years and generally restricts the disclosure of confidential
information as well as restricts competition with the Company and Quanta for a
period of five years from the date of the employment agreement. In the event
that the proposed sale of the Company to Quanta Services, Inc. does not occur,
the shareholders intend, if necessary, to contribute amounts to provide for
additional liquidity to the Company.
F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Potelco, Inc.:
We have audited the accompanying balance sheets of Potelco, Inc., a Washington
Subchapter S corporation, as of December 31, 1996, and September 30, 1997, and
the related statements of operations, cash flows and stockholder's equity for
the year ended December 31, 1996, and the nine months ended September 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Potelco, Inc., as of December
31, 1996, and September 30, 1997, and the results of its operations and cash
flows for the year ended December 31, 1996, and the nine months ended
September 30, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 5, 1997
F-58
<PAGE>
POTELCO, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 36 $ 280
Accounts receivable --
Trade, net of allowance of $15 and $47, respec-
tively........................................... 2,987 4,428
Retainage......................................... 902 541
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... 117 975
Prepaid expenses and other current assets.......... 25 34
------ ------
Total current assets.............................. 4,067 6,258
PROPERTY AND EQUIPMENT, net........................ 2,679 3,206
------ ------
Total assets...................................... $6,746 $9,464
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable to bank.............................. $ 550 $1,162
Note payable to stockholder........................ 109 35
Current maturities of long-term debt............... 445 491
Current portion of note payable to related party... 216 219
Accounts payable and accrued expenses.............. 1,839 2,163
Billings in excess of costs and estimated earnings
on uncompleted contracts.......................... 139 74
------ ------
Total current liabilities......................... 3,298 4,144
LONG-TERM DEBT, net of current maturities --
Note payable to related party...................... 863 823
Other long-term debt............................... 537 559
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $5 par value, 10,000 shares autho-
rized, 22 shares issued and 2 shares outstanding.. -- --
Additional paid-in capital......................... 160 160
Retained earnings.................................. 1,888 3,778
------ ------
Total stockholder's equity........................ 2,048 3,938
------ ------
Total liabilities and stockholder's equity........ $6,746 $9,464
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
POTELCO, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -------------------
1996 1996 1997
------------ ----------- -------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES...................................... $14,549 $10,173 $13,248
COST OF SERVICES (including depreciation)..... 12,946 9,343 10,416
------- ------- -------
Gross profit................................. 1,603 830 2,832
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES...................................... 971 691 777
------- ------- -------
Income from operations....................... 632 139 2,055
------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense............................. (321) (218) (185)
Other, net................................... (123) 30 20
------- ------- -------
Other income (expense), net................. (444) (188) (165)
------- ------- -------
NET INCOME (LOSS)............................. $ 188 $ (49) $ 1,890
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
POTELCO, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------
1996 1996 1997
------------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $188 $(49) $1,890
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities --
Depreciation................................ 473 354 380
Loss (gain) on sale of property and equip-
ment....................................... 129 30 (6)
Changes in operating assets and liabilities
--
(Increase) decrease in --
Accounts receivable....................... 208 193 (1,080)
Costs and estimated earnings in excess of
billings on uncompleted contracts........ 79 (375) (858)
Prepaid expenses and other current assets. (16) -- (9)
Increase (decrease) in --
Accounts payable and accrued expenses..... (611) (759) 324
Billings in excess of costs and estimated
earnings on uncompleted contracts........ (371) 316 (65)
---- ---- ------
Net cash provided by (used in) operating
activities................................ 79 (290) 576
---- ---- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment. 60 44 48
Additions to property and equipment.......... (322) (235) (621)
---- ---- ------
Net cash used in investing activities...... (262) (191) (573)
---- ---- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in notes payable to bank........ 250 500 612
Net decrease in note payable to stockholder.. (8) (4) (74)
Payments of note payable to related party.... (45) (33) (37)
Payments of other long-term debt............. (437) (413) (404)
Proceeds from other long-term debt........... 50 26 144
Distributions to stockholder................. (101) (101) --
---- ---- ------
Net cash provided by (used in) financing
activities................................ (291) (25) 241
---- ---- ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. (474) (506) 244
CASH AND CASH EQUIVALENTS, beginning of peri-
od........................................... 510 510 36
---- ---- ------
CASH AND CASH EQUIVALENTS, end of period...... $ 36 $ 4 $ 280
==== ==== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMA-
TION:
Cash paid for interest...................... $328 $224 $ 200
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
POTELCO, 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, December 31, 1995...... 2 $-- $160 $1,801 $1,961
Distributions to stockholder... -- -- -- (101) (101)
Net income..................... -- -- -- 188 188
--- --- ---- ------ ------
BALANCE, December 31, 1996...... 2 -- 160 1,888 2,048
Net income..................... -- -- -- 1,890 1,890
--- --- ---- ------ ------
BALANCE, September 30, 1997..... 2 $-- $160 $3,778 $3,938
=== === ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
POTELCO, INC.
NOTES TO FINANCIAL STATEMENTS
1.BUSINESS AND ORGANIZATION:
Potelco, Inc., a Washington Subchapter S corporation (the Company), focuses
on providing underground and overhead power and telephone cable installation
primarily under commercial, industrial and governmental contracts. The Company
performs the majority of its contract work in Washington under lump-sum, cost-
plus and unit-priced contracts, with contract terms generally ranging from 30
days to 18 months.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim statements of operations and cash flows for the nine months
ended September 30, 1996, 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
The Company had noncash investing and financing activities related to
capital leases of approximately $374,000 and $328,000 during the year ended
December 31, 1996, and nine months ended September 30, 1997, respectively.
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
deemed probable and an allowance based upon the level of total accounts
receivable balances.
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 approximately $473,000 and $380,000 for the year ended December
31, 1996, and the nine months ended September 30, 1997, 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-63
<PAGE>
POTELCO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under fixed price or cost-plus-fee contracts. Revenues from
fixed price 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. Revenues from cost-plus-fee contracts are recognized on the
basis of costs incurred during the year, plus the fee earned, and are measured
by the cost-to-cost method. 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.
The balances billed but not paid by customers pursuant to retainage
provisions in fixed price or cost plus fee 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 generally warrants labor for the first
year after completion of the installation. An accrual for warranty costs is
recorded based upon the historical level of warranty claims and management's
estimate of future costs.
Income Taxes
The Company has elected S corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S corporation status, the shareholders report their shares of
the Company's taxable earnings or losses in their personal tax returns. The
Company will terminate its S corporation status concurrently with the
effective date of the Offering (see Note 13).
Collective Bargaining Agreements
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements
will expire at various times through 2000.
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.
F-64
<PAGE>
POTELCO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
New Accounting Pronouncement
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards 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. 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
USEFUL LIVES DECEMBER 31, SEPTEMBER 30,
IN YEARS 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Operating equipment and vehicles.... 5-10 $ 5,279 $ 6,080
Office equipment, furniture and
fixtures........................... 5 99 111
Leasehold improvements.............. 5 184 210
------- -------
Total cost........................ 5,562 6,401
Less--Accumulated depreciation...... (2,883) (3,195)
------- -------
Property and equipment, net...... $ 2,679 $ 3,206
======= =======
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Accounts payable, trade........................... $1,117 $1,132
Accrued compensation and benefits................. 149 258
Other accrued expenses............................ 573 773
------ ------
$1,839 $2,163
====== ======
</TABLE>
Contracts in progress are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Costs incurred on contracts in progress.......... $ 1,147 $ 1,958
Estimated earnings, net of losses................ 782 898
------- -------
1,929 2,856
Less--Billings to date........................... (1,951) (1,955)
------- -------
$ (22) $ 901
======= =======
Costs and estimated earnings in excess of
billings on uncompleted contracts............... $ 117 $ 975
Billings in excess of costs and estimated
earnings on uncompleted contracts............... (139) (74)
------- -------
$ (22) $ 901
======= =======
</TABLE>
F-65
<PAGE>
POTELCO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE TO BANK:
The notes payable to bank as of December 31, 1996, represents borrowings
under a revolving credit agreement maturing April 30, 1997. Borrowings are
based on percentages of contract billings and are secured by substantially all
of the Company's assets. This agreement provides for a total credit limit of
$800,000, of which $550,000, had been drawn at December 31, 1996, and requires
monthly interest payments of prime plus .75 percent.
On May 2, 1997, the Company entered into revolving credit agreements with a
bank maturing May 1, 1998. The agreements provide for total credit limits of
$1,000,000 and $400,000, of which approximately $995,000 and $167,000,
respectively, had been drawn at September 30, 1997, and requires monthly
interest payments of prime (8.50 percent at September 30, 1997) plus .75
percent beginning June 1, 1997. On October 1, 1997, the $1,000,000 revolving
credit agreement was amended to increase the credit limit to $1,500,000.
The notes payable outstanding as of December 31, 1996, and September 30,
1997, related to the revolving credit agreements contain several ratio and
covenant requirements, including a minimum working capital ratio and a debt to
net worth restriction. Furthermore, these notes are guaranteed by the
stockholder. The Company was in compliance with these requirements for the
year ended December 31, 1996, and the nine months ended September 30, 1997.
6. LONG-TERM DEBT AND CAPITAL LEASES:
Long-term debt and capital leases consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to a third party due in monthly
installments aggregating approximately $10,000,
including interest ranging from 7.9% to 11%,
collateralized by equipment.................... $ 263 $ 183
Notes payable to a third party due in monthly
installments aggregating approximately $12,000
plus interest at 10%, collateralized by
equipment...................................... 128 159
Notes payable to a third party due in monthly
installments of approximately $800 plus
interest at 10.27%, collateralized by
equipment...................................... 21 16
Obligations under capital leases................ 570 692
----- ------
982 1,050
Less--Current maturities of long-term debt...... (445) (491)
----- ------
Other long-term debt............................ $ 537 $ 559
===== ======
</TABLE>
Future required principal payments on long-term debt (excluding capital
leases) as of September 30, 1997, are as follows (in thousands):
<TABLE>
<S> <C>
Twelve months ending September 30 --
1998........................................................ $227
1999.......................................................... 131
</TABLE>
F-66
<PAGE>
POTELCO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company has entered into noncancellable lease agreements with third-
party leasing companies for the acquisition of trucks and equipment. The
leases require payments, including interest at varying rates implicit in the
leases, as of September 30, 1997, over the next five years and are as follows
(in thousands):
<TABLE>
<S> <C>
Twelve months ending September 30 --
1998............................................................ $ 309
1999............................................................ 293
2000............................................................ 251
2001............................................................ 94
-----
Net minimum lease payments...................................... 947
Less amount representing interest............................... (255)
-----
Present value of net minimum lease payments..................... $ 692
Less--Current maturities........................................ (264)
-----
Long-term obligations........................................... $ 428
=====
</TABLE>
7. RELATED-PARTY NOTES PAYABLE:
The Company entered into a debt agreement amended with the father of the
Company's sole stockholder for approximately $1,163,000. The agreement
stipulates that the note will accrue interest at 8 percent, with required
monthly payments including interest and principal of at least $10,000. The
note is scheduled to mature on December 1, 2014. The balance outstanding was
approximately $1,079,000 and $1,042,000 as of December 31, 1996, and September
30, 1997, respectively.
The Company's sole stockholder advanced funds to the Company totaling
$200,000 to provide short-term liquidity during 1994. The interest rate on the
advance is based on a blended annual rate, which is approximately 6.35 percent
as of December 31, 1996, and September 30, 1997, respectively. Amounts due
totaled approximately $109,000 and $35,000 as of December 31, 1996, and
September 30, 1997, respectively.
Principal payments on related-party debt as of September 30, 1997, over the
next five years are as follows (in thousands):
<TABLE>
<S> <C>
Twelve months ending September 30 --
1998................................................................. $254
1999................................................................. 56
2000................................................................. 61
2001................................................................. 66
2002 and thereafter.................................................. 640
</TABLE>
8. RELATED-PARTY LEASES:
The Company leases a facility from the father of the Company's sole
stockholder for a monthly rental of $2,000 plus annual property taxes. The
lease is month-to-month, with no termination date.
The Company also leases a facility from its sole stockholder at a monthly
rental of $2,800 plus annual property taxes. The lease is month-to-month, with
no termination date.
Lease payments on the above facilities aggregated approximately $58,000 and
$43,000 for the year ended December 31, 1996, and the nine months ended
September 30, 1997, respectively.
F-67
<PAGE>
POTELCO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE BENEFIT PLANS:
In connection with its collective bargaining agreements with various
electrical, labor and operating engineer unions, the Company participates with
other companies in the unions' multiemployer pension plans. These plans cover
all of the Company's employees who are members of such unions. The Employee
Retirement Income Security Act of 1974, as amended by the Multi-Employer
Pension Plan Amendments Act of 1980, imposes certain liabilities upon
employers who are contributors to a multiemployer plan in the event of the
employer's withdrawal from, or upon termination of, such plan. The Company has
no plans to withdraw from these plans. The plans do not maintain information
on net assets and actuarial present value of the accumulated share of the
plan's unfunded vested benefits allocable to the Company, and amounts, if any,
for which the Company may be contingently liable are not ascertainable at this
time. Total contributions to the plans were approximately $246,000 and
$247,000 for the year ended December 31, 1996, and the nine months ended
September 30, 1997, respectively.
The Company has two retirement plans covering all employees not included in
a collective bargaining unit. These noncontributory plans consist of a money
purchase pension plan and a profit-sharing plan. The money purchase pension
plan requires Company contributions equal to 10 percent of the covered
salaries. Contributions to this plan totaled approximately $27,000 and $26,000
for the year ended December 31, 1996, and the nine months ended September 30,
1997, respectively. The Company made discretionary contributions to the
profit-sharing plan of approximately $14,000 and $36,000 for the year ended
December 31, 1996, and the nine months ended September 30, 1997, respectively.
In addition, during the nine months ended September 30, 1997, the Company
accrued $30,000 related to employee bonuses that are anticipated to the be
paid subsequent to September 30, 1997.
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, a line of credit, accounts payable, notes payable and
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, workers' compensation and an umbrella
policy.
Performance Bonds
In certain circumstances, the Company is required to provide performance
bonds in connection with its contract commitments which are personally
guaranteed by certain stockholders of the Company.
F-68
<PAGE>
POTELCO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
During the year ended December 31, 1996, three customers accounted for 36%,
20% and 12% of the Company's revenues, respectively. During the nine months
ended September 30, 1997, three customers accounted for 37%, 18% and 10% of
the Company's revenues, respectively.
The Company grants credit, generally without collateral, to its customers,
which are located primarily in the northwestern United States. Consequently,
the Company is subject to potential credit risk related to changes in business
and economic factors within this region. However, management believes that its
contract acceptance, billing and collection policies are adequate to minimize
the potential credit risk.
13. SUBSEQUENT EVENTS TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In December 1997, the Company and its stockholder entered into a definitive
agreement with Quanta Services, Inc. (Quanta), subject to certain conditions
pursuant to which all outstanding shares of the Company's common stock will be
exchanged for cash and shares of Quanta common stock, concurrent with the
consummation of an initial public offering (the Offering) of additional common
stock by Quanta. In addition, the key executives of the Company will enter
into employment agreements with the Company and Quanta which have an initial
term of three years, and generally restricts the disclosure of confidential
information as well as restricts competition with the Company and Quanta for a
period of five years following termination of employment.
F-69
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATION 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 SOLICITATION OF AN OFFER TO BUY, SE-
CURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE AN OFFER OR SO-
LICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
The Company............................................................... 15
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Financial Data................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 33
Management................................................................ 41
Certain Transactions...................................................... 45
Principal Stockholders.................................................... 48
Description of Capital Stock.............................................. 49
Shares Eligible for Future Sale........................................... 53
Underwriting.............................................................. 55
Legal Matters............................................................. 56
Experts................................................................... 57
Additional Information.................................................... 57
Index to Financial Statements............................................. F-1
</TABLE>
------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,000,000 Shares
Quanta Services, Inc.
Common Stock
------------
PROSPECTUS
------------
BT ALEX. BROWN
BANCAMERICA ROBERTSON STEPHENS
SANDERS MORRIS MUNDY
[ , 1998]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be paid by the Company (other
than underwriting compensation expected to be incurred) in connection with the
offering described in this Registration Statement. All amounts are estimates,
except the SEC Registration Fee, the NASD Filing Fee and the NYSE Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ *
NASD Filing Fee................................................. *
NYSE Listing Fee................................................ *
Blue Sky Fees and Expenses...................................... *
Printing Costs.................................................. *
Legal Fees and Expenses......................................... *
Accounting Fees and Expenses.................................... *
Transfer Agent and Registrar Fees and Expenses.................. *
Miscellaneous................................................... *
---------
Total....................................................... $ *
=========
</TABLE>
- --------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware General Corporation Law
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may 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. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may 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 he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request or agent of another corporation, partnership, joint
venture, trust or other enterprise 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
II-1
<PAGE>
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such 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(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in 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.
Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in subsections (a) and (b). Such determination shall be made (1) by the board
of directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in Section
145. Such expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against 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 liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, 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 the heirs, executors and administrators of such a person.
Amended and Restated Certificate of Incorporation
The Amended and Restated Certificate of Incorporation provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary
II-2
<PAGE>
duty as a director, except for liability for unlawful payments of dividends or
unlawful stock repurchases or redemptions as provided for in Section 174 of
the DGCL. If the DGCL is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Company, in addition to the limitation on personal liability described
above, shall be limited to the fullest extent permitted by the amended DGCL.
Further, any repeal or modification of such provision of the Amended and
Restated Certificate of Incorporation by the stockholders of the Company shall
be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Company existing at the time of such
repeal or modification.
Bylaws
The Bylaws of the Company provide that the Company will indemnify and hold
harmless any director or officer of the Company to the fullest extent
permitted by applicable law, as in effect as of the date of the adoption of
the Bylaws or to such greater extent as applicable law may thereafter permit,
from and against all losses, liabilities, claims, damages, judgments,
penalties, fines, amounts paid in settlement and expenses (including
attorneys' fees) whatsoever arising out of any event or occurrence related to
the fact that such person is or was a director or officer of the Company and
further provide that the Company may, but is not required to, indemnify and
hold harmless any employee or agent of the Company or a director, officer,
employee or agent of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise who is or was serving in such
capacity at the written request of the Company; provided, however, that the
Company is only required to indemnify persons serving as directors, officers,
employees or agents of the Company for the expenses incurred in a proceeding
if such person has met the standards of conduct that make it permissible under
the laws of the State of Delaware for the Company to indemnify the claimant
for the amount claimed, but the burden of proving such defense will be on the
Company. The Bylaws further provide that, in the event of any threatened, or
pending action, suit or proceeding in which any of the persons referred to
above is a party or is involved and that may give rise to a right of
indemnification under the Bylaws, following written request by such person,
the Company will promptly pay to such person amounts to cover expenses
reasonably incurred by such person in such proceeding in advance of its final
disposition upon the receipt by the Company of (i) a written undertaking
executed by or on behalf of such person providing that such person will repay
the advance if it is ultimately determined that such person is not entitled to
be indemnified by the Company as provided in the Bylaws and (ii) satisfactory
evidence as to the amount of such expenses.
Underwriting Agreement
The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.
Insurance
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities issued or sold by the
Company within the last three years:
(a) Quanta was initially capitalized in August 1997 by a group of
investors, including Midwest Acquisition Support, LLC, Kevin D. Miller,
Steven P. Colmar and William G. Parkhouse, an advisory director of the
Company, and certain of their affiliates, who paid aggregate cash
consideration of $10.47 for 1,047 shares of pre-split common stock that
were reclassified into 1,693,779 shares of Limited Vote Common Stock.
(b) In November 1997 Main Street paid cash consideration of $9.60 for 960
shares of pre-split common stock that were reclassified into 1,551,554
shares of Limited Vote Common Stock.
(c) In November 1997, James H. Haddox, Chief Financial Officer of the
Company, paid $.65 cash for shares of pre-split common stock that were
reclassified into 100,000 shares of Limited Vote Common Stock.
II-3
<PAGE>
(d) The Company has agreed to issue 37,500 shares of Limited Vote Common
Stock to Derrick Jensen, Vice President and Controller of the Company, for
nominal consideration concurrent with the closing of the Offering.
(e) The Company has agreed to issue shares of Limited Vote Common Stock
in an amount equal to $375,000 divided by the initial Offering price to an
investor who agreed to advance the Company up to $125,000 prior to the
Offering in order to cover expenses.
(f) Concurrent with the closing of the Offering, the Company will issue
500 shares of Limited Vote Common Stock to each of two consultants in
consideration for services rendered to the Company prior to the Offering.
(g) In connection with the Acquisition, the Company will acquire all of
the outstanding shares of equity stock of the Founding Companies in
exchange for an aggregate of 7,527,000 shares of Common Stock and $21.0
million in cash.
All of the transactions described above were exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereunder. All of
such sales were conducted without any public solicitation and all of the
purchasers were provided with all material information that was available
regarding the Company. All of such purchasers were informed that the
transactions were being effected without registration under the Securities Act
and that the shares acquired by them could not be resold without registration
under the Securities Act unless the sale was effected pursuant to an exemption
from the registration requirements thereof. All of such purchasers also agreed
to contractual restrictions on the resale of the shares acquired by them.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------
<C> <S>
1.1 --Form of Underwriting Agreement*
2.1 --Amended and Restated Agreement and Plan of Organization dated as of
December 11, 1997 by and among Quanta Services, Inc. and PAR
Electrical Contractors, Inc. and its stockholders
2.2 --Amended and Restated Agreement and Plan of Organization dated as of
December 11, 1997 by and among Quanta Services, Inc. and Union Power
Construction Company and its stockholders
2.3 --Amended and Restated Agreement and Plan of Organization dated as of
December 11, 1997 by and among Quanta Services, Inc. and TRANS TECH
Electric, Inc. and its stockholders
2.4 --Amended and Restated Agreement and Plan of Organization dated as of
December 11, 1997 by and among Quanta Services, Inc. and Potelco,
Inc. and its stockholders
3.1 --Amended and Restated Certificate of Incorporation*
3.2 --Bylaws*
4.1 --Form of Common Stock Certificate*
5.1 --Opinion of Jackson Walker L.L.P.*
10.1 --Form of Employment Agreement
10.2 --1997 Stock Option Plan*
21.1 --Subsidiaries*
23.1 --Consent of Arthur Andersen LLP
23.2 --Consent of Jackson Walker L.L.P. (contained in Exhibit 5)*
23.3 --Consent of John R. Colson
23.4 --Consent of John R. Wilson
23.5 --Consent of Timothy A. Soule
23.6 --Consent of John A. Martell
23.7 --Consent of Gary A. Tucci
23.8 --Consent of Michael T. Willis
23.9 --Consent of Rodney R. Proto
23.10 --Consent of Willamette Management Associates, Inc.
24.1 --Power of Attorney (contained on the signature page of this
Registration Statement).
27 --Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
II-4
<PAGE>
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) 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.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payments
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 Securities Act and will be governed by
the final adjudication of such issue.
(3) That, for the purposes of determining any liability under the
Securities Act, 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.
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Quanta Services, Inc.
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 December 22, 1997.
Quanta Services, Inc.
/s/ John R. Colson
By: _________________________________
John R. Colson
Chief Executive Officer
Each person whose signature appears below hereby appoints Vincent D. Foster
and John R. Colson and each of them, each of whom may act without joinder of
the other, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to execute in the name of each such person
who is then an officer or director of the Registrant, and to file, any
amendments (including post-effective amendments) to this Registration
Statement and any registration statement for the same offering filed pursuant
to Rule 462 under the Securities Act and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing appropriate or necessary to be done,
as fully and for all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated and on December 22, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ John R. Colson Chief Executive Officer
___________________________________________ (Principal Executive Officer)
John R. Colson
/s/ James H. Haddox Chief Financial Officer
___________________________________________ (Principal Financial and
James H. Haddox Accounting Officer)
/s/ Vincent D. Foster Director
___________________________________________
Vincent D. Foster
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------
<C> <S>
1.1 --Form of Underwriting Agreement*
2.1 --Amended and Restated Agreement and Plan of Organization dated as of
December 11, 1997 by and among Quanta Services, Inc. and PAR
Electrical Contractors, Inc. and its stockholders
2.2 --Amended and Restated Agreement and Plan of Organization dated as of
December 11, 1997 by and among Quanta Services, Inc. and Union Power
Construction Company and its stockholders
2.3 --Amended and Restated Agreement and Plan of Organization dated as of
December 11, 1997 by and among Quanta Services, Inc. and TRANS TECH
Electric, Inc. and its stockholders
2.4 --Amended and Restated Agreement and Plan of Organization dated as of
December 11, 1997 by and among Quanta Services, Inc. and Potelco,
Inc. and its stockholders
3.1 --Amended and Restated Certificate of Incorporation*
3.2 --Bylaws*
4.1 --Form of Common Stock Certificate*
5.1 --Opinion of Jackson Walker L.L.P.*
10.1 --Form of Employment Agreement
10.2 --1997 Stock Option Plan*
21.1 --Subsidiaries*
23.1 --Consent of Arthur Andersen LLP
23.2 --Consent of Jackson Walker L.L.P. (contained in Exhibit 5)*
23.3 --Consent of John R. Colson
23.4 --Consent of John R. Wilson
23.5 --Consent of Timothy A. Soule
23.6 --Consent of John A. Martell
23.7 --Consent of Gary A. Tucci
23.8 --Consent of Michael T. Willis
23.9 --Consent of Rodney R. Proto
23.10 --Consent of Willamette Management Associates, Inc.
24.1 --Power of Attorney (contained on the signature page of this
Registration Statement).
27 --Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
EXHIBIT 2.1
AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION
dated as of December 11, 1997
by and among
QUANTA SERVICES, INC.
PAR ELECTRICAL CONTRACTORS, INC.
and
the Stockholders named herein
<PAGE>
TABLE OF CONTENTS
1. TRANSFER AND EXCHANGE................................................. 1
2. DELIVERY OF CONSIDERATION............................................. 2
2.1 Consideration.................................................... 2
2.2 Certificates..................................................... 2
2.3 QSI Stock........................................................ 2
3. CLOSING............................................................... 2
4. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS............ 3
4.1 Due Organization................................................ 3
4.2 Authorization................................................... 4
4.3 Capital Stock of the Company.................................... 4
4.4 Transactions in Capital Stock................................... 4
4.5 No Bonus Shares................................................. 5
4.6 Subsidiaries.................................................... 5
4.7 Predecessor Status; etc......................................... 5
4.8 Spin-Off by the Company......................................... 5
4.9 Financial Statements............................................ 5
4.10 Liabilities and Obligations..................................... 5
4.11 Accounts and Notes Receivable................................... 6
4.12 Permits and Intangibles......................................... 7
4.13 Environmental Matters........................................... 7
4.14 Personal Property............................................... 8
4.15 Significant Customers; Material Contracts and Commitments....... 8
4.16 Real Property................................................... 9
4.17 Insurance; Bonding.............................................. 9
4.18 Compensation; Employment Agreements; Organized Labor Matters....10
4.19 Employee Plans..................................................10
4.20 Compliance with ERISA...........................................11
4.21 Conformity with Law; Litigation.................................12
4.22 Taxes...........................................................12
4.23 No Violations...................................................14
4.24 Government Contracts............................................14
4.25 Absence of Changes..............................................15
4.26 Deposit Accounts; Powers of Attorney............................16
4.27 Validity of Obligations.........................................16
4.28 Relations with Governments......................................16
4.29 Disclosure......................................................16
4.30 Prohibited Activities...........................................17
i
<PAGE>
4.31 Authority; Ownership............................................17
4.32 Preemptive Rights...............................................17
5. REPRESENTATIONS OF QSI................................................18
5.1 Due Organization................................................18
5.2 Authorization...................................................18
5.3 Capital Stock of QSI............................................18
5.4 Transactions in Capital Stock...................................19
5.5 Subsidiaries....................................................19
5.6 Financial Statements............................................19
5.7 Liabilities and Obligations.....................................19
5.8 Conformity with Law; Litigation.................................19
5.9 No Violations...................................................20
5.10 Validity of Obligations.........................................20
5.11 QSI Stock.......................................................20
5.12 Business; Real Property; Material Agreements....................20
5.13 Taxes...........................................................21
5.14 No Intention to Dispose of Company Stock........................21
5.15 Other Founding Companies........................................21
6. COVENANTS PRIOR TO CLOSING............................................21
6.1 Access and Cooperation; Due Diligence...........................21
6.2 Conduct of Business Pending Closing.............................22
6.3 Prohibited Activities...........................................23
6.4 No Shop.........................................................24
6.5 Notice to Bargaining Agents.....................................24
6.6 Agreements......................................................24
6.7 Notification of Certain Matters.................................24
6.8 Amendment of Schedules..........................................25
6.9 Cooperation in Preparation of Registration Statement............26
6.10 Final Financial Statements......................................27
6.11 Further Assurances..............................................27
6.12 Authorized Capital..............................................27
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......27
7.1 Representations and Warranties..................................27
7.2 Performance of Obligations......................................28
7.3 No Litigation...................................................28
7.4 Opinion of Counsel..............................................28
7.5 Registration Statement..........................................28
7.6 Consents and Approvals..........................................28
7.7 Good Standing Certificates......................................28
7.8 No Material Adverse Change......................................29
ii
<PAGE>
7.9 Closing of IPO..................................................29
7.10 Secretary's Certificate.........................................29
7.11 Employment Agreements...........................................29
7.12 Directors and Officers Insurance................................29
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF QSI............................29
8.1 Representations and Warranties..................................29
8.2 Performance of Obligations......................................30
8.3 No Litigation...................................................30
8.4 Secretary's Certificate.........................................30
8.5 No Material Adverse Effect......................................30
8.6 Stockholders' Release...........................................30
8.7 Termination of Related Party Agreements.........................30
8.8 Opinion of Counsel..............................................30
8.9 Consents and Approvals..........................................31
8.10 Good Standing Certificates......................................31
8.11 Registration Statement..........................................31
8.12 Employment Agreements...........................................31
8.13 Closing of IPO..................................................31
8.14 FIRPTA Certificate..............................................31
8.15 Insurance.......................................................31
8.16 Lockup Agreement................................................31
9. COVENANTS OF QSI AND THE STOCKHOLDERS AFTER CLOSING 31
9.1 Release From Guarantees; Repayment of Certain Obligations.......31
9.2 Preservation of Tax Treatment...................................32
9.3 Preparation and Filing of Returns...............................32
9.4 Directors and Officers..........................................33
9.5 Maintenance of Books............................................33
10. INDEMNIFICATION.......................................................33
10.1 General Indemnification by Stockholders.........................33
10.2 Indemnification by QSI..........................................34
10.3 Third Person Claims.............................................35
10.4 Exclusive Remedy................................................36
10.5 Limitations on Indemnification..................................36
11. TERMINATION OF AGREEMENT..............................................37
11.1 Termination.....................................................37
11.2 Liabilities in Event of Termination.............................38
12. NONCOMPETITION........................................................38
12.1 Prohibited Activities...........................................38
12.2 Damages.........................................................39
iii
<PAGE>
12.3 Reasonable Restraint......................................... 39
12.4 Severability; Reformation.................................... 39
12.5 Independent Covenant......................................... 39
12.6 Materiality.................................................. 39
12.7 Limitations.................................................. 39
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.......................... 40
13.1 Stockholders................................................. 40
13.2 QSI.......................................................... 40
13.3 Damages...................................................... 41
13.4 Survival..................................................... 41
14. TRANSFER RESTRICTIONS.............................................. 41
14.1 Transfer Restrictions........................................ 41
15. FEDERAL SECURITIES ACT REPRESENTATIONS............................. 42
15.1 Compliance with Law.......................................... 42
15.2 Economic Risk; Sophistication................................ 42
16. REGISTRATION RIGHTS................................................ 43
16.1 Piggyback Registration Rights................................ 43
16.2 Registration Procedures...................................... 43
16.3 Underwriting Agreement....................................... 43
16.4 Availability of Rule 144..................................... 44
17. GENERAL............................................................ 44
17.1 Cooperation.................................................. 44
17.2 Successors and Assigns....................................... 44
17.3 Entire Agreement............................................. 44
17.4 Counterparts................................................. 44
17.5 Brokers and Agents........................................... 44
17.6 Expenses..................................................... 45
17.7 Notices...................................................... 45
17.8 Governing Law................................................ 46
17.9 Exercise of Rights and Remedies.............................. 46
17.10 Time......................................................... 46
17.11 Reformation and Severability................................. 46
17.12 Remedies Cumulative.......................................... 46
17.13 Captions..................................................... 46
17.14 Amendments and Waivers....................................... 47
17.15 Incorporation by Reference................................... 47
17.16 Defined Terms................................................ 47
iv
<PAGE>
INDEX TO SCHEDULES
4.1 Organization; Charter Documents
4.3 Authorized Capital Stock
4.4 Transactions in Capital Stock
4.5 Bonus Shares
4.6 Subsidiaries
4.7 Predecessor Status
4.8 Spin-Offs
4.9 Financial Statements
4.10 Liabilities and Obligations
4.11 Accounts and Notes Receivable
4.12 Permits and Intangibles
4.13 Environmental Matters
4.14 Personal Property
4.15 Significant Customers; Material Contracts and Commitments
4.16 Real Property
4.17 Insurance; Bonding
4.18 Compensation; Employment Agreements; Organized Labor Matters
4.19 Employee Plans
4.21 Violations of Law; Litigation
4.22 Taxes
4.23 Necessary Consents
4.24 Government Contracts
4.25 Absence of Changes
4.26 Deposit Accounts; Powers of Attorney
4.30 Prohibited Activities
4.31 Company Stock Ownership; Liens on Company Stock
5.1 QSI Charter and Bylaws
5.3 QSI Stock Ownership
5.4 Transactions in Capital Stock
5.6 Financial Statements
5.7 Liabilities and Obligations
5.8 Conformity with Law; Litigation
5.9 Required Consents - QSI
5.12 Business; Real Property; Material Agreements
5.13 Taxes
6.2 Conduct of Business Pending Closing - Exceptions
6.3 Prohibited Activities - Exceptions
6.5 Proof of Notice Under Collective Bargaining Agreements
6.6 Termination Agreements
v
<PAGE>
INDEX TO ANNEXES
Annex I Consideration
Annex II Employment Agreement Form
vi
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION (the
"Agreement") is made effective as of December 11, 1997, by and among Quanta
Services, Inc., a Delaware corporation formerly known as Fabal Construction,
Inc. ("QSI"), PAR Electrical Contractors, Inc., a Missouri corporation (the
"Company"), and John Colson and John Wilson, who are referred to collectively
herein as the "Stockholders." Capitalized terms used in this Agreement and not
otherwise defined are defined in Section 17.16 hereof.
WHEREAS, the parties have previously executed that certain Agreement and
Plan of Organization dated October 29, 1997, and have agreed to certain
amendments and revisions thereto pursuant to that certain Amended and Restated
Agreement and Plan of Organization dated as of November 10, 1997, and that
certain Amendment No. 1 To Amended and Restated Agreement and Plan of
Organization, dated as of November 24, 1997 (collectively, the "Original
Agreement");
WHEREAS, the parties wish to amend and restate the Original Agreement in
its entirety to reflect certain agreed to amendments and revisions;
WHEREAS, the respective Boards of Directors of QSI and the Company deem it
advisable and in the best interests of QSI and the Company and their respective
stockholders that QSI acquire all of the Company's outstanding shares of capital
stock pursuant to this Agreement;
WHEREAS, QSI is concurrently entering into an Amended and Restated
Agreement and Plan of Organization (collectively, the "Other Agreements") with
each of Potelco, Inc., Union Power Construction Company and TRANS TECH
Electric, Inc., and their respective stockholders (the Company, together with
each of the entities with which QSI has entered into the Other Agreements, are
collectively referred to herein as the "Founding Companies");
WHEREAS, this Agreement, the Original Agreement, the Other Agreements and
the IPO of QSI Stock constitute the "QSI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors and the stockholders
of QSI and each of the Other Founding Companies have approved and adopted the
QSI Plan of Organization as an integrated plan pursuant to which QSI will
acquire the capital stock or assets of each of the Founding Companies in
exchange for shares of QSI Stock and cash concurrent with the IPO of QSI Stock
and which is intended to qualify as an exchange meeting the requirements of
Section 351 of the Code; and
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:
<PAGE>
1. TRANSFER AND EXCHANGE
On the Funding and Consummation Date, (a) each Stockholder shall transfer,
convey, assign and deliver to QSI, and QSI shall acquire and accept from such
Stockholder, all of such Stockholder's outstanding shares of Company Stock, free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind.
2. DELIVERY OF CONSIDERATION
2.1 CONSIDERATION. On the Funding and Consummation Date the Stockholders,
who are on that date the holders of all outstanding certificates representing
Company Stock, shall, upon surrender of such certificates, receive the number of
shares of QSI Stock and the amount of cash set forth on Annex I hereto, said
cash to be payable by certified check or wire transfer. QSI shall have the
right, in its sole discretion, to revise the consideration set forth on Annex I
at any time prior to the Closing Date based upon the trailing twelve month
revenue performance of the Company; provided that if either the cash or stock
portion of such consideration is adjusted downward by more than 5%, the Company
or any Stockholders shall have the right to terminate this Agreement by giving
written notice of their intention to do so not later than fifteen days following
receipt of notice of the adjustment. Also set forth on Annex I are actions
permitted to be taken by the Company with respect to disposition of its assets
prior to the Closing Date.
2.2 CERTIFICATES. The Stockholders shall deliver to QSI at the Closing
the certificates representing Company Stock, duly endorsed in blank by the
appropriate Stockholder, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Company's
expense, affixed and canceled. Each Stockholder agrees promptly to cure any
deficiencies with respect to the endorsement of the interest certificates or
other documents of conveyance with respect to such Company Stock or with respect
to the stock powers accompanying the Company Stock.
2.3 QSI STOCK. All QSI Stock received by the Stockholders pursuant to
this Agreement shall, except for restrictions on resale or transfer described in
Sections 14 and 15 hereof, have the same rights as all of the other shares of
outstanding QSI Stock by reason of the provisions of the Certificate of
Incorporation of QSI or as otherwise provided by the Delaware General
Corporation Law (the "Delaware GCL"). All voting rights of such QSI Stock
received by the Stockholders shall be fully exercisable by the Stockholders and
the Stockholders shall not be deprived nor restricted in exercising those
rights. On the Funding and Consummation Date, QSI shall have no class of
capital stock issued and outstanding other than the QSI Stock. Notwithstanding
anything herein to the contrary, the sponsors of QSI will hold a class of stock
which will be identical to the QSI Stock, except that holders of such class of
stock will have the right to elect only one or two directors and with such other
limited voting rights as recommended by counsel.
2
<PAGE>
3. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary to
prepare to (i) effect the transfer and delivery of the shares of Company Stock
as contemplated by Section 1 hereof and (ii) effect the delivery of the
consideration referred to in Section 2 hereof; provided, however, that such
actions shall not include the actual completion of the transfer and delivery of
the shares of Company Stock or the delivery of the consideration by certified
check(s) or wire transfer(s) referred to in Section 2 hereof, each of which
actions shall only be taken upon the Funding and Consummation Date as herein
provided. The taking of the actions described in clauses (i) and (ii) above
(the "Closing") shall take place on the closing date (the "Closing Date") at the
offices of Jackson Walker L.L.P., 901 Main Street, Suite 6000, Dallas, Texas
75202. On the Funding and Consummation Date (x) all transactions contemplated
by this Agreement, including the delivery of the shares of Company Stock and the
delivery of shares of QSI Stock and certified check(s) or wire transfer(s) in an
amount equal to the cash portion of the consideration which the Stockholders
shall be entitled to receive pursuant to Section 2 hereof shall occur and (y)
the closing with respect to the IPO shall be completed. The date on which the
actions described in the preceding clauses (x) and (y) occur shall be referred
to as the "Funding and Consummation Date." Except as provided in Sections 7 and
8 hereof with respect to actions to be taken on the Funding and Consummation
Date, during the period from the Closing Date to the Funding and Consummation
Date this Agreement may only be terminated by a party if the underwriting
agreement in respect of the IPO is terminated pursuant to the terms of such
agreement. This Agreement shall in any event terminate if the Funding and
Consummation Date has not occurred within 15 business days of the Closing Date.
Time is of the essence.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS.
Each of the Company and the Stockholders jointly and severally represents
and warrants that all of the following representations and warranties in this
Section 4(A) are true at the date of this Agreement and, subject to Section 6.8
hereof, shall be true at the time of Closing and the Funding and Consummation
Date. Each of the Company and the Stockholders agrees that such representations
and warranties shall survive the Funding and Consummation Date for a period of
two years (the last day of such period being the "Expiration Date"), except that
(i) the warranties and representations set forth in Section 4.22 hereof shall
survive until such time as the limitations period has run for all Tax periods
ended on or prior to or including the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 4.22, (ii) the warranties and
representations set forth in Section 4.29(c) hereof shall survive until such
time as the limitations period has run for determining the Tax treatment of the
transaction contemplated herein, and (iii) solely for purposes of determining
whether a claim for indemnification under Section 10.1(iii) hereof has been made
on a timely basis, and solely to the extent that in connection with the IPO, QSI
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws as a result of a breach of a representation or warranty
by the Company or a Stockholder, the
3
<PAGE>
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. For purposes of this Section 4, the term
"Company" shall mean and refer to the Company and all of its Subsidiaries.
4.1 DUE ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and the Company is duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on its business in the places and in the manner as now
conducted, except (i) as set forth on Schedule 4.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the Company taken as a whole (as used herein with
respect to the Company, or with respect to any other person, a "Material Adverse
Effect"). Schedule 4.1 sets forth the jurisdiction in which the Company is
incorporated and contains a list of all such jurisdictions in which the Company
is authorized or qualified to do business. True, complete and correct copies of
the Certificate of Incorporation and Bylaws, each as amended, of the Company
(the "Charter Documents") are all attached hereto as Schedule 4.1. The stock
records of the Company, as heretofore made available to QSI, are correct and
complete in all material respects. There are no minutes in the possession of
the Company or the Stockholders that have not been made available to QSI, and
all of such minutes are correct and complete in all respects. Except as set
forth on Schedule 4.1, the most recent minutes of the Company, which are dated
no earlier than ten business days prior to the date hereof, affirm and ratify
all prior acts of the Company, and of its officers and directors on behalf of
the Company.
4.2 AUTHORIZATION. (i) The 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 and perform this Agreement, and all required approvals
of the equity holders and the Board of Directors of the Company have been
obtained.
4.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 4.3. 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 4.3 and further, except as set forth on Schedule
4.3, 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 the
preemptive rights of any past or present equity holder of the Company.
4.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 4.4,
the Company has not acquired any Company Stock since January l, 1994. Except as
set forth on Schedule 4.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the
4
<PAGE>
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 equity holders has been altered or changed in
contemplation of the transactions contemplated hereby and/or the QSI Plan of
Organization. Schedule 4.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other rights to acquire shares of the Company's stock and
the material terms of such outstanding options, warrants or other rights.
4.5 NO BONUS SHARES. Except as set forth on Schedule 4.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
4.6 SUBSIDIARIES. Schedule 4.6 attached hereto lists the name of each of
the Company's subsidiaries (each, a "Subsidiary"), and sets forth the number and
class of the authorized capital stock of each Subsidiary and the number of
shares or interests of each Subsidiary which are issued and outstanding, all of
which shares or interests (except as set forth on Schedule 4.6) are owned by the
Company, free and clear of all liens, security interests, pledges, voting
trusts, equities, restrictions, encumbrances and claims of every kind. Except
as set forth on Schedule 4.6, 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.
4.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 4.7 is a listing of
all names 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. Except as disclosed on Schedule 4.7, the Company has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
4.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 4.8, 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 directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Company ("Affiliates") since January 1, 1994.
4.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 4.9 are copies of
the following financial statements of the Company and any Subsidiaries (the
"Company Financial Statements"): the Company's audited Consolidated Balance
Sheets, if any, as of December 31, 1996, 1995 and 1994 and Consolidated
Statements of Income, Cash Flows and Retained Earnings, if any, for each of the
years in the three-year period ended December 31, 1996, and Consolidated
Statements of Income, Cash Flows and Retained Earnings for the nine-month period
ending September 30, 1997 and Consolidated Balance Sheets as of September 30,
1997 (September 30, 1997 being hereinafter
5
<PAGE>
referred to as the "Balance Sheet Date"). Except as set forth on Schedule 4.9,
such Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated. Except as set forth on Schedule 4.9, such Consolidated
Balance Sheets as of September 30, 1997, December 31, 1996, 1995 and 1994
present fairly the financial position of the Company and each Subsidiary, if
any, as of the dates indicated thereon, and such Consolidated Statements of
Income, Cash Flows and Retained Earnings present fairly the results of
operations for the periods indicated thereon.
4.10 LIABILITIES AND OBLIGATIONS. The Company has delivered to QSI an
accurate list (which is set forth on Schedule 4.10) as of the Balance Sheet Date
of (i) all 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 (other than liabilities
incurred in the ordinary course of business), (ii) any liabilities of the
Company in excess of $50,000 and (iii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, liens, pledges or other security
agreements in each case evidencing indebtedness in excess of $15,000, including
copies thereof. Except as set forth on Schedule 4.10, since the Balance Sheet
Date the Company has not incurred any material liabilities of any kind,
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to QSI on Schedule 4.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed or are being contested, the
following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation 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; and
(iii) the date such claim, suit or proceeding as instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which 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.
4.11 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to QSI
an accurate list (which is set forth on Schedule 4.11) 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 receivables from and advances to employees and the
Stockholders. The Company shall also provide to QSI (x) an accurate list of all
receivables obtained
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subsequent to the Balance Sheet Date up to the Closing Date and (y) an aging of
all accounts and notes receivable showing amounts due in 30 day aging categories
(the "A/R Aging Reports"). Except to the extent reflected on Schedule 4.11 or as
disclosed by the Company to QSI in a writing accompanying the A/R Aging Reports,
the accounts, notes and other receivables shown on Schedule 4.11 and on the A/R
Aging Reports represent bona-fide obligations and are and shall be collectible
in the amounts shown, net of reserves reflected in the balance sheet as of the
Balance Sheet Date with respect to accounts receivable as of the Balance Sheet
Date, and net of reserves reflected in the books and records of the Company
(consistent with the methods used for the balance sheet) with respect to
accounts receivable of the Company after the Balance Sheet Date.
4.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have a Material Adverse Effect on its business, and the Company has delivered to
QSI an accurate list and summary description (which is set forth on Schedule
4.12) of all such licenses, franchises, permits and other governmental
authorizations, including permits, titles, licenses, franchises, certificates,
trademarks, trade names, patents, patent applications and copyrights owned or
held by the Company (including interests in software or other technology
systems, programs and intellectual property) (it being understood and agreed
that a list of all environmental permits and other environmental approvals is
set forth on Schedule 4.13). To the Knowledge of the Company, the licenses,
franchises, permits and other governmental authorizations listed on Schedules
4.12 and 4.13 are valid, and the Company has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The Company has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 4.12 and 4.13
and is not in violation of any of the foregoing except where such noncompliance
or violation would not have a Material Adverse Effect on the Company. Except as
specifically provided on Schedule 4.12, 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, franchises, permits or government authorizations.
4.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 4.13, (i)
the Company has complied with and is in compliance with all federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations
and rules, and all judgments, orders and decrees to which it is a party,
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) the Company has obtained and adhered to all necessary permits and
other approvals necessary to treat, transport, store, dispose of and otherwise
handle Hazardous Wastes and Hazardous Substances, a list of all of which permits
and approvals is set forth on Schedule 4.13; (iii) there have been no releases
or threats of releases (as defined in Environmental Laws) at, from, in or on any
property owned or operated by the Company except as permitted by Environmental
Laws; (iv) the Company Knows of no on-site or off-site location to which the
Company has transported or disposed
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of Hazardous Wastes and Hazardous Substances or arranged for the transportation
of Hazardous Wastes and Hazardous Substances, which site is the subject of any
federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against the Company or QSI for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) the
Company has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
4.14 PERSONAL PROPERTY. The Company has delivered to QSI an accurate
list (which is set forth on Schedule 4.14) of (x) all personal property included
in "depreciable plant, property and equipment" on the balance sheet of the
Company as of the Balance Sheet Date or that will be included on any balance
sheet of the Company prepared after the Balance Sheet Date, (y) all other
personal property owned by the Company with a value in excess of $10,000 (i) as
of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z)
all leases and agreements in respect of personal property with a value in excess
of $10,000, including, true, complete and correct copies of all such leases and
agreements. The Company shall indicate on Schedule 4.14 those assets leased or
used by the Company that are currently owned, or that were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except
as set forth on Schedule 4.14, (i) all personal property 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 4.14, (ii) all of the personal property listed on
Schedule 4.14 is in good working order and condition, ordinary wear and tear
excepted and (iii) all leases and agreements included on Schedule 4.14 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.
The Assets constitute all of the property and assets used in, and/or
necessary to operate, the business of the Company as it is now being conducted
and as contemplated to be conducted on and after the Funding and Consummation
Date.
4.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to QSI an accurate list (which is set forth on Schedule
4.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 4.15, means a customer (or
person or entity) representing 5% or more of the Company's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 4.15, none
of the Company's significant customers (or persons or entities that are sources
of a significant number of customers) have canceled or substantially reduced or,
to the Knowledge of the Company, are currently attempting or threatening to
cancel a contract or substantially reduce utilization of the services provided
by the Company.
The Company has listed on Schedule 4.15 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),
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other than contracts, commitments and agreements otherwise listed on Schedules
4.10, 4.14 or 4.16, (a) in existence as of the Balance Sheet Date and (b)
entered into since the Balance Sheet Date, and in each case has delivered or
made available true, complete and correct copies of such agreements to QSI. The
Company has complied with all material commitments and obligations pertaining to
it, and is not in default under any contracts or agreements listed on Schedule
4.15 and no notice of default under any such contract or agreement has been
received. Where required under such contracts or agreements, the Company has
furnished notice of the QSI Plan of Organization to third parties and has, where
required, obtained consent from third parties to enter into the transactions
contemplated by this Agreement. The Company has also indicated on Schedule 4.15
a summary description of all plans or projects involving the opening of new
operations, expansion of existing operations, the acquisition of any personal
property, business or assets requiring, in any event, the payment of more than
$100,000 by the Company.
Notwithstanding the foregoing, it is agreed and understood that the
Company's customers competitively bid most contracts and that there can be no
assurance that the Company will win future competitive bids.
4.16 REAL PROPERTY. Schedule 4.16 includes a list of all real property
owned or leased by the Company (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other interests in real property,
if any, used by the Company in the conduct of its business. The Company has good
and insurable title to the real property owned by it, including those reflected
on Schedule 4.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 4.10 or 4.16 as securing specified
liabilities (with respect to which no 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 shown of record in the office of the Registry of Deeds for the County
in which the properties, assets and leasehold estates are located which do
not materially adversely affect the current use of the property.
Schedule 4.16 contains, without limitation, true, complete and correct
copies of all title reports and title insurance policies currently in possession
of the Company with respect to real property owned by the Company.
The Company has also delivered to QSI an accurate list of real property
leased by the Company (which list is set forth on Schedule 4.16), together with
true, complete and correct copies of all leases and agreements in respect of
such real property leased by the Company (which copies are attached to Schedule
4.16), and an indication as to which such properties, if any, are currently
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owned, or were formerly owned, by Stockholders or business or personal
affiliates of the Company or Stockholders. Except as set forth on Schedule
4.16, all of such leases included on Schedule 4.16 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.
4.17 INSURANCE; BONDING. (a) The Company has delivered to QSI, as
set forth on and attached to Schedule 4.17, (i) an accurate list as of the
Balance Sheet Date of all insurance policies carried by the Company, (ii) an
accurate list and copies of all insurance loss runs for the past five (5) policy
years and (iii) true, complete and correct copies of all insurance policies
which were in effect the past three (3) years and which are currently in effect.
Such insurance policies evidence all of the insurance that 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
Funding and Consummation Date. No insurance carried by the Company has ever
been canceled by the insurer and the Company has never been unable to obtain
insurance coverage for its assets and operations.
(b) Schedule 4.17 includes an accurate list of all performance bonds
securing obligations of the Company, together with the amount bonded and any
guaranty issued by a Stockholder or other third party with respect thereto.
4.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
The Company has delivered to QSI an accurate list (which is set forth on
Schedule 4.18) showing all officers, directors and key employees of the Company,
listing all employment and severance 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 (i) as of the Balance Sheet Date and (ii) as of the date hereof.
The Company has provided to QSI true, complete and correct copies of any
employment agreements for persons listed on Schedule 4.18. Since the Balance
Sheet Date, 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,
or except as set forth on Schedule 4.18.
Except as set forth on Schedule 4.18, (i) the Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
arrangement with any labor union, (ii) no employees of the Company are
represented by any labor union or covered by any collective bargaining
agreement, (iii) no campaign to establish such representation is in progress and
(iv) there is no pending or, to the best of the Company's 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.
4.19 EMPLOYEE PLANS. The Company has delivered to QSI an accurate
schedule (Schedule 4.19) showing all employee benefit plans currently sponsored
or maintained or contributed to by, or which cover the current or former
employees or directors of the Company, all employment and severance agreements
and other agreements or arrangements containing "golden parachute" or other
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similar provisions, and all 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. Except for the employee benefit plans, if any, described on
Schedule 4.19, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan," nor has the Company 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,
agreements, arrangement and trusts set forth on Schedule 4.19, nor is the
Company 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 otherwise listed on Schedule 4.19, the Company is not now, and
cannot 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.
Except as otherwise listed on Schedule 4.19, all employee benefit plans,
agreements, arrangements and trusts listed on Schedule 4.19 and the
administration thereof are in substantial compliance 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.
Except as otherwise listed on Schedule 4.19, all accrued contribution
obligations of the Company with respect to any plan listed on Schedule 4.19 have
either been fulfilled in their entirety or are fully reflected on the balance
sheet of the Company as of the Balance Sheet Date.
4.20 COMPLIANCE WITH ERISA. Except as disclosed on Schedule 4.19, all
such plans, agreements, arrangements and trusts of the Company that are
currently maintained or contributed to by the Company or cover employees or
former employees of the Company listed on Schedule 4.19 that are intended to
qualify under Section 401(a) of the Code (the "Qualified Plans") are, and have
been so qualified and have been determined by the Internal Revenue Service to
be so qualified. Except as disclosed on Schedule 4.19, 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, audit reports or Tax Returns) have been timely filed or distributed.
Except as disclosed on Schedule 4.19, neither Stockholders, any such plan listed
on Schedule 4.19, nor the Company has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA.
Except as disclosed on Schedule 4.19, no such plan listed on Schedule 4.19 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and the Company has not incurred any liability
for excise tax
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or penalty due to the Internal Revenue Service nor any liability to the Pension
Benefit Guaranty Corporation. The Stockholders further represent that:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice of and approval by
the Internal Revenue Service;
(ii) no such plan listed on Schedule 4.19 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 on
Schedule 4.19;
(iv) the Company 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 multi employer plan or the Pension Benefit Guaranty
Corporation 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.
4.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedules 4.21 or 4.13, the Company is not in violation of any law or regulation
which would have a Material Adverse Effect, or of any order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over the Company; and
except to the extent set forth on Schedules 4.10 or 4.13, there are no claims,
actions, suits or proceedings, commenced or, to the Knowledge of the Company,
threatened, against or affecting the Company, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over the Company
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in applicable federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 4.12 and 4.13, and is not in violation of any of the foregoing.
4.22 TAXES. (i) For purposes of this Section 4.22 only, the term "Company"
shall include each Subsidiary, if any.
(ii) All Returns required to have been filed by the Company have
been timely filed (taking into account duly granted extensions) and are
true, correct and complete in all
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respects. Except as disclosed in Schedule 4.22, (i) the Company is not
currently the beneficiary of any extension of time within which to file any
Return, and (ii) no claim has ever been made by any governmental authority
in a jurisdiction where the Company does not file Returns that the Company
is or may be subject to taxation by that jurisdiction, which claim has not
been resolved as of the date hereof.
(iii) All Taxes of the Company which have become due (without regard
to any extension of the time for payment and whether or not shown on any
Return) have been paid. The Company has withheld and paid over all Taxes
required to have been withheld and paid over by it and has complied with
all information reporting and back-up withholding requirements relating to
Taxes. There are no liens with respect to Taxes on any of the assets of
the Company, other than liens for Taxes not yet due and payable or for
Taxes disclosed in Schedule 4.22 that are being contested in good faith
through appropriate proceedings and for which adequate reserves have been
established in the Company Financial Statements.
(iv) The unpaid Taxes of the Company for all periods ending on or
before the Balance Sheet Date did not exceed the amount of the current
liability accruals for Taxes (exclusive of reserves for deferred Taxes
established to reflect timing differences) reflected on the face of the
balance sheet of the Company as of the Balance Sheet Date, and the unpaid
Taxes of the Company for all periods ending on or before the Funding and
Consummation Date will not exceed the amount of such current liability
accruals reflected on the balance sheet of the Company as of September 30,
1997 as adjusted for Company operations in the ordinary course of business
through the Funding and Consummation Date in accordance with generally
accepted accounting principles applied on a consistent basis and, to the
extent consistent therewith, the most recent custom and practices of the
Company.
(v) No deficiencies exist or have been asserted or are expected to
be asserted (verbally or in writing) with respect to Taxes of the Company
and the Company has not received notice nor does it expect to receive
notice (verbally or in writing) that it has not filed a Return or paid any
Taxes required to be filed or paid by it. No audit, examination,
investigation, action, suit, claim or proceeding relating to the
determination, assessment or collection of any Tax of the Company is
currently in process, pending or threatened (verbally or in writing).
Except as disclosed in Schedule 4.22, no waiver or extension of any statute
of limitations relating to the assessment or collection of any Tax of the
Company is in effect. There are no outstanding requests for rulings with
any Tax authority relating to Taxes of the Company.
(vi) Except as disclosed in Schedule 4.22, the Company is not and
has never been (i) a party to any tax sharing agreement or arrangement
(formal or informal, verbal or in writing), or (ii) a member of an
affiliated group of corporations (within the meaning of Code Section 1504)
filing a consolidated federal income Return, or any similar group under
analogous provisions of other law.
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(vii) The Company is not liable for the unpaid Taxes of any person
other than the Company under Treasury Regulation Section 1.1502-6 or any
similar provision of state, local or foreign law, or by contract or
otherwise.
(viii) The Company has delivered to QSI true and complete copies of
all federal, state, local and foreign income Returns filed by the Company
for its three (3) most recently ended taxable years, together with all
related examination reports, statements of deficiencies and closing and
other agreements. Schedule 4.22 indicates which, if any, of such Returns
have been, or currently are, the subject of any audit, examination or other
Tax proceeding.
(ix) The Company (i) has not filed a consent under Code Section
341(f) concerning collapsible corporations; (ii) has not made any payments,
obligated itself to make any payments or become a party to any agreement
that under any circumstance could obligate it or any successor or assignee
of it to make any payments that are not or will not be deductible under
Code Section 280G, or that would be subject to excise Tax under Code
Section 4999; (iii) is not a "foreign person" as defined in Code Section
1445(f)(3); (iv) is not and has not been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii); (v) does not
own and has not owned any interest in any "controlled foreign corporation"
as defined in Code Section 957 or "passive foreign investment company" as
defined in Code Section 1296; (vi) is not and has not been a party to any
agreement or arrangement for which partnership Returns are required to be
filed; (vii) does not own any asset that is subject to a "safe harbor
lease" within the meaning of Code Section 168(f)(8), as in effect prior to
amendment by the Tax Equity and Fiscal Responsibility Act of 1982; (viii)
does not own any "tax-exempt use property" within the meaning of Code
Section 168(h) or "tax exempt bond financed property" within the meaning of
Code Section 168(g)(5); and (ix) has not agreed to and is not required to
make any adjustment under Code Section 481(a) by reason of a change in
accounting method or otherwise.
4.23 NO VIOLATIONS. The Company is not in violation of any Charter
Document. Neither the Company nor, to the Knowledge of the Company, any other
party thereto, is in default under any lease, instrument, agreement, license or
permit set forth on Schedules 4.12, 4.13, 4.14, 4.15 or 4.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth on Schedule 4.23, (a) the
rights and benefits of the Company under the Material Documents will not be
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 4.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit. Except as set forth on Schedule 4.23, none of the
Material Documents by its terms prohibits the use or publication by the
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Company or QSI 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 to any other customer or potential customer of the Company,
QSI or any Other Founding Company.
4.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 4.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
4.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 4.25 or any other Schedule of the Company attached hereto,
there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of 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;
(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, materially adversely affecting the
business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Company to any person,
including, without limitation, the Stockholders and their affiliates;
(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 Stockholder or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
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(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 material breach, amendment or termination of any 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.
4.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
QSI an accurate schedule (which is set forth on Schedule 4.26) 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 4.26 also sets forth a complete list of the names 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.
4.27 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,
enforceable against the Company in accordance with its terms except as limited
by bankruptcy, insolvency or other similar laws of general application relating
to or affecting the enforcement of creditors' rights generally, and the
individual(s) signing this Agreement on behalf of the Company have the legal
power, authority and capacity to bind the Company.
4.28 RELATIONS WITH GOVERNMENTS. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government
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office nor has it 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.
4.29 DISCLOSURE. (a) This Agreement, including the schedules hereto and all
other documents and information made available to QSI and its representatives in
writing pursuant hereto or thereto, present fairly the business and operations
of the Company for the time periods with respect to which such information was
requested. The Company's rights under the documents delivered pursuant hereto
would not be materially adversely affected by, and no statement made herein
would be rendered untrue in any material respect by, any other document to which
the Company is a party, or to which its properties are subject, or by any other
fact or circumstance regarding the Company (which fact or circumstance was, or
should reasonably, after due inquiry, have been known to the Company) that is
not disclosed pursuant hereto or thereto.
(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 at a
particular price or within a particular range of prices or occur at all; and
(ii) that, except as otherwise expressly provided elsewhere in this Agreement,
neither QSI nor 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.
(c) No Stockholder has any present plan, intention, commitment, binding
agreement or arrangement to dispose of any shares of QSI Stock to be received by
such Stockholder as a result of the transactions contemplated by this Agreement,
and each Stockholder agrees that, for a period of two years from the Funding and
Consummation Date, except pursuant to Section 16 hereof, he or she will not
dispose of any shares of QSI Stock received by them as described in Section 2.1.
4.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 4.30 or as
contemplated by Annex I, the Company has not, between the Balance Sheet Date and
the date hereof, taken any of the actions set forth in Section 6.3 (Prohibite d
Activities).
(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 6.8 hereof, shall be true at the time of Closing and on the
Funding and Consummation Date, and that the representations and warranties set
forth in Sections 4.31 and 4.32 shall survive until the second anniversary of
the Funding and Consummation Date, which shall be the Expiration Date for
purposes of those Sections.
4.31 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
Schedule 4.31 as being owned by such Stockholder, and,
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except as set forth on Schedule 4.31, such Company Stock is owned free and clear
of all liens, encumbrances and claims of every kind.
4.32 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock that
such Stockholder has or may have had on the date hereof other than rights of any
Stockholder to acquire QSI Stock pursuant to any option granted by QSI.
5. REPRESENTATIONS OF QSI
QSI represents and warrants that all of the following representations and
warranties in this Section 5 are true at the date of this Agreement and, subject
to Section 6.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date, and that such representations and warranties shall survive
the Funding and Consummation Date for a period of two years (the last day of
such period being the "Expiration Date"), except that (i) the warranties and
representations set forth in Section 5.13 hereof shall survive until such time
as the limitations period has run for all Tax periods ended on or prior to the
Funding and Consummation Date, which shall be deemed to be the Expiration Date
for Section 5.13 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 10.2(iv) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, QSI 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.
5.1 DUE ORGANIZATION. QSI is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Certificate of Incorporation
and Bylaws, each as amended, of QSI (the "QSI Charter Documents") are all
attached hereto as Schedule 5.1.
5.2 AUTHORIZATION. (i) The representative of QSI executing this Agreement
has the authority to enter into and bind QSI to the terms of this Agreement and
(ii) QSI has the full legal right, power and authority to enter into and perform
this Agreement.
5.3 CAPITAL STOCK OF QSI. Immediately prior to the Funding and
Consummation Date, the authorized capital stock of QSI will consist of at least
40,000,000 shares of QSI Stock, of which the number of issued and outstanding
shares will be as set forth in the Registration Statement, and 5,000,000 shares
of preferred stock, $.01 par value, of which no shares will be issued and
outstanding. All of the issued and outstanding shares of the capital stock of
QSI are owned by the persons set forth on Schedule 5.3 hereof, in each case,
free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. Upon consummation
of the IPO, the number of outstanding shares of QSI will be as set forth in the
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Registration Statement. All of the issued and outstanding shares of the capital
stock of QSI have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the persons set forth on
Schedule 5.3, and further, such shares were offered, issued, sold and delivered
by QSI in compliance with all applicable state and federal laws concerning the
issuance of securities. Further, none of such shares was issued in violation of
the preemptive rights of any past or present Stockholder of QSI.
5.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and
except as set forth on Schedule 5.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates QSI to issue any of its
authorized but unissued capital stock; and (ii) QSI 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. Schedule 5.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of QSI.
5.5 SUBSIDIARIES. QSI has no subsidiaries except for the companies to
become subsidiaries of QSI pursuant to this Agreement and each of the Other
Agreements as of the Funding and Consummation Date. Except as set forth in the
preceding sentence, QSI 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, and QSI is not, directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity.
5.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.6 are copies of
the following financial statements (the "QSI Financial Statements") of QSI,
which reflect the results of its operations from inception: FCI's unaudited
Balance Sheet as of September 30, 1997 and Statements of Income, Cash Flows and
Retained Earnings for the period from inception through September 30, 1997.
Such QSI 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 or on Schedule 5.6). Except as set
forth on Schedule 5.6, such Balance Sheets as of September 30, 1997 present
fairly the financial position of QSI as of such date, and such statements of
Income, Cash Flows and Retained Earnings present fairly the results of
operations for the period indicated.
5.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 5.7, QSI
has no material liabilities, contingent or otherwise, except as set forth in or
contemplated by this Agreement and the Other Agreements and except for fees and
expenses incurred in connection with the transactions contemplated hereby and
thereby.
5.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.8, QSI is not in violation of any law or regulation which would have
a Material Adverse Effect, or of any order of any court or federal, state,
municipal or other governmental department, commission,
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board, bureau, agency or instrumentality having jurisdiction over QSI; and
except to the extent set forth on Schedule 5.8, there are no material claims,
actions, suits or proceedings, pending or, to the Knowledge of QSI, threatened,
against or affecting QSI, 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 QSI and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. QSI has conducted and is conducting its business in compliance with
the requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and is not in violation of any of
the foregoing. Assuming the representations and warranties of the Company and
the Stockholders contained herein are complete and correct in all respects
(other than representations and warranties with respect to compliance with
laws), this Agreement does not violate any federal or state securities laws,
rules or regulations.
5.9 NO VIOLATIONS. QSI is not in violation of any QSI Charter Document.
Neither QSI or, to the Knowledge of QSI, any other party thereto, is in default
under any lease, instrument, agreement, license or permit to which QSI is a
party, or by which QSI or any of its properties are bound (collectively, the
"QSI Documents"); and (a) the rights and benefits of QSI under the QSI Documents
will not be adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any violation or breach or constitute a default under, any of the terms or
provisions of the QSI Documents or the QSI Charter Documents. Except as set
forth on Schedule 5.9, none of the QSI Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
5.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by QSI and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of QSI and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of QSI, enforceable against QSI in
accordance with its terms except as limited by bankruptcy, insolvency or other
similar laws of general application relating to or affecting the enforcement of
creditors' rights generally, and the individual signing this Agreement on behalf
of QSI has the legal power, authority and capacity to bind QSI.
5.11 QSI STOCK. At the time of issuance thereof, the QSI Stock to be
delivered to the Stockholders pursuant to this Agreement will constitute valid
and legally issued shares of QSI, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 14 and 15 hereof,
will be identical in all material and substantive respects to the QSI Stock
issued and outstanding as of the date hereof and the QSI Stock to be issued
pursuant to the Other Agreements by reason of the provisions of the Delaware
GCL. The shares of QSI Stock to be issued to the Stockholders pursuant to this
Agreement will not be registered under the 1933 Act, except as provided in
Section 16 hereof.
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5.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. QSI has not
conducted any operations or business since inception other than activities
related to the QSI Plan of Organization. QSI 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 agreement, except as listed on Schedule 5.12 and except that
QSI is a party to the Other Agreements and the agreements contemplated thereby
and to such agreements as will be filed as Exhibits to the Registration
Statement.
5.13 TAXES. (i) All Returns required to have been filed by QSI have
been timely filed (taking into account duly granted extensions) and are true,
correct and complete in all respects. Except as disclosed in Schedule 5.13, (i)
QSI is not currently the beneficiary of any extension of time within which to
file any Return, and (ii) no claim has ever been made by any governmental
authority in a jurisdiction where QSI does not file Returns that QSI is or may
be subject to taxation by that jurisdiction.
(ii) All Taxes of QSI which have become due (without regard to any
extension of the time for payment and whether or not shown on any Return)
have been paid. QSI has withheld and paid over all Taxes required to have
been withheld and paid over and has complied with all information reporting
and back-up withholding requirements relating to Taxes. There are no liens
with respect to Taxes on any of the assets of QSI, other than liens for
Taxes not yet due and payable or for Taxes disclosed in Schedule 5.13 that
are being contested in good faith through appropriate proceedings and for
which adequate reserves have been established in the QSI Financial
Statements.
(iii) No deficiencies exist or have been asserted or are expected to
be asserted (verbally or in writing) with respect to Taxes of QSI and QSI
has not received notice nor does it expect to receive notice (verbally or
in writing) that it has not filed a Return or paid any Taxes required to be
filed or paid by it. No audit, examination, investigation, action, suit,
claim or proceeding relating to the determination, assessment or collection
of any Tax of QSI is currently in process, pending or threatened (verbally
or in writing). Except as disclosed in Schedule 5.13, no waiver or
extension of any statute of limitations relating to the assessment or
collection of any Tax of QSI is in effect. There are no outstanding
requests for rulings with any Tax authority relating to Taxes of QSI.
5.14 NO INTENTION TO DISPOSE OF COMPANY STOCK. QSI is acquiring the
Company Stock pursuant hereto for its own account for investment purposes and
does not have any present plan, intention, commitment, binding agreement, or
arrangement to dispose of the Company Stock.
5.15 OTHER FOUNDING COMPANIES. QSI has reviewed representations and
warranties from the Other Founding Companies in the Other Agreements that are
substantially similar to those made by the Company and the Shareholders herein.
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6. COVENANTS PRIOR TO CLOSING
6.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of QSI and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish QSI with such additional financial and operating data and other
information as to the business and properties of the Company as QSI or the Other
Founding Companies may from time to time reasonably request. The Company will
cooperate with QSI and the Other Founding Companies and their respective
representatives, including FCI's auditors and counsel, in the preparation of any
documents or other material (including the Registration Statement) which may be
required in connection with any documents or materials required by this
Agreement. QSI, the Stockholders and the Company shall treat all information
obtained in connection with the negotiation and performance of this Agreement or
the due diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Section 13
hereof. In addition, QSI will cause each of the Other Founding Companies to
enter into a provision similar to this Section 6.1 requiring each such Other
Founding Company, its Stockholders, directors, officers, representatives,
employees and agents to keep confidential any information obtained by such Other
Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, QSI will afford to the officers and authorized representatives of the
Company access to all of FCI's sites, properties, books and records and all due
diligence, agreements, documents and information of or concerning the Founding
Companies and will furnish the Company with such additional financial and
operating data and other information as to the business and properties of QSI as
the Company may from time to time reasonably request. QSI 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 13 hereof.
6.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company shall, except (x)
as set forth on Schedule 6.2, (y) as requested by QSI or (z) as consented to by
QSI (which consent shall not be unreasonably withheld):
(i) carry on its business in substantially the same manner as it
has heretofore and introduce any new method of management, operation or
accounting;
(ii) maintain its 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 its obligations under
agreements relating to or affecting its assets, properties or rights;
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(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) maintain and preserve its business organization intact, use its
best efforts to retain its present key employees and relationships with
suppliers, customers and others having business relations with the Company;
(vi) maintain compliance with all 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 and not enter into
new or amended debt or lease instruments, provided that debt and/or lease
instruments may be replaced if such replacement instruments are on terms at
least as favorable to the Company as the instruments being replaced; and
(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.
6.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 6.3 or as set
forth on Annex I, between the date hereof and the Funding and Consummation Date,
the Company shall not, without prior written consent of QSI:
(i) make any change in its Articles of Incorporation or Bylaws;
(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 on Schedule 4.4;
(iii) 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 $10,000;
(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 $10,000 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
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adequate reserves have been established in the Company Financial
Statements) 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 Schedules 4.10 and/or 8.16 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(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 or claims in the ordinary
course of business in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included on
Schedule 4.11 unless specifically listed thereon;
(x) commit a material breach or, except in the ordinary course of
business consistent with past practices, 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.
6.4 NO SHOP. None of the Stockholders, the Company, or 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 Funding and 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 or entity for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person or entity other than QSI
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.
6.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable
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collective bargaining agreements, and shall provide QSI on Schedule 6.5 with
proof that any required notice has been sent.
6.6 AGREEMENTS. 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
7.11 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date. Copies of such
termination agreements are listed on Schedule 6.6 and copies thereof are
attached hereto.
6.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to QSI 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 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. QSI 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 QSI contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of QSI 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 6.7 that is not
accompanied by a proposed amendment or supplement to a schedule pursuant to
Section 6.8 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 6.8, (ii) modify the conditions set forth in Sections 7
and 8, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
6.8 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 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, provided, however, that
supplements and amendments to Schedules 4.10, 4.11, 4.14, 4.15 and 4.18 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 may be made unless QSI and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a schedule prepared by QSI that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect 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 7.1 and 8.1 have been
fulfilled, the Schedules hereto shall be deemed to be the schedules as amended
or supplemented pursuant to this Section 6.8. In the event that one of the
Other
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Founding Companies seeks to amend or supplement a schedule pursuant to Section
6.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, QSI shall give the Company notice promptly after it
has Knowledge thereof. If QSI and a majority of the Founding Companies consent
to such amendment or supplement, which consent shall have been deemed given by
QSI or any Founding Company if no response is received within 72 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the Company does not
give its consent, the Company may terminate this Agreement pursuant to Section
11.l(iv) hereof. In the event that the Company seeks to amend or supplement a
Schedule pursuant to this Section 6.8, and QSI and a majority of the Other
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
11.1(i) hereof. In the event that QSI seeks to amend or supplement a Schedule
pursuant to this Section 6.8 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 11.1(i) hereof. No party to
this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 6.8.
6.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to QSI and the Underwriters
all of the information concerning the Company and the Stockholders required for
inclusion in, and will cooperate with QSI 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 Company and the Stockholders agree promptly to
advise QSI if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the 1933 Act, 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. QSI will give the Company and the
Stockholders an opportunity to review and comment on the Registration Statement
and all amendments thereto prior to filing. Insofar as the information relates
solely to the Company or the Stockholders, 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 in
which they were made, not misleading and that each Stockholder and the Company
has had the opportunity to review and approve such information. If, prior to
the 25th day after the date of the final prospectus of QSI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would change (or, if after the Funding and
Consummation Date, would have changed) a representation or warranty of the
Company or the Stockholders in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the Company and the
Stockholders shall immediately give notice of such fact or circumstance to QSI.
However, subject to the provisions of Section 6.8, such notification shall not
relieve either the Company or the Stockholders of their respective obligations
under this Agreement,
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and, subject to the provisions of Section 6.8, at the sole option of QSI, 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 Funding and Consummation Date, shall be a
precondition to the consummation of this transaction.
6.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to
the Funding and Consummation Date, and QSI shall have had sufficient time to
review, 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 financial condition of the Company or the
results of its operations from the financial statements as of the Balance Sheet
Date. Except as set forth on Schedule 6.10, 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 thereon and shall be for such dates and time periods as
required by Regulation S-X under the 1933 Act and the 1934 Act.
6.11 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 convenient
to carry out the transactions contemplated hereby.
6.12 AUTHORIZED CAPITAL. QSI shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
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 QSI Stock.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of 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. The obligations
of the Stockholders and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 7.2, 7.3, 7.8 and 7.9. From and after the Closing Date or, with
respect to the conditions set forth in Sections 7.2, 7.3, 7.8 and 7.9, from and
after the Funding and Consummation Date, all conditions not satisfied shall be
deemed to have been waived, except that no such waiver shall be deemed to affect
the survival of the representations and warranties of QSI contained in Section 5
hereof:
7.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
QSI contained in Section 5 shall be true and correct in all material respects as
of the Closing Date as though such representations and warranties had been made
as of that time; and a certificate to the
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foregoing effect dated the Closing Date and signed by the President or any Vice
President of QSI shall have been delivered to the Stockholders.
7.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by QSI on or
before the Closing Date and the Funding and 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 Funding and Consummation
Date and signed by the President or any Vice President of QSI shall have been
delivered to the Stockholders.
7.3 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 transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of the
Company as a result of which the management of the Company deems it inadvisable
to proceed with the transactions hereunder.
7.4 OPINION OF COUNSEL. The Company and the Underwriters shall have
received an opinion from counsel for QSI, dated the Closing Date, in the form
mutually agreed upon by the parties. The Company and the Stockholders shall
also have received a written opinion from, at the discretion of QSI, either
Jackson Walker L.L.P. or Arthur Andersen, L.L.P., which satisfactorily concludes
that the exchange of Company Stock for QSI Stock will qualify as a transaction
meeting the requirements of Section 351 of the Code. In rendering such opinion,
the opinion given may require and, to the extent it deems necessary or
appropriate, may rely upon representations made in certificates of officers of
QSI and the Company.
7.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire shares of QSI Stock 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 QSI Stock to be received
by the Stockholders is not less than the amount set forth on Annex I as adjusted
as permitted herein.
7.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made.
7.7 GOOD STANDING CERTIFICATES. QSI 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
QSI is authorized to do business, showing that QSI is in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for QSI for all periods prior to the Closing have been filed and paid.
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7.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to QSI which would constitute a Material Adverse Effect,
and QSI 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 QSI to conduct its business.
7.9 CLOSING OF IPO. The closing of the sale of the QSI Stock to the
Underwriters in the IPO and the acquisitions of the Other Founding Companies
pursuant to the Other Agreements shall have occurred simultaneously with the
Funding and Consummation Date hereunder.
7.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of QSI, certifying the truth and correctness of attached copies of FCI's
Certificate of Incorporation (including amendments thereto), Bylaws (including
amendments thereto), and resolutions of the board of directors and, if required,
the Stockholders of QSI approving FCI's entering into this Agreement and the
consummation of the transactions contemplated hereby. Such certificate or
certificates also shall be addressed to the Underwriters and copies thereof
shall be delivered to the Underwriters.
7.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
7.11 shall have been afforded the opportunity to enter into an employment
agreement substantially in the form of Annex II hereto.
7.12 DIRECTORS AND OFFICERS INSURANCE. QSI shall have obtained
Directors and Officers Liability Insurance in amounts that are customary and
commercially reasonable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF QSI
The obligations of QSI 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. The obligations of QSI with respect to
actions to be taken on the Funding and Consummation Date are subject to the
satisfaction or waiver on or prior to the Funding and Consummation Date of the
conditions set forth in Sections 8.2, 8.3, 8.5 and 8.13. From and after the
Closing Date or, with respect to the conditions set forth in Sections 8.2, 8.3,
8.5 and 8.13, from and after the Funding and Consummation Date, all conditions
not satisfied shall be deemed to have been waived, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the Company contained in Section 4 hereof.
8.1 REPRESENTATIONS AND WARRANTIES. All 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 Funding and
Consummation Date with the same effect as though such representations and
warranties had been made on and as of such date; and the Stockholders shall have
delivered to QSI certificates dated the Closing Date and signed by them to such
effect.
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8.2 PERFORMANCE OF OBLIGATIONS. 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 Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the Stockholders and the Company
shall have delivered to QSI certificates dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by them to such effect.
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 transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of QSI as a
result of which the management of QSI deems it inadvisable to proceed with the
transactions hereunder.
8.4 SECRETARY'S CERTIFICATE. QSI 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), Bylaws (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. Such certificate also shall be addressed to
the Underwriters and a copy thereof shall be delivered to the Underwriters.
8.5 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.
8.6 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to QSI
an instrument dated the Closing Date releasing the Company from (i) any and all
claims of the Stockholders against the Company and (ii) obligations of the
Company to the Stockholders, except for (x) items specifically identified on
Schedules 4.10 and 4.16 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.
8.7 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the Company and the Stockholders shall have been canceled effective
prior to or as of the Funding and Consummation Date.
8.8 OPINION OF COUNSEL. QSI shall have received an opinion from Counsel
to the Company and the Stockholders, dated the Closing Date, in the form
mutually agreed to by the parties, and the Underwriters shall have received a
copy of the same opinion addressed to the Underwriters.
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8.9 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 and all
consents and approvals of third parties listed on Schedule 4.23 shall have been
obtained.
8.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
QSI 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 QSI, 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.
8.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
8.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
7.11 shall have entered into an employment agreement substantially in the form
of Annex II hereto.
8.13 CLOSING OF IPO. The closing of the sale of the QSI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to QSI
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury Regulations promulgated under the Code.
8.15 INSURANCE. QSI shall have been named as an additional insured on
all liability, theft, casualty and property insurance policies of the Company
and certificates of insurance to that effect shall have been delivered to QSI.
8.16 LOCKUP AGREEMENT. Each Stockholder shall have signed an agreement with
the Underwriters, in form and substance identical to agreements signed by the
Founding Stockholders in connection with the Other Agreements, by which such
Stockholder covenants to hold all of the QSI Stock acquired hereunder for a
period of at least 180 days after the Funding and Consummation Date.
9. COVENANTS OF QSI AND THE STOCKHOLDERS AFTER CLOSING
9.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. QSI shall,
within ninety (90) days of the Funding and Consummation Date, use commercially
reasonable efforts to have the Stockholders and any spouse of a Stockholder
released from any and all indemnities on bonds and guarantees on any
indebtedness or contractual
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obligations that they personally guaranteed and from any and all pledges of
assets that they pledged to secure such indebtedness for the benefit of the
Company, with all such indemnities on bonds and guarantees on indebtedness or
contractual obligations being assumed by QSI. QSI shall indemnify and hold
harmless Stockholders and any spouse of a Stockholder from the payment of any
indemnities on bonds, guaranties on any indebtedness or contractual obligations
that they personally guaranteed prior to the Closing Date and from any and all
pledges of assets that they pledged to secure such indebtedness for the benefit
of the Company, provided that such indebtedness or obligations are either
related to the business of the Company as being conducted at the Closing Date or
are made in order to facilitate distributions contemplated under this Agreement.
The indemnification contained in this Section shall not be subject to the time
and other limitations on indemnification contained in Sections 10.2 and 10.5
hereof.
9.2 PRESERVATION OF TAX TREATMENT. (a) Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, QSI shall not and shall not permit any of its subsidiaries to undertake
any act that would prevent qualification of the transaction as an exchange
meeting the requirements of Code Section 351, including:
(i) the retirement or reacquisition, directly or indirectly, of all
or part of the QSI Stock issued in connection with the transactions
contemplated hereby; or
(ii) the entering into of financial arrangements for the benefit of
the Stockholders.
(b) Except as contemplated by this Agreement or the Registration Statement,
after the Funding and Consummation Date, the Stockholders shall not undertake
any act that would prevent qualification of the transaction as an exchange
meeting the requirements of Code Section 351.
(c) Each of the Company, QSI and each Stockholder shall comply with the
reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and shall not take any position on any Return
inconsistent with characterization of the transaction as an exchange meeting the
requirements of Code Section 351.
9.3 PREPARATION AND FILING OF RETURNS.
(i) The Company shall duly, accurately and timely (with regard to
any duly granted extension), file or cause to be filed all Returns required
to be filed on behalf of the Company or any Subsidiary for all taxable
periods that end on or before the Funding and Consummation Date.
(ii) QSI shall duly, accurately and timely (with regard to any duly
granted extension) file or cause to be filed all Returns required to be
filed on behalf of the Company or any Subsidiary for all taxable periods
ending after the Funding and 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
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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, QSI 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
transfer to a controlled corporation under Section 351(a) of the Code.
9.4 DIRECTORS AND OFFICERS. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of QSI, as and
to the extent set forth in the Registration Statement, promptly following the
effective date of the Registration Statement. The QSI Board of Directors will
consist of nine members, up to two of whom shall be existing directors of QSI
and five of whom shall be from the Founding Companies (two nominees from PAR
Electrical Contractors, Inc. and one from each of Potelco, Inc., Union Power
Construction Company and TRANS TECH Electric, Inc.). QSI shall make
arrangements to compensate each Director for attending meetings of the Board of
Directors and to reimburse them for related expenses.
9.5 MAINTENANCE OF BOOKS. QSI will cause the Company (a) to maintain the
books and records of the Company existing prior to the Closing Date for a period
of six years after the Closing Date and (b) to make such books and records
available to the Stockholders for any reasonable purpose.
10. INDEMNIFICATION
The Stockholders and QSI each make the following covenants that are
applicable to them, respectively:
10.1 GENERAL INDEMNIFICATION BY STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless QSI and the Company at all times, from and after the
date of this Agreement, 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) (collectively, "Claims") incurred by QSI or the Company for which
QSI or the Company deliver notice of such Claims to the Stockholders prior to
the Expiration Date and which Claims are 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
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connection herewith; (ii) any breach of any agreement on the part of the
Stockholders under this Agreement; (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 the Company or the Stockholders, and
provided to QSI or its counsel by the Company or the Stockholders 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; (iv) the matters described on Schedule
10.1(iv) (relating to specifically identified matters such as ongoing claims
and/or litigation), which schedule shall be prepared by QSI; (v) any liability
asserted against QSI or the Company from matters occurring prior to the Closing
Date and not listed on any Schedule of the Company, where such liability would
have been required to be listed on a Schedule; (vi) all Taxes of the Company
with respect to any taxable period ending on or before the Funding and
Consummation Date (or for any taxable period beginning before and ending after
the Funding and Consummation Date to the extent allocable to the portion of such
period beginning before and ending on the Funding and Consummation Date) to the
extent such Taxes exceed the amount of the current liability accruals for Taxes
(exclusive of reserves for deferred Taxes established to reflect timing
differences) reflected on the balance sheet of the Company as of September 30,
1997 as adjusted for Company operations in the ordinary course of business
through the Funding and Consummation Date in accordance with generally accepted
accounting principles consistently applied and, to the extent consistent
therewith, the most recent custom and practices of the Company; provided that
the portion of any periodic Tax attributable to a taxable year or period
beginning before and ending after the Funding and Consummation Date shall be
determined by apportioning the Tax for the entire year or period based upon the
number of days in the year or period, except that any such Tax measured by
income or receipts shall be apportioned based upon actual results of operations
through the end of the Funding and Consummation Date; (vii) all liabilities of
the Company, if any, for the Taxes of any other person, pursuant to Code Section
1.1502-6 or other law, as a transferee or successor, by contract or otherwise;
or (viii) all Transfer and other Taxes arising from the transactions
contemplated by this Agreement; provided, however, (A) that in the case of any
indemnity arising pursuant to clause (iii) such indemnity shall not inure to the
benefit of QSI 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 QSI counsel and to QSI for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and (B) that no Stockholder shall be liable for any indemnification
obligation pursuant to this Section 10.1 to the extent attributable to a breach
of any representation, warranty or agreement made herein individually by any
other Stockholder.
10.2 INDEMNIFICATION BY QSI. QSI 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 from and against all Claims incurred by the
Company or the Stockholders for which the Company or the Stockholders deliver
notice of such Claims to QSI prior to the Expiration Date and which Claims are
as a result of or arising from (i) any breach by QSI of its representations and
warranties set forth herein or on the schedules or certificates attached hereto,
(ii) any nonfulfillment of any
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agreement on the part of QSI under this Agreement, (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 QSI 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 QSI or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, or (iv) the matters described on Schedule 10.2(iv)
(relating to specifically identified matters), which schedule shall be prepared
by the Stockholders.
10.3 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 10.1 or 10.2 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 (such settlement to be subject to the consent of the
Indemnified Party, as hereinafter provided), 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 the 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 the
Indemnified Party, the Indemnified Party shall have the right to participate in
such matter through counsel of its own choosing and the Indemnifying Party will
reimburse the Indemnified Party for the reasonable expenses of its counsel.
Further, absent a conflict, the Indemnified Party may select counsel and have
such counsel participate in such matter at the sole cost of the Indemnified
Party. 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
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settlement by said Third Person. 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 Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement 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.
10.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 10 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, however, 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.
10.5 LIMITATIONS ON INDEMNIFICATION. No Indemnified Party shall
assert any claim for indemnification hereunder against an Indemnifying Party
until such time as, and solely to the extent that, the aggregate of all claims
which such Indemnified Party may have against such Indemnifying Party shall
exceed $75,000, provided, however, that QSI, the Company and the other persons
or entities indemnified pursuant to Section 10.1 may assert and shall be
indemnified for any claim under Section 10.1(v) at any time, regardless of
whether the aggregate of all claims which such persons may have against any
Stockholder or all Stockholders exceeds $75,000, it being understood that the
amount of any such claim under such Sections shall not be counted towards such
$75,000 amount; and further provided that the $75,000 amount shall be reduced to
$5,000 for claims under Sections 10.l(i) to the extent it relates to breaches of
the representations and warranties set forth in Section 4.22, 10.1(vi),
10.1(vii) and 10.1(viii) (except for claims with respect to taxes due as a
result of an Internal Revenue Service audit related to percentage of completion
of related contracts, in which case the amount shall be reduced to $50,000) it
being understood that the amount of any such claim under such Sections shall not
be counted towards such $75,000 amount; and further provided that the
Stockholders and the other persons or entities indemnified pursuant to Section
10.2 may assert and shall be indemnified for any claim under Section 10.2(v) at
any time, regardless of whether the aggregate of all claims which such persons
may have against QSI exceeds $75,000, it being understood that the amount of any
such claim under Section 10.2(v) shall not be counted towards such $75,000
amount. No person shall be entitled to indemnification under this Section 10 if
and to the extent that: (a) such person's claim for indemnification is directly
or indirectly related to and substantially the result of a breach by such person
of any representation, warranty, covenant or other agreement set forth in this
Agreement; or (b) such person receives a tax benefit equal to or in excess of
the amount of such claim as a result of the claim or loss for which
indemnification is sought.
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Notwithstanding any other term of this Agreement, no Indemnifying Party
shall be liable under this Section 10 for an amount which exceeds the amount of
proceeds received by the Stockholders in connection with the transactions
contemplated hereby. Indemnity obligations hereunder of the Stockholders may be
satisfied through the payment of cash or the delivery of QSI Stock, or a
combination thereof, at the Stockholder's election. For purposes of calculating
the value of the QSI Stock received or delivered by the Stockholders (for
purposes of determining the limitation on indemnity set forth in the second
preceding sentence and the amount of any indemnity paid), QSI Stock shall be
valued at its initial public offering price as set forth in the Registration
Statement. Any indemnification payment made by the Stockholders pursuant to
this Section 10 shall be deemed to be a reduction in the consideration received
by the Stockholders pursuant to Section 2.
Without limitation of any of the foregoing, the limitations set forth in
this Section shall not apply to breaches of representations, warranties or
covenants set forth in Sections 4.29(c), 5.13, 5.14, 9.2 and 9.3 hereof.
11. TERMINATION OF AGREEMENT
11.1 TERMINATION. This Agreement may be terminated by written notice
from the party asserting termination to the other parties at any time prior to
the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of QSI and the
Company;
(ii) by the Stockholders or the Company (acting through its board of
directors), on the one hand, or by QSI (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
June 1, 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 Funding and Consummation
Date;
(iii) by the Stockholders or Company, on the one hand, or by QSI, 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, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Funding and
Consummation Date;
(iv) pursuant to Section 2.1 hereof;
(v) pursuant to Section 6.8 hereof; or
(vi) pursuant to Section 3 hereof.
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11.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section 6.8
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 relating to the transactions contemplated
hereby. No party hereto shall be liable to any other party if the Agreement is
terminated under Sections 11.1(i), (ii) (except as set forth therein), (iv), (v)
or (vi).
12. NONCOMPETITION
12.1 PROHIBITED ACTIVITIES. Provided that QSI shall have complied
with and performed all of its obligations hereunder and that the Stockholders
shall have received payment in full of the consideration described in Section 2,
the Stockholders shall not, for a period of five (5) years following the Funding
and 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 engineering and construction business in
direct competition with QSI or any of the subsidiaries thereof, within 100
miles of where the Company or any of its subsidiaries conducted business
prior to the effectiveness of the Funding and Consummation Date (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of QSI (including the subsidiaries thereof) in a
sales representative or managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of QSI
(including the subsidiaries thereof), provided that each Stockholder shall
be permitted to call upon and hire any member of his or her immediate
family;
(iii) call upon any person or entity which is at that time, or which
has been, within one (l) year prior to the Funding and Consummation Date, a
customer of QSI (including the subsidiaries 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 QSI
within the Territory;
(iv) call upon any prospective acquisition candidate, on the
Company's or any Stockholder's own behalf or on behalf of any competitor in
the electrical engineering and construction business, which candidate, to
the actual Knowledge of the Company or such Stockholder after due inquiry,
was called upon by QSI (including the subsidiaries thereof) or for which,
to the actual Knowledge of the Company or such Stockholder after due
inquiry, QSI (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 types of persons to whom
disclosure is then presently contemplated for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
12.2 DAMAGES. Because of the difficulty of measuring economic losses
to QSI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to QSI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by QSI or the Company in the event of breach by such
Stockholder, by injunctions and restraining orders.
12.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 12 impose a reasonable restraint on the
Stockholders in light of the activities and business of QSI (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of QSI.
12.4 SEVERABILITY; REFORMATION. The covenants in this Section 12 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.
12.5 INDEPENDENT COVENANT. All of the covenants in this Section 12
shall be construed as an agreement independent of any other provision in this
Agreement. It is specifically agreed that the period of five (5) years stated
at the beginning of this Section 12, during which the agreements and covenants
of each Stockholder made in this Section 12 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 12. The covenants
contained in Section 12 shall have no effect if the transactions contemplated by
this Agreement are not consummated nor may such covenants be enforced by any
party to this Agreement that is in breach of its obligations hereunder.
12.6 MATERIALITY. The Stockholders hereby agree that the covenants in
this Section 12 are a material and substantial part of this transaction.
12.7 LIMITATIONS. In the event that any Stockholder who is employed
by QSI or the Company pursuant to an employment agreement is terminated without
cause (as defined in such employment agreement), the provisions of this Section
12 shall no longer be valid or enforceable by QSI or the Company. If such
employment agreement contains provisions relating to the same subject
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matter as this Section 12 that are less restrictive than set forth in this
Section 12, the provisions of such employment agreement shall control.
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 STOCKHOLDERS. The Company and 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 QSI, such as operational policies, trade
secrets and pricing and cost policies that are valuable, special and unique
assets of the Company's, the Other Founding Companies' and/or FCI's respective
businesses. The Company and the Stockholders agree that they shall 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 QSI, (b) following the Closing, such information may be
disclosed by the Stockholders as is required in the course of performing their
duties for QSI 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 13.1, unless (i) such information is or becomes known to the
public generally or to businesses operating in the construction industry through
no fault of the Company and the Stockholders, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided,
however, that prior to disclosing any information pursuant to this clause (ii),
the Company and the Stockholders shall, if possible, give two days' prior
written notice thereof to QSI and provide QSI with the opportunity within such
two-day period 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 the Company or any of the Stockholders of the provisions of
this Section, QSI shall be entitled to an injunction restraining the Company and
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting QSI 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, the Company and the Stockholders shall have none
of the above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
13.2 QSI. QSI recognizes and acknowledges that QSI had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, trade secrets, and pricing and cost policies that
are valuable, special and unique assets of the Company's business. QSI 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, however, that such
advisors (other than counsel) agree to the confidentiality provisions of this
Section 13.2 and (c) to the Other Founding Companies and their representatives
pursuant to Section 6.1(a), unless (i) such information becomes known to the
public generally through no fault of QSI, (ii) disclosure is required by law or
the order of any governmental authority under color of law, provided, however,
that prior to disclosing any information pursuant to this clause (ii), QSI
shall, unless otherwise
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required by law or such order, give two days' prior written notice thereof to
the Company and the Stockholders and provide the Company and the Stockholders
with the opportunity within such two-day period 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 QSI of the provisions of this Section,
the Company and the Stockholders shall be entitled to an injunction restraining
QSI 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 as such breach or threatened breach,
including the recovery of damages.
13.3 DAMAGES. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants in Section 13.1 and 13.2,
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.
13.4 SURVIVAL. The obligations of the parties under this Article 13
shall survive the termination of this Agreement for a period of three years from
(a) the Funding and Consummation Date if the transactions contemplated hereby
are consummated or (b) the date hereof if the transactions contemplated hereby
are not consummated.
14. TRANSFER RESTRICTIONS
14.1 TRANSFER RESTRICTIONS. Except for transfers to Affiliates of the
Stockholders who agree to be bound by the restrictions set forth in this Section
14.1, for a period of two years from the Funding and Consummation Date, except
pursuant to Section 16 hereof, the Stockholders shall not sell, assign,
exchange, transfer, distribute or otherwise dispose of any shares of QSI Stock
received by them as described in Section 2.1. The certificates evidencing the
QSI Stock delivered to the Stockholders pursuant to Section 2 of this Agreement
shall bear a legend substantially in the form set forth below and containing
such other information as QSI may deem necessary or appropriate: THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION, PRIOR TO SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
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.
15. FEDERAL SECURITIES ACT REPRESENTATIONS
Each Stockholder acknowledges that the shares of QSI Stock to be delivered
to such Stockholder pursuant to this Agreement have not been and will not be
registered under the 1933 Act
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and therefore may not be resold without compliance with the 1933 Act. The QSI
Stock to be acquired by such Stockholder pursuant to this Agreement is being
acquired solely for its own account, for investment purposes only, and with no
present intention of distributing, selling or otherwise disposing of it in
connection with a distribution.
15.1 COMPLIANCE WITH LAW. Each of the Stockholders covenants,
warrants and represents that none of the shares of QSI Stock issued to the
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 of the QSI Stock shall bear the following legend in addition to the
legend required under Section 14 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.
15.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear
the economic risk of an investment in the QSI Stock acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and has such
Knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment in the QSI Stock.
The Stockholders have had an adequate opportunity to ask questions and receive
answers from the officers of QSI 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 QSI, the plans
for the operations of the business of QSI, 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.
16. REGISTRATION RIGHTS
16.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding
and Consummation Date, whenever QSI proposes to register any QSI Stock for its
own or others account under the 1933 Act for a public offering, other than (i)
any shelf registration of shares to be used as consideration for acquisitions of
additional businesses by QSI and (ii) registrations relating to employee benefit
plans, QSI shall give the Stockholders prompt written notice of its intent to do
so. Upon the written request of the Stockholders given within 30 days after
receipt of such notice, QSI shall cause to be included in such registration all
of the QSI Stock issued to the Stockholders pursuant to this Agreement which the
Stockholders request, provided that QSI shall have the right to reduce the
number of shares included in such registration to the extent that inclusion of
such shares could, in the opinion of tax counsel to QSI or its independent
auditors, jeopardize the qualification of the transactions contemplated hereby
and by the Registration Statement as an exchange meeting the requirements of
Code Section 351. In addition, if QSI 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 16.1 that the
number of shares to be sold by persons other than QSI is greater than the number
of such shares which can be offered without
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adversely affecting the offering, QSI may reduce pro rata the number of shares
offered for the accounts of such persons (based upon the number of shares
desired to be sold by such person) to a number deemed satisfactory by such
managing underwriter, provided, that, notwithstanding Section 14.1 hereof, for
each such offering made by QSI after the IPO, such reduction shall be made first
by reducing the number of shares to be sold by persons other than QSI, the
Company and the Other Founding Companies or the Stockholders thereof who receive
shares of QSI Stock pursuant to the Other Agreements (collectively, the Company
and the Other Founding Companies or the Stockholders thereof who receive shares
of QSI Stock pursuant to the Other Agreements being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
16.2 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Article 16 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by QSI. In connection
with registrations under Section 16.1, QSI shall (i) use its best efforts to
prepare and file with the SEC as soon as reasonably practicable, a registration
statement with respect to the QSI Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of at least 45
days (or such shorter period during which the Founding Stockholders shall have
sold all QSI Stock which they requested to be registered); (ii) use its best
efforts to register and qualify the QSI Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution for the QSI Stock; and (iii) take such other
actions as are reasonable and necessary to comply with the requirements of the
1933 Act and the regulations thereunder to enable the Founding Stockholders to
sell their shares pursuant thereto.
16.3 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Section 16.1 covering an underwritten registration public offering,
QSI and each participating holder agree to enter into a written agreement with
the managing underwriters in such form and containing such provisions
(including indemnification provisions) as are customary in the securities
business for such an arrangement between such managing underwriters and
companies of FCI's size and investment stature.
16.4 AVAILABILITY OF RULE 144. QSI shall not be obligated to register
shares of QSI Stock held by the Stockholder at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to the Stockholders.
17. GENERAL
17.1 COOPERATION. The Company, Stockholders and QSI shall each deliver or
cause to be delivered to the other on the Funding and 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 shall cooperate and use its reasonable efforts to
have the present officers, directors and the employees of the Company cooperate
with QSI on and after the Funding and Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any tax
return filing obligations, actions, proceedings,
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arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Funding and Consummation Date.
17.2 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 QSI, and the heirs and legal representatives of the Stockholders.
17.3 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 QSI and supersede any prior agreement and understanding relating
to the subject matter of this Agreement, including but not limited to any letter
of intent entered into by any of the parties hereto. 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 QSI, acting
through their respective officers or trustees, duly authorized by their
respective Boards of Directors.
17.4 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
17.5 BROKERS AND AGENTS. Except as disclosed on Schedule 17.5, 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.
17.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, QSI will pay the fees, expenses and disbursements of QSI
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 QSI under this Agreement, including the fees and
expenses of Arthur Andersen L.L.P., Jackson Walker L.L.P., and any other person
or entity retained by QSI, and the costs of preparing the Registration
Statement. The Stockholders shall pay the fees, expenses and disbursements of
the Stockholders, the Company and their respective 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 the
Company and the Stockholders under this Agreement, including the fees and
expenses of accountants and legal counsel to the Company and the Stockholders.
Notwithstanding the foregoing, if the transactions contemplated by this
Agreement are consummated, QSI shall reimburse the Stockholders for such
reasonable fees, expenses and disbursements upon the closing of the IPO up to
$15,000 plus such
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additional fees, expenses and disbursements as are set forth on Schedule 17.6.
In addition, 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 transactions contemplated
hereby, 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 or
she, and not the Company or QSI, shall pay all taxes due upon receipt of the
consideration payable pursuant to Section 2 hereof, and shall assume all tax
risks and liabilities of such Stockholder in connection with the transactions
contemplated hereby.
17.7 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 QSI, addressed to it at:
c/o Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attn: James S. Ryan
(b) If to the Stockholders, addressed to them in care of the Company.
(c) If to the Company, addressed to it at:
PAR Electrical Contractors, Inc.
1440 Iron Street
P. O. Box 12520
North Kansas City, Missouri 64116
Attn: John Colson
with a copy to:
Timothy Kristl
Mitchell, Kristl & Lieber
1220 Washington
Kansas City, Missouri 64105
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware.
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17.9 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.
17.10 TIME. Time is of the essence with respect to this Agreement.
17.11 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.
17.12 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.
17.13 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.
17.14 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 QSI, the Company and the Stockholders. Any amendment or
waiver effected in accordance with this Section 17.14 shall be binding upon each
of the parties hereto, any other person receiving QSI Stock in connection with
the transactions contemplated hereby and each future holder of such QSI Stock.
17.15 INCORPORATION BY REFERENCE. To the extent that an item is
disclosed in a particular schedule or a subsection of a particular schedule and
such item is readily apparent on its face as being applicable to another
schedule or another subsection of the same schedule, such item shall be deemed
incorporated by reference in such schedule or such other subsection under the
same schedule.
17.16 DEFINED TERMS. 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.
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"Affiliates" has the meaning set forth in Section 4.8.
"Agreement" has the meaning set forth in the first paragraph hereof.
"A/R Aging Reports" has the meaning set forth in Section 4.11.
"Assets" has the meaning set forth in Section 6.13.
"Balance Sheet Date" has the meaning set forth in Section 4.9.
"Charter Documents" has the meaning set forth in Section 4.1.
"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" means the capital stock of the Company.
"Delaware GCL" has the meaning set forth in Section 2.3.
"Demand Registration" has the meaning set forth in Section 16.2.
"Environmental Laws" has the meaning set forth in Section 4.13.
"ERISA" has the meaning set forth in Section 4.19.
"Expiration Date" has the meaning set forth in Section 4(A).
"QSI" has the meaning set forth in the first paragraph of this Agreement.
"QSI Charter Documents" has the meaning set forth in Section 5.1.
"QSI Financial Statements" has the meaning set forth in Section 5.6.
"QSI Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"QSI Stock" means the common stock, par value $.01 per share, of QSI.
"Founding Companies" has the meaning set forth in the third recital of this
Agreement.
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"Founding Stockholders" has the meaning set forth in Section 16.1.
"Funding and Consummation Date" has the meaning set forth in Section 3.
"Indemnification Threshold" has the meaning set forth in Section 10.5.
"Indemnified Party" has the meaning set forth in Section 10.3.
"Indemnifying Party" has the meaning set forth in Section 10.3.
"IPO" means the initial public offering of QSI Stock pursuant to the
Registration Statement.
"Knowledge" or "Knows," when referring to the Knowledge of the Company or
QSI or what the Company or QSI Knows, means the actual knowledge of any director
or officer of the Company or QSI, as the case may be, and the knowledge that an
ordinarily prudent person acting reasonably in a similar capacity as such
director or officer should have after reasonable investigation into the relevant
subject matter.
"Material Adverse Effect" has the meaning set forth in Section 4.1.
"Material Documents" has the meaning set forth in Section 4.23.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 4.19.
"Pricing" means the date of determination by QSI and the Underwriters of
the public offering price of the shares of QSI 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 4.20.
"Registration Statement" means that certain registration statement on Form
S-1 covering the shares of QSI Stock to be issued in the IPO.
"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.
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"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 6.3.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" has the meaning set forth in Section 4.6.
"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, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 12.1.
"Third Person" has the meaning set forth in Section 10.3.
"Transfer Taxes" has the meaning set forth in Section 17.6.
"Underwriters" means the prospective underwriters in the IPO, as identified
in the Registration Statement.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
49
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
QUANTA SERVICES, INC.
By: /s/ James H. Haddox
------------------------------------
Its: Chief Financial Officer
------------------------------------
PAR ELECTRICAL CONTRACTORS, INC.
By: /s/ John R. Colson
-------------------------------------
Its: President
------------------------------------
/s/ John Colson
----------------------------------------
John Colson
/s/ John Wilson
----------------------------------------
John Wilson
50
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EXHIBIT 2.2
AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION
dated as of December 11, 1997
by and among
QUANTA SERVICES, INC.
UNION POWER CONSTRUCTION COMPANY
and
the Stockholders named herein
<PAGE>
TABLE OF CONTENTS
1. TRANSFER AND EXCHANGE................................................ 2
2. DELIVERY OF CONSIDERATION............................................ 2
2.1 Consideration.................................................. 2
2.2 Certificates................................................... 2
2.3 QSI Stock...................................................... 2
3. CLOSING.............................................................. 3
4. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS........... 3
4.1 Due Organization............................................... 4
4.2 Authorization.................................................. 4
4.3 Capital Stock of the Company................................... 4
4.4 Transactions in Capital Stock.................................. 4
4.5 No Bonus Shares................................................ 5
4.6 Subsidiaries................................................... 5
4.7 Predecessor Status; etc........................................ 5
4.8 Spin-Off by the Company........................................ 5
4.10 Liabilities and Obligations.................................... 6
4.11 Accounts and Notes Receivable.................................. 6
4.12 Permits and Intangibles........................................ 7
4.13 Environmental Matters.......................................... 7
4.14 Personal Property.............................................. 8
4.15 Significant Customers; Material Contracts and Commitments...... 8
4.16 Real Property.................................................. 9
4.17 Insurance; Bonding............................................. 10
4.18 Compensation; Employment Agreements; Organized Labor Matters... 10
4.19 Employee Plans................................................. 10
4.20 Compliance with ERISA.......................................... 11
4.21 Conformity with Law; Litigation................................ 12
4.22 Taxes.......................................................... 12
4.23 No Violations.................................................. 14
4.24 Government Contracts........................................... 15
4.25 Absence of Changes............................................. 15
4.26 Deposit Accounts; Powers of Attorney........................... 16
4.27 Validity of Obligations........................................ 16
4.28 Relations with Governments..................................... 16
4.29 Disclosure..................................................... 17
4.30 Prohibited Activities.......................................... 17
4.31 Authority; Ownership........................................... 17
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4.32 Preemptive Rights.............................................. 18
5. REPRESENTATIONS OF QSI............................................... 18
5.1 Due Organization............................................... 18
5.2 Authorization.................................................. 18
5.3 Capital Stock of QSI........................................... 18
5.4 Transactions in Capital Stock.................................. 19
5.5 Subsidiaries................................................... 19
5.6 Financial Statements........................................... 19
5.7 Liabilities and Obligations.................................... 19
5.8 Conformity with Law; Litigation................................ 19
5.9 No Violations.................................................. 20
5.10 Validity of Obligations........................................ 20
5.11 QSI Stock...................................................... 20
5.12 Business; Real Property; Material Agreements................... 21
5.13 Taxes.......................................................... 21
5.14 No Intention to Dispose of Company Stock....................... 21
5.15 Other Founding Companies....................................... 21
6. COVENANTS PRIOR TO CLOSING........................................... 22
6.1 Access and Cooperation; Due Diligence.......................... 22
6.2 Conduct of Business Pending Closing............................ 22
6.3 Prohibited Activities.......................................... 23
6.4 No Shop........................................................ 24
6.5 Notice to Bargaining Agents.................................... 24
6.6 Agreements..................................................... 25
6.7 Notification of Certain Matters................................ 25
6.8 Amendment of Schedules......................................... 25
6.9 Cooperation in Preparation of Registration Statement........... 26
6.10 Final Financial Statements..................................... 27
6.11 Further Assurances............................................. 27
6.12 Authorized Capital............................................. 27
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY...... 27
7.1 Representations and Warranties................................. 28
7.2 Performance of Obligations..................................... 28
7.3 No Litigation.................................................. 28
7.4 Opinion of Counsel............................................. 28
7.5 Registration Statement......................................... 28
7.6 Consents and Approvals......................................... 28
7.7 Good Standing Certificates..................................... 29
7.8 No Material Adverse Change..................................... 29
7.9 Closing of IPO................................................. 29
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7.10 Secretary's Certificate........................................ 29
7.11 Employment Agreements.......................................... 29
7.12 Directors and Officers Insurance............................... 29
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF QSI........................... 29
8.1 Representations and Warranties................................. 30
8.2 Performance of Obligations..................................... 30
8.3 No Litigation.................................................. 30
8.4 Secretary's Certificate........................................ 30
8.5 No Material Adverse Effect..................................... 30
8.6 Stockholders' Release.......................................... 30
8.7 Termination of Related Party Agreements........................ 31
8.8 Opinion of Counsel............................................. 31
8.9 Consents and Approvals......................................... 31
8.10 Good Standing Certificates..................................... 31
8.11 Registration Statement......................................... 31
8.12 Employment Agreements.......................................... 31
8.13 Closing of IPO................................................. 31
8.14 FIRPTA Certificate............................................. 31
8.15 Insurance...................................................... 31
8.16 Lockup Agreement............................................... 31
9. COVENANTS OF QSI AND THE STOCKHOLDERS AFTER CLOSING.................. 32
9.1 Release From Guarantees; Repayment of Certain Obligations...... 32
9.2 Preservation of Tax Treatment.................................. 32
9.3 Preparation and Filing of Returns.............................. 33
9.4 Directors and Officers......................................... 33
9.5 Maintenance of Books........................................... 33
10. INDEMNIFICATION...................................................... 34
10.1 General Indemnification by Stockholders........................ 34
10.2 Indemnification by QSI......................................... 35
10.3 Third Person Claims............................................ 35
10.4 Exclusive Remedy............................................... 36
10.5 Limitations on Indemnification................................. 36
11. TERMINATION OF AGREEMENT............................................. 37
11.1 Termination.................................................... 37
11.2 Liabilities in Event of Termination............................ 38
12. NONCOMPETITION....................................................... 38
12.1 Prohibited Activities.......................................... 38
12.2 Damages........................................................ 39
12.3 Reasonable Restraint........................................... 39
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12.4 Severability; Reformation...................................... 39
12.5 Independent Covenant........................................... 39
12.6 Materiality.................................................... 40
12.7 Limitations.................................................... 40
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............................ 40
13.1 Stockholders................................................... 40
13.2 QSI............................................................ 41
13.3 Damages........................................................ 41
13.4 Survival....................................................... 41
14. TRANSFER RESTRICTIONS................................................ 41
14.1 Transfer Restrictions.......................................... 41
15. FEDERAL SECURITIES ACT REPRESENTATIONS............................... 42
15.1 Compliance with Law............................................ 42
15.2 Economic Risk; Sophistication.................................. 42
16. REGISTRATION RIGHTS.................................................. 42
16.1 Piggyback Registration Rights.................................. 42
16.2 Registration Procedures........................................ 43
16.3 Underwriting Agreement......................................... 43
16.4 Availability of Rule 144....................................... 44
17. GENERAL.............................................................. 44
17.1 Cooperation.................................................... 44
17.2 Successors and Assigns......................................... 44
17.3 Entire Agreement............................................... 44
17.4 Counterparts................................................... 44
17.5 Brokers and Agents............................................. 44
17.6 Expenses....................................................... 44
17.7 Notices........................................................ 45
17.8 Governing Law.................................................. 46
17.9 Exercise of Rights and Remedies................................ 46
17.10 Time........................................................... 46
17.11 Reformation and Severability................................... 46
17.12 Remedies Cumulative............................................ 46
17.13 Captions....................................................... 46
17.14 Amendments and Waivers......................................... 46
17.15 Incorporation by Reference..................................... 47
17.16 Defined Terms.................................................. 47
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INDEX TO SCHEDULES
4.1 Organization; Charter Documents
4.3 Authorized Capital Stock
4.4 Transactions in Capital Stock
4.5 Bonus Shares
4.6 Subsidiaries
4.7 Predecessor Status
4.8 Spin-Offs
4.9 Financial Statements
4.10 Liabilities and Obligations
4.11 Accounts and Notes Receivable
4.12 Permits and Intangibles
4.13 Environmental Matters
4.14 Personal Property
4.15 Significant Customers; Material Contracts and Commitments
4.16 Real Property
4.17 Insurance; Bonding
4.18 Compensation; Employment Agreements; Organized Labor Matters
4.19 Employee Plans
4.21 Violations of Law; Litigation
4.22 Taxes
4.23 Necessary Consents
4.24 Government Contracts
4.25 Absence of Changes
4.26 Deposit Accounts; Powers of Attorney
4.30 Prohibited Activities
4.31 Company Stock Ownership; Liens on Company Stock
5.1 QSI Charter and Bylaws
5.3 QSI Stock Ownership
5.4 Transactions in Capital Stock
5.6 Financial Statements
5.7 Liabilities and Obligations
5.8 Conformity with Law; Litigation
5.9 Required Consents - QSI
5.12 Business; Real Property; Material Agreements
5.13 Taxes
6.2 Conduct of Business Pending Closing - Exceptions
6.3 Prohibited Activities - Exceptions
6.5 Proof of Notice Under Collective Bargaining Agreements
6.6 Termination Agreements
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INDEX TO ANNEXES
Annex I Consideration
Annex II Employment Agreement Form
vi
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION (the
"Agreement") is made effective as of December 11, 1997, by and among Quanta
Services, Inc., a Delaware corporation formerly known as Fabal Construction,
Inc. ("QSI"), Union Power Construction Company, a Colorado corporation (the
"Company"), and The Soule Trusts Partnership, Patricia Nichols, Ron Soule, Linda
Sherman, Tim Soule, Judith Cantrell, Monty Franssen, Ron Soule as trustee for
The Dana Schrock Trust, Angela Chrisinger, Shellie Potter and April Dempster,
who are referred to collectively herein as the "Stockholders." Capitalized
terms used in this Agreement and not otherwise defined are defined in Section
17.16 hereof.
WHEREAS, the parties have previously executed that certain Agreement and
Plan of Organization dated as of October 29, 1997, and have agreed to certain
amendments and revisions thereto pursuant to that certain Amended and Restated
Agreement and Plan of Organization dated as of November 10, 1997, and that
certain Amendment No. 1 to Amended and Restated Agreement and Plan of
Organization dated as of November 24, 1997 (collectively, the "Original
Agreement");
WHEREAS, the parties wish to amend and restate the Original Agreement in
its entirety to reflect certain agreed to amendments and revisions;
WHEREAS, the respective Boards of Directors of QSI and the Company deem it
advisable and in the best interests of QSI and the Company and their respective
stockholders that QSI acquire all of the Company's outstanding shares of capital
stock pursuant to this Agreement;
WHEREAS, QSI is concurrently entering into an Amended and Restated
Agreement and Plan of Organization (collectively, the "Other Agreements") with
each of PAR Electrical Contractors, Inc., Potelco, Inc. and TRANS TECH Electric,
Inc., and their respective stockholders (the Company, together with each of the
entities with which QSI has entered into the Other Agreements, are collectively
referred to herein as the "Founding Companies");
WHEREAS, this Agreement, the Original Agreement, the Other Agreements and
the IPO of QSI Stock constitute the "QSI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors and the stockholders
of QSI and each of the Other Founding Companies have approved and adopted the
QSI Plan of Organization as an integrated plan pursuant to which QSI will
acquire the capital stock or assets of each of the Founding Companies in
exchange for shares of QSI Stock and cash concurrent with the IPO of QSI Stock
and which is intended to qualify as an exchange meeting the requirements of
Section 351 of the Code; and
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:
<PAGE>
1. TRANSFER AND EXCHANGE
On the Funding and Consummation Date, (a) each Stockholder shall transfer,
convey, assign and deliver to QSI, and QSI shall acquire and accept from such
Stockholder, all of such Stockholder's outstanding shares of Company Stock, free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind.
2. DELIVERY OF CONSIDERATION
2.1 CONSIDERATION. On the Funding and Consummation Date the Stockholders,
who are on that date the holders of all outstanding certificates representing
Company Stock, shall, upon surrender of such certificates, receive the number of
shares of QSI Stock and the amount of cash set forth on Annex I hereto, said
cash to be payable by certified check or wire transfer. QSI shall have the
right, in its sole discretion, to revise the consideration set forth on Annex I
at any time prior to the Closing Date based upon the trailing twelve month
revenue performance of the Company; provided that if either the cash or stock
portion of such consideration is adjusted downward by more than 5%, the Company
or any Stockholders shall have the right to terminate this Agreement by giving
written notice of their intention to do so not later than fifteen days following
receipt of notice of the adjustment. Also set forth on Annex I are actions
permitted to be taken by the Company with respect to disposition of its assets
prior to the Closing Date.
2.2 CERTIFICATES. The Stockholders shall deliver to QSI at the Closing
the certificates representing Company Stock, duly endorsed in blank by the
appropriate Stockholder, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Company's
expense, affixed and canceled. Each Stockholder agrees promptly to cure any
deficiencies with respect to the endorsement of the interest certificates or
other documents of conveyance with respect to such Company Stock or with respect
to the stock powers accompanying the Company Stock.
2.3 QSI STOCK. All QSI Stock received by the Stockholders pursuant to
this Agreement shall, except for restrictions on resale or transfer described in
Sections 14 and 15 hereof, have the same rights as all of the other shares of
outstanding QSI Stock by reason of the provisions of the Certificate of
Incorporation of QSI or as otherwise provided by the Delaware General
Corporation Law (the "Delaware GCL"). All voting rights of such QSI Stock
received by the Stockholders shall be fully exercisable by the Stockholders and
the Stockholders shall not be deprived nor restricted in exercising those
rights. On the Funding and Consummation Date, QSI shall have no class of
capital stock issued and outstanding other than the QSI Stock. Not withstanding
anything herein to the contrary, the sponsors of QSI will hold a class of stock
which will be identical to the QSI Stock, except that holders of such class of
stock will have the right to elect only one or two directors and with such other
limited voting rights as recommended by counsel.
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3. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary to
prepare to (i) effect the transfer and delivery of the shares of Company Stock
as contemplated by Section 1 hereof and (ii) effect the delivery of the
consideration referred to in Section 2 hereof; provided, however, that such
actions shall not include the actual completion of the transfer and delivery of
the shares of Company Stock or the delivery of the consideration by certified
check(s) or wire transfer(s) referred to in Section 2 hereof, each of which
actions shall only be taken upon the Funding and Consummation Date as herein
provided. The taking of the actions described in clauses (i) and (ii) above
(the "Closing") shall take place on the closing date (the "Closing Date") at the
offices of Jackson Walker L.L.P., 901 Main Street, Suite 6000, Dallas, Texas
75202. On the Funding and Consummation Date (x) all transactions contemplated
by this Agreement, including the delivery of the shares of Company Stock and the
delivery of shares of QSI Stock and certified check(s) or wire transfer(s) in an
amount equal to the cash portion of the consideration which the Stockholders
shall be entitled to receive pursuant to Section 2 hereof shall occur and (y)
the closing with respect to the IPO shall be completed. The date on which the
actions described in the preceding clauses (x) and (y) occur shall be referred
to as the "Funding and Consummation Date." Except as provided in Sections 7 and
8 hereof with respect to actions to be taken on the Funding and Consummation
Date, during the period from the Closing Date to the Funding and Consummation
Date this Agreement may only be terminated by a party if the underwriting
agreement in respect of the IPO is terminated pursuant to the terms of such
agreement. This Agreement shall in any event terminate if the Funding and
Consummation Date has not occurred within 15 business days of the Closing Date.
Time is of the essence.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS.
Each of the Company and the Stockholders jointly and severally represents
and warrants that all of the following representations and warranties in this
Section 4(A) are true at the date of this Agreement and, subject to Section 6.8
hereof, shall be true at the time of Closing and the Funding and Consummation
Date. Each of the Company and the Stockholders agrees that such representations
and warranties shall survive the Funding and Consummation Date for a period of
two years (the last day of such period being the "Expiration Date"), except that
(i) the warranties and representations set forth in Section 4.22 hereof shall
survive until such time as the limitations period has run for all Tax periods
ended on or prior to or including the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 4.22, (ii) the warranties and
representations set forth in Section 4.29(c) hereof shall survive until such
time as the limitations period has run for determining the Tax treatment of the
transaction contemplated herein, and (iii) solely for purposes of determining
whether a claim for indemnification under Section 10.1(iii) hereof has been made
on a timely basis, and solely to the extent that in connection with the IPO, QSI
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws as a result of a breach of a representation or warranty
by the Company or a Stockholder, the
3
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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. For purposes of this Section 4, the term
"Company" shall mean and refer to the Company and all of its Subsidiaries.
4.1 DUE ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and the Company is duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on its business in the places and in the manner as now
conducted, except (i) as set forth on Schedule 4.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the Company taken as a whole (as used herein with
respect to the Company, or with respect to any other person, a "Material Adverse
Effect"). Schedule 4.1 sets forth the jurisdiction in which the Company is
incorporated and contains a list of all such jurisdictions in which the Company
is authorized or qualified to do business. True, complete and correct copies of
the Certificate of Incorporation and Bylaws, each as amended, of the Company
(the "Charter Documents") are all attached hereto as Schedule 4.1. The stock
records of the Company, as heretofore made available to QSI, are correct and
complete in all material respects. There are no minutes in the possession of
the Company or the Stockholders that have not been made available to QSI, and
all of such minutes are correct and complete in all respects. Except as set
forth on Schedule 4.1, the most recent minutes of the Company, which are dated
no earlier than ten business days prior to the date hereof, affirm and ratify
all prior acts of the Company, and of its officers and directors on behalf of
the Company.
4.2 AUTHORIZATION. (i) The 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 and perform this Agreement, and all required approvals
of the equity holders and the Board of Directors of the Company have been
obtained.
4.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 4.3. 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 4.3 and further, except as set forth on Schedule
4.3, 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 the
preemptive rights of any past or present equity holder of the Company.
4.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 4.4,
the Company has not acquired any Company Stock since January l, 1994. Except as
set forth on Schedule 4.4, (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
4
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(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
equity holders has been altered or changed in contemplation of the transactions
contemplated hereby and/or the QSI Plan of Organization. Schedule 4.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the Company's stock and the material terms of such outstanding
options, warrants or other rights.
4.5 NO BONUS SHARES. Except as set forth on Schedule 4.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
4.6 SUBSIDIARIES. Schedule 4.6 attached hereto lists the name of each of
the Company's subsidiaries (each, a "Subsidiary"), and sets forth the number and
class of the authorized capital stock of each Subsidiary and the number of
shares or interests of each Subsidiary which are issued and outstanding, all of
which shares or interests (except as set forth on Schedule 4.6) are owned by the
Company, free and clear of all liens, security interests, pledges, voting
trusts, equities, restrictions, encumbrances and claims of every kind. Except
as set forth on Schedule 4.6, 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.
4.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 4.7 is a listing of
all names 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. Except as disclosed on Schedule 4.7, the Company has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
4.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 4.8, 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 directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Company ("Affiliates") since January 1, 1994.
4.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 4.9 are copies of
the following financial statements of the Company and any Subsidiaries (the
"Company Financial Statements"): the Company's audited Consolidated Balance
Sheets, if any, as of August 31, 1997, 1996 and 1995 and Consolidated Statements
of Income, Cash Flows and Retained Earnings, if any, for each of the years in
the three-year period ended August 31, 1997, and Consolidated Statements of
Income, Cash Flows and Retained Earnings for the nine-month period ending
September 30, 1997 (August 31, 1997 being hereinafter referred to as the
"Balance Sheet Date"). Except as set forth on Schedule 4.9, such Financial
Statements have been prepared in accordance with generally accepted accounting
principles
5
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applied on a consistent basis throughout the periods indicated. Except as set
forth on Schedule 4.9, such Consolidated Balance Sheets as of August 31, 1997,
1996 and 1995 present fairly the financial position of the Company and each
Subsidiary, if any, as of the dates indicated thereon, and such Consolidated
Statements of Income, Cash Flows and Retained Earnings present fairly the
results of operations for the periods indicated thereon.
4.10 LIABILITIES AND OBLIGATIONS. The Company has delivered to QSI an
accurate list (which is set forth on Schedule 4.10) as of the Balance Sheet Date
of (i) all 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 (other than liabilities
incurred in the ordinary course of business), (ii) any liabilities of the
Company in excess of $25,000 and (iii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, liens, pledges or other security
agreements in each case evidencing indebtedness in excess of $15,000, including
copies thereof. Except as set forth on Schedule 4.10, since the Balance Sheet
Date the Company has not incurred any material liabilities of any kind,
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to QSI on Schedule 4.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed or are being contested, the
following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation 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; and
(iii) the date such claim, suit or proceeding as instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which 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.
4.11 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to QSI
an accurate list (which is set forth on Schedule 4.11) 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 receivables from and advances to employees and the
Stockholders. The Company shall also provide to QSI (x) an accurate list of all
receivables obtained subsequent to the Balance Sheet Date up to the Closing Date
and (y) an aging of all accounts and notes receivable showing amounts due in 30
day aging categories (the "A/R Aging Reports"). Except
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<PAGE>
to the extent reflected on Schedule 4.11 or as disclosed by the Company to QSI
in a writing accompanying the A/R Aging Reports, the accounts, notes and other
receivables shown on Schedule 4.11 and on the A/R Aging Reports represent bona-
fide obligations and are and shall be collectible in the amounts shown, net of
reserves reflected in the balance sheet as of the Balance Sheet Date with
respect to accounts receivable as of the Balance Sheet Date, and net of reserves
reflected in the books and records of the Company (consistent with the methods
used for the balance sheet) with respect to accounts receivable of the Company
after the Balance Sheet Date.
4.12 PERMITS AND INTANGIBLES. The Company holds all licenses,
franchises, permits and other governmental authorizations the absence of any of
which could have a Material Adverse Effect on its business, and the Company has
delivered to QSI an accurate list and summary description (which is set forth on
Schedule 4.12) of all such licenses, franchises, permits and other governmental
authorizations, including permits, titles, licenses, franchises, certificates,
trademarks, trade names, patents, patent applications and copyrights owned or
held by the Company (including interests in software or other technology
systems, programs and intellectual property) (it being understood and agreed
that a list of all environmental permits and other environmental approvals is
set forth on Schedule 4.13). To the Knowledge of the Company, the licenses,
franchises, permits and other governmental authorizations listed on Schedules
4.12 and 4.13 are valid, and the Company has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The Company has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 4.12 and 4.13
and is not in violation of any of the foregoing except where such noncompliance
or violation would not have a Material Adverse Effect on the Company. Except as
specifically provided on Schedule 4.12, 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, franchises, permits or government authorizations.
4.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 4.13, (i)
the Company has complied with and is in compliance with all federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations
and rules, and all judgments, orders and decrees to which it is a party,
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) the Company has obtained and adhered to all necessary permits and
other approvals necessary to treat, transport, store, dispose of and otherwise
handle Hazardous Wastes and Hazardous Substances, a list of all of which permits
and approvals is set forth on Schedule 4.13; (iii) there have been no releases
or threats of releases (as defined in Environmental Laws) at, from, in or on any
property owned or operated by the Company except as permitted by Environmental
Laws; (iv) the Company Knows of no on-site or off-site location to which the
Company has transported or disposed of Hazardous Wastes and Hazardous Substances
or arranged for the transportation of Hazardous Wastes and Hazardous Substances,
which site is the subject of any federal, state, local or foreign
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enforcement action or any other investigation which could lead to any claim
against the Company or QSI for any clean-up cost, remedial work, damage to
natural resources, property damage or personal injury, including, but not
limited to, any claim under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; and (v) the Company has no
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
4.14 PERSONAL PROPERTY. The Company has delivered to QSI an accurate
list (which is set forth on Schedule 4.14) of (x) all personal property included
in "depreciable plant, property and equipment" on the balance sheet of the
Company as of the Balance Sheet Date or that will be included on any balance
sheet of the Company prepared after the Balance Sheet Date, (y) all other
personal property owned by the Company with a value in excess of $10,000 (i) as
of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z)
all leases and agreements in respect of personal property with a value in excess
of $10,000, including, true, complete and correct copies of all such leases and
agreements. The Company shall indicate on Schedule 4.14 those assets leased or
used by the Company that are currently owned, or that were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except
as set forth on Schedule 4.14, (i) all personal property 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 4.14, (ii) all of the personal property listed on
Schedule 4.14 is in good working order and condition, ordinary wear and tear
excepted and (iii) all leases and agreements included on Schedule 4.14 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.
The Assets constitute all of the property and assets used in, and/or
necessary to operate, the business of the Company as it is now being conducted
and as contemplated to be conducted on and after the Funding and Consummation
Date.
4.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to QSI an accurate list (which is set forth on Schedule
4.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 4.15, means a customer (or
person or entity) representing 5% or more of the Company's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 4.15, none
of the Company's significant customers (or persons or entities that are sources
of a significant number of customers) have canceled or substantially reduced or,
to the Knowledge of the Company, are currently attempting or threatening to
cancel a contract or substantially reduce utilization of the services provided
by the Company.
The Company has listed on Schedule 4.15 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 contracts, commitments and agreements otherwise listed on Schedules
4.10, 4.14 or 4.16, (a) in existence as of the Balance Sheet Date and (b)
entered into since the Balance Sheet Date, and
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in each case has delivered or made available true, complete and correct copies
of such agreements to QSI. The Company has complied with all material
commitments and obligations pertaining to it, and is not in default under any
contracts or agreements listed on Schedule 4.15 and no notice of default under
any such contract or agreement has been received. Where required under such
contracts or agreements, the Company has furnished notice of the QSI Plan of
Organization to third parties and has, where required, obtained consent from
third parties to enter into the transactions contemplated by this Agreement. The
Company has also indicated on Schedule 4.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $50,000 by the Company.
Notwithstanding the foregoing, it is agreed and understood that the
Company's customers competitively bid most contracts and that there can be no
assurance that the Company will win future competitive bids.
4.16 REAL PROPERTY. Schedule 4.16 includes a list of all real
property owned or leased by the Company (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date, and all other interests in real
property, if any, used by the Company in the conduct of its business. The
Company has good and insurable title to the real property owned by it, including
those reflected on Schedule 4.14, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 4.10 or 4.16 as securing specified
liabilities (with respect to which no 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 shown of record in the office of the Registry of Deeds for
the County in which the properties, assets and leasehold estates
are located which do not materially adversely affect the current
use of the property.
Schedule 4.16 contains, without limitation, true, complete and correct
copies of all title reports and title insurance policies currently in possession
of the Company with respect to real property owned by the Company.
The Company has also delivered to QSI an accurate list of real property
leased by the Company (which list is set forth on Schedule 4.16), together with
true, complete and correct copies of all leases and agreements in respect of
such real property leased by the Company (which copies are attached to Schedule
4.16), and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by Stockholders or business or personal
affiliates of the Company or Stockholders. Except as set forth on Schedule
4.16, all of such leases included on Schedule 4.16
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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.
4.17 INSURANCE; BONDING. (a) The Company has delivered to QSI, as
set forth on and attached to Schedule 4.17, (i) an accurate list as of the
Balance Sheet Date of all insurance policies carried by the Company, (ii) an
accurate list and copies of all insurance loss runs for the past five (5) policy
years and (iii) true, complete and correct copies of all insurance policies
which were in effect the past three (3) years and which are currently in effect.
Such insurance policies evidence all of the insurance that 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
Funding and Consummation Date. No insurance carried by the Company has ever
been canceled by the insurer and the Company has never been unable to obtain
insurance coverage for its assets and operations.
(b) Schedule 4.17 includes an accurate list of all performance bonds
securing obligations of the Company, together with the amount bonded and any
guaranty issued by a Stockholder or other third party with respect thereto.
4.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
The Company has delivered to QSI an accurate list (which is set forth on
Schedule 4.18) showing all officers, directors and key employees of the Company,
listing all employment and severance 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 (i) as of the Balance Sheet Date and (ii) as of the date hereof.
The Company has provided to QSI true, complete and correct copies of any
employment agreements for persons listed on Schedule 4.18. Since the Balance
Sheet Date, 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,
or except as set forth on Schedule 4.18.
Except as set forth on Schedule 4.18, (i) the Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
arrangement with any labor union, (ii) no employees of the Company are
represented by any labor union or covered by any collective bargaining
agreement, (iii) no campaign to establish such representation is in progress and
(iv) there is no pending or, to the best of the Company's 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.
4.19 EMPLOYEE PLANS. The Company has delivered to QSI an accurate
schedule (Schedule 4.19) showing all employee benefit plans currently sponsored
or maintained or contributed to by, or which cover the current or former
employees or directors of the Company, all employment and severance agreements
and other agreements or arrangements containing "golden parachute" or other
similar provisions, and all deferred compensation agreements, together with
true, complete and correct copies of such plans, agreements and any trusts
related thereto, and classifications of
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employees covered thereby as of the Balance Sheet Date. Except for the employee
benefit plans, if any, described on Schedule 4.19, the Company does not sponsor,
maintain or contribute to any plan, program, fund or arrangement that
constitutes an "employee pension benefit plan," nor has the Company 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, agreements, arrangement and trusts set forth on Schedule
4.19, nor is the Company 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 otherwise listed on Schedule 4.19, the Company is not now, and
cannot 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.
Except as otherwise listed on Schedule 4.19, all employee benefit plans,
agreements, arrangements and trusts listed on Schedule 4.19 and the
administration thereof are in substantial compliance 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.
Except as otherwise listed on Schedule 4.19, all accrued contribution
obligations of the Company with respect to any plan listed on Schedule 4.19 have
either been fulfilled in their entirety or are fully reflected on the balance
sheet of the Company as of the Balance Sheet Date.
4.20 COMPLIANCE WITH ERISA. Except as disclosed on Schedule 4.19, all
such plans, agreements, arrangements and trusts of the Company that are
currently maintained or contributed to by the Company or cover employees or
former employees of the Company listed on Schedule 4.19 that are intended to
qualify under Section 401(a) of the Code (the "Qualified Plans") are, and have
been so qualified and have been determined by the Internal Revenue Service to be
so qualified. Except as disclosed on Schedule 4.19, 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, audit reports or Tax Returns) have been timely filed or distributed.
Except as disclosed on Schedule 4.19, neither Stockholders, any such plan listed
on Schedule 4.19, nor the Company has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA.
Except as disclosed on Schedule 4.19, no such plan listed on Schedule 4.19 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) 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 Stockholders further represent
that:
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(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice of and approval by
the Internal Revenue Service;
(ii) no such plan listed on Schedule 4.19 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 on
Schedule 4.19;
(iv) the Company 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 multi employer plan or the Pension Benefit Guaranty
Corporation 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.
4.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth
on Schedules 4.21 or 4.13, the Company is not in violation of any law or
regulation which would have a Material Adverse Effect, or of any order of any
court or federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over the Company;
and except to the extent set forth on Schedules 4.10 or 4.13, there are no
claims, actions, suits or proceedings, commenced or, to the Knowledge of the
Company, threatened, against or affecting the Company, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the Company and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. The Company has conducted and is
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 4.12 and 4.13, and is not in violation of any
of the foregoing.
4.22 TAXES. (i) For purposes of this Section 4.22 only, the term
"Company" shall include each Subsidiary, if any.
(ii) All Returns required to have been filed by the Company have been
timely filed (taking into account duly granted extensions) and are true,
correct and complete in all respects. Except as disclosed in Schedule
4.22, (i) the Company is not currently the beneficiary of any extension of
time within which to file any Return, and (ii) no claim has ever been made
by any governmental authority in a jurisdiction where the Company does not
file
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Returns that the Company is or may be subject to taxation by that
jurisdiction, which claim has not been resolved as of the date hereof.
(iii) All Taxes of the Company which have become due (without regard
to any extension of the time for payment and whether or not shown on any
Return) have been paid. The Company has withheld and paid over all Taxes
required to have been withheld and paid over by it and has complied with
all information reporting and back-up withholding requirements relating to
Taxes. There are no liens with respect to Taxes on any of the assets of
the Company, other than liens for Taxes not yet due and payable or for
Taxes disclosed in Schedule 4.22 that are being contested in good faith
through appropriate proceedings and for which adequate reserves have been
established in the Company Financial Statements.
(iv) The unpaid Taxes of the Company for all periods ending on or
before the Balance Sheet Date did not exceed the amount of the current
liability accruals for Taxes (exclusive of reserves for deferred Taxes
established to reflect timing differences) reflected on the face of the
balance sheet of the Company as of the Balance Sheet Date, and the unpaid
Taxes of the Company for all periods ending on or before the Funding and
Consummation Date will not exceed the amount of such current liability
accruals reflected on the balance sheet of the Company as of September 30,
1997 as adjusted for Company operations in the ordinary course of business
through the Funding and Consummation Date in accordance with generally
accepted accounting principles applied on a consistent basis and, to the
extent consistent therewith, the most recent custom and practices of the
Company.
(v) No deficiencies exist or have been asserted or are expected to be
asserted (verbally or in writing) with respect to Taxes of the Company and
the Company has not received notice nor does it expect to receive notice
(verbally or in writing) that it has not filed a Return or paid any Taxes
required to be filed or paid by it. No audit, examination, investigation,
action, suit, claim or proceeding relating to the determination, assessment
or collection of any Tax of the Company is currently in process, pending or
threatened (verbally or in writing). Except as disclosed in Schedule 4.22,
no waiver or extension of any statute of limitations relating to the
assessment or collection of any Tax of the Company is in effect. There are
no outstanding requests for rulings with any Tax authority relating to
Taxes of the Company.
(vi) Except as disclosed in Schedule 4.22, the Company is not and has
never been (i) a party to any tax sharing agreement or arrangement (formal
or informal, verbal or in writing), or (ii) a member of an affiliated group
of corporations (within the meaning of Code Section 1504) filing a
consolidated federal income Return, or any similar group under analogous
provisions of other law.
(vii) The Company is not liable for the unpaid Taxes of any person
other than the Company under Treasury Regulation Section 1.1502-6 or any
similar provision of state, local or foreign law, or by contract or
otherwise.
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(viii) The Company has delivered to QSI true and complete copies of
all federal, state, local and foreign income Returns filed by the Company
for its three (3) most recently ended taxable years, together with all
related examination reports, statements of deficiencies and closing and
other agreements. Schedule 4.22 indicates which, if any, of such Returns
have been, or currently are, the subject of any audit, examination or other
Tax proceeding.
(ix) The Company (i) has not filed a consent under Code Section 341(f)
concerning collapsible corporations; (ii) has not made any payments,
obligated itself to make any payments or become a party to any agreement
that under any circumstance could obligate it or any successor or assignee
of it to make any payments that are not or will not be deductible under
Code Section 280G, or that would be subject to excise Tax under Code
Section 4999; (iii) is not a "foreign person" as defined in Code Section
1445(f)(3); (iv) is not and has not been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii); (v) does not
own and has not owned any interest in any "controlled foreign corporation"
as defined in Code Section 957 or "passive foreign investment company" as
defined in Code Section 1296; (vi) is not and has not been a party to any
agreement or arrangement for which partnership Returns are required to be
filed; (vii) does not own any asset that is subject to a "safe harbor
lease" within the meaning of Code Section 168(f)(8), as in effect prior to
amendment by the Tax Equity and Fiscal Responsibility Act of 1982; (viii)
does not own any "tax-exempt use property" within the meaning of Code
Section 168(h) or "tax exempt bond financed property" within the meaning of
Code Section 168(g)(5); and (ix) has not agreed to and is not required to
make any adjustment under Code Section 481(a) by reason of a change in
accounting method or otherwise.
4.23 NO VIOLATIONS. The Company is not in violation of any Charter
Document. Neither the Company nor, to the Knowledge of the Company, any other
party thereto, is in default under any lease, instrument, agreement, license or
permit set forth on Schedules 4.12, 4.13, 4.14, 4.15 or 4.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth on Schedule 4.23, (a) the
rights and benefits of the Company under the Material Documents will not be
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 4.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit. Except as set forth on Schedule 4.23, none of the
Material Documents by its terms prohibits the use or publication by the Company
or QSI 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 to any other customer or potential customer of the Company, QSI or any
Other Founding Company.
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4.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 4.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
4.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 4.25 or any other Schedule of the Company attached hereto,
there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of 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;
(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, materially adversely affecting the
business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Company to any person,
including, without limitation, the Stockholders and their affiliates;
(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 Stockholder or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(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 material breach, amendment or termination of any 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.
4.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered
to QSI an accurate schedule (which is set forth on Schedule 4.26) 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 4.26 also sets forth a complete list of the names 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.
4.27 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,
enforceable against the Company in accordance with its terms except as limited
by bankruptcy, insolvency or other similar laws of general application relating
to or affecting the enforcement of creditors' rights generally, and the
individual(s) signing this Agreement on behalf of the Company have the legal
power, authority and capacity to bind the Company.
4.28 RELATIONS WITH GOVERNMENTS. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action 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.
4.29 DISCLOSURE. (a) This Agreement, including the schedules hereto
and all other documents and information made available to QSI and its
representatives in writing pursuant hereto
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or thereto, present fairly the business and operations of the Company for the
time periods with respect to which such information was requested. The Company's
rights under the documents delivered pursuant hereto would not be materially
adversely affected by, and no statement made herein would be rendered untrue in
any material respect by, any other document to which the Company is a party, or
to which its properties are subject, or by any other fact or circumstance
regarding the Company (which fact or circumstance was, or should reasonably,
after due inquiry, have been known to the Company) that is not disclosed
pursuant hereto or thereto.
(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 at a
particular price or within a particular range of prices or occur at all; and
(ii) that, except as otherwise expressly provided elsewhere in this Agreement,
neither QSI nor 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.
(c) No Stockholder has any present plan, intention, commitment, binding
agreement or arrangement to dispose of any shares of QSI Stock to be received by
such Stockholder as a result of the transactions contemplated by this Agreement,
and each Stockholder agrees that, for a period of two years from the Funding and
Consummation Date, except pursuant to Section 16 hereof, he or she will not
dispose of any shares of QSI Stock received by them as described in Section 2.1.
4.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 4.30 or
as contemplated by Annex I, the Company has not, between the Balance Sheet Date
and the date hereof, taken any of the actions set forth in Section 6.3
(Prohibited Activities).
(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 6.8 hereof, shall be true at the time of Closing and on the
Funding and Consummation Date, and that the representations and warranties set
forth in Sections 4.31 and 4.32 shall survive until the second anniversary of
the Funding and Consummation Date, which shall be the Expiration Date for
purposes of those Sections.
4.31 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
Schedule 4.31 as being owned by such Stockholder, and, except as set forth on
Schedule 4.31, such Company Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
4.32 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock that
such Stockholder has or may have
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had on the date hereof other than rights of any Stockholder to acquire QSI Stock
pursuant to any option granted by QSI.
5. REPRESENTATIONS OF QSI
QSI represents and warrants that all of the following representations and
warranties in this Section 5 are true at the date of this Agreement and, subject
to Section 6.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date, and that such representations and warranties shall survive
the Funding and Consummation Date for a period of two years (the last day of
such period being the "Expiration Date"), except that (i) the warranties and
representations set forth in Section 5.13 hereof shall survive until such time
as the limitations period has run for all Tax periods ended on or prior to the
Funding and Consummation Date, which shall be deemed to be the Expiration Date
for Section 5.13 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 10.2(iv) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, QSI 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.
5.1 DUE ORGANIZATION. QSI is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Certificate of Incorporation
and Bylaws, each as amended, of QSI (the "QSI Charter Documents") are all
attached hereto as Schedule 5.1.
5.2 AUTHORIZATION. (i) The representative of QSI executing this Agreement
has the authority to enter into and bind QSI to the terms of this Agreement and
(ii) QSI has the full legal right, power and authority to enter into and perform
this Agreement.
5.3 CAPITAL STOCK OF QSI. Immediately prior to the Funding and
Consummation Date, the authorized capital stock of QSI will consist of at least
40,000,000 shares of QSI Stock, of which the number of issued and outstanding
shares will be as set forth in the Registration Statement, and 5,000,000 shares
of preferred stock, $.01 par value, of which no shares will be issued and
outstanding. All of the issued and outstanding shares of the capital stock of
QSI are owned by the persons set forth on Schedule 5.3 hereof, in each case,
free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. Upon consummation
of the IPO, the number of outstanding shares of QSI will be as set forth in the
Registration Statement. All of the issued and outstanding shares of the capital
stock of QSI have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the persons set forth on
Schedule 5.3, and further, such shares were offered, issued, sold and delivered
by QSI in compliance with all applicable state and federal laws concerning the
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issuance of securities. Further, none of such shares was issued in violation of
the preemptive rights of any past or present Stockholder of QSI.
5.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and
except as set forth on Schedule 5.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates QSI to issue any of its
authorized but unissued capital stock; and (ii) QSI 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. Schedule 5.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of QSI.
5.5 SUBSIDIARIES. QSI has no subsidiaries except for the companies to
become subsidiaries of QSI pursuant to this Agreement and each of the Other
Agreements as of the Funding and Consummation Date. Except as set forth in the
preceding sentence, QSI 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, and QSI is not, directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity.
5.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.6 are copies of
the following financial statements (the "QSI Financial Statements") of QSI,
which reflect the results of its operations from inception: FCI's unaudited
Balance Sheet as of September 30, 1997 and Statements of Income, Cash Flows and
Retained Earnings for the period from inception through September 30, 1997.
Such QSI 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 or on Schedule 5.6). Except as set
forth on Schedule 5.6, such Balance Sheets as of September 30, 1997 present
fairly the financial position of QSI as of such date, and such statements of
Income, Cash Flows and Retained Earnings present fairly the results of
operations for the period indicated.
5.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 5.7, QSI
has no material liabilities, contingent or otherwise, except as set forth in or
contemplated by this Agreement and the Other Agreements and except for fees and
expenses incurred in connection with the transactions contemplated hereby and
thereby.
5.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.8, QSI is not in violation of any law or regulation which would have
a Material Adverse Effect, or of any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over QSI; and except to the extent set forth
on Schedule 5.8, there are no material claims, actions, suits or proceedings,
pending or, to the Knowledge of QSI, threatened, against or affecting QSI, at
law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
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instrumentality having jurisdiction over QSI and no notice of any claim, action,
suit or proceeding, whether pending or threatened, has been received. QSI has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in applicable federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing. Assuming
the representations and warranties of the Company and the Stockholders contained
herein are complete and correct in all respects (other than representations and
warranties with respect to compliance with laws), this Agreement does not
violate any federal or state securities laws, rules or regulations.
5.9 NO VIOLATIONS. QSI is not in violation of any QSI Charter Document.
Neither QSI or, to the Knowledge of QSI, any other party thereto, is in default
under any lease, instrument, agreement, license or permit to which QSI is a
party, or by which QSI or any of its properties are bound (collectively, the
"QSI Documents"); and (a) the rights and benefits of QSI under the QSI Documents
will not be adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any violation or breach or constitute a default under, any of the terms or
provisions of the QSI Documents or the QSI Charter Documents. Except as set
forth on Schedule 5.9, none of the QSI Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
5.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by QSI and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of QSI and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of QSI, enforceable against QSI in
accordance with its terms except as limited by bankruptcy, insolvency or other
similar laws of general application relating to or affecting the enforcement of
creditors' rights generally, and the individual signing this Agreement on behalf
of QSI has the legal power, authority and capacity to bind QSI.
5.11 QSI STOCK. At the time of issuance thereof, the QSI Stock to be
delivered to the Stockholders pursuant to this Agreement will constitute valid
and legally issued shares of QSI, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 14 and 15 hereof,
will be identical in all material and substantive respects to the QSI Stock
issued and outstanding as of the date hereof and the QSI Stock to be issued
pursuant to the Other Agreements by reason of the provisions of the Delaware
GCL. The shares of QSI Stock to be issued to the Stockholders pursuant to this
Agreement will not be registered under the 1933 Act, except as provided in
Section 16 hereof.
5.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. QSI has not
conducted any operations or business since inception other than activities
related to the QSI Plan of Organization. QSI 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 agreement, except as listed on Schedule 5.12 and except that
QSI is
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a party to the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
5.13 TAXES. (i) All Returns required to have been filed by QSI have
been timely filed (taking into account duly granted extensions) and are true,
correct and complete in all respects. Except as disclosed in Schedule 5.13, (i)
QSI is not currently the beneficiary of any extension of time within which to
file any Return, and (ii) no claim has ever been made by any governmental
authority in a jurisdiction where QSI does not file Returns that QSI is or may
be subject to taxation by that jurisdiction.
(ii) All Taxes of QSI which have become due (without regard to any
extension of the time for payment and whether or not shown on any Return)
have been paid. QSI has withheld and paid over all Taxes required to have
been withheld and paid over and has complied with all information reporting
and back-up withholding requirements relating to Taxes. There are no liens
with respect to Taxes on any of the assets of QSI, other than liens for
Taxes not yet due and payable or for Taxes disclosed in Schedule 5.13 that
are being contested in good faith through appropriate proceedings and for
which adequate reserves have been established in the QSI Financial
Statements.
(iii) No deficiencies exist or have been asserted or are expected to
be asserted (verbally or in writing) with respect to Taxes of QSI and QSI
has not received notice nor does it expect to receive notice (verbally or
in writing) that it has not filed a Return or paid any Taxes required to be
filed or paid by it. No audit, examination, investigation, action, suit,
claim or proceeding relating to the determination, assessment or collection
of any Tax of QSI is currently in process, pending or threatened (verbally
or in writing). Except as disclosed in Schedule 5.13, no waiver or
extension of any statute of limitations relating to the assessment or
collection of any Tax of QSI is in effect. There are no outstanding
requests for rulings with any Tax authority relating to Taxes of QSI.
5.14 NO INTENTION TO DISPOSE OF COMPANY STOCK. QSI is acquiring the
Company Stock pursuant hereto for its own account for investment purposes and
does not have any present plan, intention, commitment, binding agreement, or
arrangement to dispose of the Company Stock.
5.15 OTHER FOUNDING COMPANIES. QSI has reviewed representations and
warranties from the Other Founding Companies in the Other Agreements that are
substantially similar to those made by the Company and the Shareholders herein.
6. COVENANTS PRIOR TO CLOSING
6.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of QSI and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish QSI with such additional financial and operating data and other
information as to the business and properties of the Company as QSI or the Other
Founding
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Companies may from time to time reasonably request. The Company will cooperate
with QSI and the Other Founding Companies and their respective representatives,
including FCI's auditors and counsel, in the preparation of any documents or
other material (including the Registration Statement) which may be required in
connection with any documents or materials required by this Agreement. QSI, the
Stockholders and the Company shall treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 13 hereof. In
addition, QSI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 6.1 requiring each such Other Founding
Company, its Stockholders, directors, officers, representatives, employees and
agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, QSI will afford to the officers and authorized representatives of the
Company access to all of FCI's sites, properties, books and records and all due
diligence, agreements, documents and information of or concerning the Founding
Companies and will furnish the Company with such additional financial and
operating data and other information as to the business and properties of QSI as
the Company may from time to time reasonably request. QSI 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 13 hereof.
6.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company shall, except (x)
as set forth on Schedule 6.2, (y) as requested by QSI or (z) as consented to by
QSI (which consent shall not be unreasonably withheld):
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any new method of management, operation or
accounting;
(ii) maintain its 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 its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(v) maintain and preserve its business organization intact, use its
best efforts to retain its present key employees and relationships with
suppliers, customers and others having business relations with the Company;
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(vi) maintain compliance with all 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 and not enter into
new or amended debt or lease instruments, provided that debt and/or lease
instruments may be replaced if such replacement instruments are on terms at
least as favorable to the Company as the instruments being replaced; and
(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.
6.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 6.3 or as set
forth on Annex I, between the date hereof and the Funding and Consummation Date,
the Company shall not, without prior written consent of QSI:
(i) make any change in its Articles of Incorporation or Bylaws;
(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 on Schedule 4.4;
(iii) 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 $10,000;
(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 $10,000 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 in the Company
Financial Statements) 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 Schedules 4.10 and/or 8.16
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
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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 or claims in the ordinary course
of business in a manner consistent with past practice, provided, further,
that such adjustments shall not be deemed to be included on Schedule 4.11
unless specifically listed thereon;
(x) commit a material breach or, except in the ordinary course of
business consistent with past practices, 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.
6.4 NO SHOP. None of the Stockholders, the Company, or 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 Funding and 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 or entity for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person or entity other than QSI
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.
6.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide QSI on Schedule 6.5 with proof that any required notice has been sent.
6.6 AGREEMENTS. 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
7.11 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date. Copies of such
termination agreements are listed on Schedule 6.6 and copies thereof are
attached hereto.
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6.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to QSI 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 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. QSI 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 QSI contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of QSI 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 6.7 that is not
accompanied by a proposed amendment or supplement to a schedule pursuant to
Section 6.8 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 6.8, (ii) modify the conditions set forth in Sections 7
and 8, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
6.8 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 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, provided, however,
that supplements and amendments to Schedules 4.10, 4.11, 4.14, 4.15 and 4.18
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 may be made unless QSI and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a schedule prepared by QSI that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect 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 7.1 and 8.1 have been
fulfilled, the Schedules hereto shall be deemed to be the schedules as amended
or supplemented pursuant to this Section 6.8. In the event that one of the
Other Founding Companies seeks to amend or supplement a schedule pursuant to
Section 6.8 of one of the Other Agreements, and such amendment or supplement
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on such Other Founding Company, QSI shall give the Company notice
promptly after it has Knowledge thereof. If QSI and a majority of the Founding
Companies consent to such amendment or supplement, which consent shall have been
deemed given by QSI or any Founding Company if no response is received within 72
hours following receipt of notice of such amendment or supplement (or sooner if
required by the circumstances under which such consent is requested), but the
Company does not give its consent, the Company may terminate this Agreement
pursuant to Section 11.l(iv) hereof. In the event that the Company seeks to
amend or supplement a Schedule pursuant to this
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Section 6.8, and QSI and a majority of the Other Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 11.1(i) hereof. In the
event that QSI seeks to amend or supplement a Schedule pursuant to this Section
6.8 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 11.1(i) hereof. No party to this Agreement shall be liable to
any other party if this Agreement shall be terminated pursuant to the provisions
of this Section 6.8.
6.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to QSI and the Underwriters
all of the information concerning the Company and the Stockholders required for
inclusion in, and will cooperate with QSI 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 Company and the Stockholders agree promptly to
advise QSI if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the 1933 Act, 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. QSI will give the Company and the
Stockholders an opportunity to review and comment on the Registration Statement
and all amendments thereto prior to filing. Insofar as the information relates
solely to the Company or the Stockholders, 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 in
which they were made, not misleading and that each Stockholder and the Company
has had the opportunity to review and approve such information. If, prior to
the 25th day after the date of the final prospectus of QSI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would change (or, if after the Funding and
Consummation Date, would have changed) a representation or warranty of the
Company or the Stockholders in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the Company and the
Stockholders shall immediately give notice of such fact or circumstance to QSI.
However, subject to the provisions of Section 6.8, 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 6.8, at the sole
option of QSI, 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 Funding and
Consummation Date, shall be a precondition to the consummation of this
transaction.
6.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to
the Funding and Consummation Date, and QSI shall have had sufficient time to
review, 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
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change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Except as
set forth on Schedule 6.10, 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 thereon and shall be for such dates and time periods as required by
Regulation S-X under the 1933 Act and the 1934 Act.
6.11 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 convenient
to carry out the transactions contemplated hereby.
6.12 AUTHORIZED CAPITAL. QSI shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
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 QSI Stock.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of 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. The obligations
of the Stockholders and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 7.2, 7.3, 7.8 and 7.9. From and after the Closing Date or, with
respect to the conditions set forth in Sections 7.2, 7.3, 7.8 and 7.9, from and
after the Funding and Consummation Date, all conditions not satisfied shall be
deemed to have been waived, except that no such waiver shall be deemed to affect
the survival of the representations and warranties of QSI contained in Section 5
hereof:
7.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
QSI contained in Section 5 shall be true and correct in all material respects as
of the Closing Date as though such representations and warranties had been made
as of that time; and a certificate to the foregoing effect dated the Closing
Date and signed by the President or any Vice President of QSI shall have been
delivered to the Stockholders.
7.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by QSI on or
before the Closing Date and the Funding and 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 Funding and Consummation
Date and signed by the President or any Vice President of QSI shall have been
delivered to the Stockholders.
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7.3 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 transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of the
Company as a result of which the management of the Company deems it inadvisable
to proceed with the transactions hereunder.
7.4 OPINION OF COUNSEL. The Company and the Underwriters shall have
received an opinion from counsel for QSI, dated the Closing Date, in the form
mutually agreed upon by the parties. The Company and the Stockholders shall
also have received a written opinion from, at the discretion of QSI, either
Jackson Walker L.L.P. or Arthur Andersen, L.L.P., which satisfactorily concludes
that the exchange of Company Stock for QSI Stock will qualify as a transaction
meeting the requirements of Section 351 of the Code. In rendering such opinion,
the opinion given may require and, to the extent it deems necessary or
appropriate, may rely upon representations made in certificates of officers of
QSI and the Company.
7.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire shares of QSI Stock 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 QSI Stock to be received
by the Stockholders is not less than the amount set forth on Annex I as adjusted
as permitted herein.
7.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made.
7.7 GOOD STANDING CERTIFICATES. QSI 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
QSI is authorized to do business, showing that QSI is in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for QSI for all periods prior to the Closing have been filed and paid.
7.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to QSI which would constitute a Material Adverse Effect,
and QSI 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 QSI to conduct its business.
7.9 CLOSING OF IPO. The closing of the sale of the QSI Stock to the
Underwriters in the IPO and the acquisitions of the Other Founding Companies
pursuant to the Other Agreements shall have occurred simultaneously with the
Funding and Consummation Date hereunder.
7.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of QSI, certifying the truth and correctness of
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attached copies of FCI's Certificate of Incorporation (including amendments
thereto), Bylaws (including amendments thereto), and resolutions of the board of
directors and, if required, the Stockholders of QSI approving FCI's entering
into this Agreement and the consummation of the transactions contemplated
hereby. Such certificate or certificates also shall be addressed to the
Underwriters and copies thereof shall be delivered to the Underwriters.
7.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
7.11 shall have been afforded the opportunity to enter into an employment
agreement substantially in the form of Annex II hereto.
7.12 DIRECTORS AND OFFICERS INSURANCE. QSI shall have obtained
Directors and Officers Liability Insurance in amounts that are customary and
commercially reasonable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF QSI
The obligations of QSI 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. The obligations of QSI with respect to
actions to be taken on the Funding and Consummation Date are subject to the
satisfaction or waiver on or prior to the Funding and Consummation Date of the
conditions set forth in Sections 8.2, 8.3, 8.5 and 8.13. From and after the
Closing Date or, with respect to the conditions set forth in Sections 8.2, 8.3,
8.5 and 8.13, from and after the Funding and Consummation Date, all conditions
not satisfied shall be deemed to have been waived, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the Company contained in Section 4 hereof.
8.1 REPRESENTATIONS AND WARRANTIES. All 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 Funding and
Consummation Date with the same effect as though such representations and
warranties had been made on and as of such date; and the Stockholders shall have
delivered to QSI certificates dated the Closing Date and signed by them to such
effect.
8.2 PERFORMANCE OF OBLIGATIONS. 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 Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the Stockholders and the Company
shall have delivered to QSI certificates dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by them to such effect.
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 transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other
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action or made any request of QSI as a result of which the management of QSI
deems it inadvisable to proceed with the transactions hereunder.
8.4 SECRETARY'S CERTIFICATE. QSI 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), Bylaws (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. Such certificate also shall be addressed to
the Underwriters and a copy thereof shall be delivered to the Underwriters.
8.5 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.
8.6 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to QSI
an instrument dated the Closing Date releasing the Company from (i) any and all
claims of the Stockholders against the Company and (ii) obligations of the
Company to the Stockholders, except for (x) items specifically identified on
Schedules 4.10 and 4.16 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.
8.7 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the Company and the Stockholders shall have been canceled effective
prior to or as of the Funding and Consummation Date.
8.8 OPINION OF COUNSEL. QSI shall have received an opinion from Counsel
to the Company and the Stockholders, dated the Closing Date, in the form
mutually agreed to by the parties, and the Underwriters shall have received a
copy of the same opinion addressed to the Underwriters.
8.9 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 and all
consents and approvals of third parties listed on Schedule 4.23 shall have been
obtained.
8.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
QSI 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 QSI, in each
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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.
8.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
8.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
7.11 shall have entered into an employment agreement substantially in the form
of Annex II hereto.
8.13 CLOSING OF IPO. The closing of the sale of the QSI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to QSI
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury Regulations promulgated under the Code.
8.15 INSURANCE. QSI shall have been named as an additional insured on
all liability, theft, casualty and property insurance policies of the Company
and certificates of insurance to that effect shall have been delivered to QSI.
8.16 LOCKUP AGREEMENT. Each Stockholder shall have signed an
agreement with the Underwriters, in form and substance identical to agreements
signed by the Founding Stockholders in connection with the Other Agreements, by
which such Stockholder covenants to hold all of the QSI Stock acquired hereunder
for a period of at least 180 days after the Funding and Consummation Date.
9. COVENANTS OF QSI AND THE STOCKHOLDERS AFTER CLOSING
9.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. QSI shall,
within ninety (90) days of the Funding and Consummation Date, use commercially
reasonable efforts to have the Stockholders and any spouse of a Stockholder
released from any and all indemnities on bonds and guarantees on any
indebtedness or contractual obligations that they personally guaranteed and from
any and all pledges of assets that they pledged to secure such indebtedness for
the benefit of the Company, with all such indemnities on bonds and guarantees on
indebtedness or contractual obligations being assumed by QSI. QSI shall
indemnify and hold harmless Stockholders and any spouse of a Stockholder from
the payment of any indemnities on bonds, guaranties on any indebtedness or
contractual obligations that they personally guaranteed prior to the Closing
Date and from any and all pledges of assets that they pledged to secure such
indebtedness for the benefit of the Company, provided that such indebtedness or
obligations are either related to the business of the Company as being conducted
at the Closing Date or are made in order to facilitate distributions
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contemplated under this Agreement. The indemnification contained in this
Section shall not be subject to the time and other limitations on
indemnification contained in Sections 10.2 and 10.5 hereof.
9.2 PRESERVATION OF TAX TREATMENT. (a) Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, QSI shall not and shall not permit any of its subsidiaries to undertake
any act that would prevent qualification of the transaction as an exchange
meeting the requirements of Code Section 351, including:
(i) the retirement or reacquisition, directly or indirectly, of all or
part of the QSI Stock issued in connection with the transactions
contemplated hereby; or
(ii) the entering into of financial arrangements for the benefit of
the Stockholders.
(b) Except as contemplated by this Agreement or the Registration Statement,
after the Funding and Consummation Date, the Stockholders shall not undertake
any act that would prevent qualification of the transaction as an exchange
meeting the requirements of Code Section 351.
(c) Each of the Company, QSI and each Stockholder shall comply with the
reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and shall not take any position on any Return
inconsistent with characterization of the transaction as an exchange meeting the
requirements of Code Section 351.
9.3 PREPARATION AND FILING OF RETURNS.
(i) The Company shall duly, accurately and timely (with regard to any
duly granted extension), file or cause to be filed all Returns required to
be filed on behalf of the Company or any Subsidiary for all taxable periods
that end on or before the Funding and Consummation Date.
(ii) QSI shall duly, accurately and timely (with regard to any duly
granted extension) file or cause to be filed all Returns required to be
filed on behalf of the Company or any Subsidiary for all taxable periods
ending after the Funding and 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
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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, QSI 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
transfer to a controlled corporation under Section 351(a) of the Code.
9.4 DIRECTORS AND OFFICERS. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of QSI, as and
to the extent set forth in the Registration Statement, promptly following the
effective date of the Registration Statement. The QSI Board of Directors will
consist of nine members, up to two of whom shall be existing directors of QSI
and five of whom shall be from the Founding Companies (two nominees from PAR
Electrical Contractors, Inc. and one from each of Potelco, Inc., Union Power
Construction Company and TRANS TECH Electric, Inc.). QSI shall make
arrangements to compensate each Director for attending meetings of the Board of
Directors and to reimburse them for related expenses.
9.5 MAINTENANCE OF BOOKS. QSI will cause the Company (a) to maintain the
books and records of the Company existing prior to the Closing Date for a period
of six years after the Closing Date and (b) to make such books and records
available to the Stockholders for any reasonable purpose.
10. INDEMNIFICATION
The Stockholders and QSI each make the following covenants that are
applicable to them, respectively:
10.1 GENERAL INDEMNIFICATION BY STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless QSI and the Company at all times, from and after the
date of this Agreement, 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) (collectively, "Claims") incurred by QSI or the Company for which
QSI or the Company deliver notice of such Claims to the Stockholders prior to
the Expiration Date and which Claims are 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 under
this Agreement; (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 the Company or the Stockholders, and provided to QSI or its
counsel by the Company or the Stockholders contained in the Registration
Statement or any prospectus forming a part thereof,
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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; (iv) the matters described on
Schedule 10.1(iv) (relating to specifically identified matters such as ongoing
claims and/or litigation), which schedule shall be prepared by QSI; (v) any
liability asserted against QSI or the Company from matters occurring prior to
the Closing Date and not listed on any Schedule of the Company, where such
liability would have been required to be listed on a Schedule; (vi) all Taxes of
the Company with respect to any taxable period ending on or before the Funding
and Consummation Date (or for any taxable period beginning before and ending
after the Funding and Consummation Date to the extent allocable to the portion
of such period beginning before and ending on the Funding and Consummation Date)
to the extent such Taxes exceed the amount of the current liability accruals for
Taxes (exclusive of reserves for deferred Taxes established to reflect timing
differences) reflected on the balance sheet of the Company as of September 30,
1997 as adjusted for Company operations in the ordinary course of business
through the Funding and Consummation Date in accordance with generally accepted
accounting principles consistently applied and, to the extent consistent
therewith, the most recent custom and practices of the Company; provided that
the portion of any periodic Tax attributable to a taxable year or period
beginning before and ending after the Funding and Consummation Date shall be
determined by apportioning the Tax for the entire year or period based upon the
number of days in the year or period, except that any such Tax measured by
income or receipts shall be apportioned based upon actual results of operations
through the end of the Funding and Consummation Date; (vii) all liabilities of
the Company, if any, for the Taxes of any other person, pursuant to Code Section
1.1502-6 or other law, as a transferee or successor, by contract or otherwise;
or (viii) all Transfer and other Taxes arising from the transactions
contemplated by this Agreement; provided, however, (A) that in the case of any
indemnity arising pursuant to clause (iii) such indemnity shall not inure to the
benefit of QSI 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 QSI counsel and to QSI for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and (B) that no Stockholder shall be liable for any indemnification
obligation pursuant to this Section 10.1 to the extent attributable to a breach
of any representation, warranty or agreement made herein individually by any
other Stockholder.
10.2 INDEMNIFICATION BY QSI. QSI 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 from and against all Claims incurred by the
Company or the Stockholders for which the Company or the Stockholders deliver
notice of such Claims to QSI prior to the Expiration Date and which Claims are
as a result of or arising from (i) any breach by QSI of its representations and
warranties set forth herein or on the schedules or certificates attached hereto,
(ii) any nonfulfillment of any agreement on the part of QSI under this
Agreement, (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 QSI 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 QSI or
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any of the Other Founding Companies required to be stated therein or necessary
to make the statements therein not misleading, or (iv) the matters described on
Schedule 10.2(iv) (relating to specifically identified matters), which schedule
shall be prepared by the Stockholders.
10.3 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 10.1
or 10.2 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 (such settlement to be subject to the consent of
the Indemnified Party, as hereinafter provided), 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 the
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 the Indemnified Party, the Indemnified Party shall have the
right to participate in such matter through counsel of its own choosing and the
Indemnifying Party will reimburse the Indemnified Party for the reasonable
expenses of its counsel. Further, absent a conflict, the Indemnified Party may
select counsel and have such counsel participate in such matter at the sole cost
of the Indemnified Party. 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. 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 Indemnifying
Party shall reimburse the Indemnified Party for the amount paid in such
settlement and any other liabilities or expenses incurred by the Indemnified
Party in connection therewith, provided, however, that under no circumstances
shall the Indemnified Party
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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.
10.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 10 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, however, 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.
10.5 LIMITATIONS ON INDEMNIFICATION. No Indemnified Party shall
assert any claim for indemnification hereunder against an Indemnifying Party
until such time as, and solely to the extent that, the aggregate of all claims
which such Indemnified Party may have against such Indemnifying Party shall
exceed $75,000, provided, however, that QSI, the Company and the other persons
or entities indemnified pursuant to Section 10.1 may assert and shall be
indemnified for any claim under Section 10.1(v) at any time, regardless of
whether the aggregate of all claims which such persons may have against any
Stockholder or all Stockholders exceeds $75,000, it being understood that the
amount of any such claim under such Sections shall not be counted towards such
$75,000 amount; and further provided that the $75,000 amount shall be reduced to
$5,000 for claims under Sections 10.l(i) to the extent it relates to breaches of
the representations and warranties set forth in Section 4.22, 10.1(vi),
10.1(vii) and 10.1(viii) (except for claims with respect to taxes due as a
result of an Internal Revenue Service audit related to percentage of completion
of related contracts, in which case the amount shall be reduced to $50,000) it
being understood that the amount of any such claim under such Sections shall not
be counted towards such $75,000 amount; and further provided that the
Stockholders and the other persons or entities indemnified pursuant to Section
10.2 may assert and shall be indemnified for any claim under Section 10.2(v) at
any time, regardless of whether the aggregate of all claims which such persons
may have against QSI exceeds $75,000, it being understood that the amount of any
such claim under Section 10.2(v) shall not be counted towards such $75,000
amount. No person shall be entitled to indemnification under this Section 10 if
and to the extent that: (a) such person's claim for indemnification is directly
or indirectly related to and substantially the result of a breach by such person
of any representation, warranty, covenant or other agreement set forth in this
Agreement; or (b) such person receives a tax benefit equal to or in excess of
the amount of such claim as a result of the claim or loss for which
indemnification is sought.
Notwithstanding any other term of this Agreement, no Indemnifying Party
shall be liable under this Section 10 for an amount which exceeds the amount of
proceeds received by the Stockholders in connection with the transactions
contemplated hereby. Indemnity obligations hereunder of the Stockholders may be
satisfied through the payment of cash or the delivery of QSI Stock, or a
combination thereof, at the Stockholder's election. For purposes of calculating
the value of the QSI Stock received or delivered by the Stockholders (for
purposes of determining the limitation on indemnity set forth in the second
preceding sentence and the amount of any indemnity paid), QSI Stock shall be
valued at its initial public offering price as set forth in the Registration
Statement. Any
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indemnification payment made by the Stockholders pursuant to this Section 10
shall be deemed to be a reduction in the consideration received by the
Stockholders pursuant to Section 2.
Without limitation of any of the foregoing, the limitations set forth in
this Section shall not apply to breaches of representations, warranties or
covenants set forth in Sections 4.29(c), 5.13, 5.14, 9.2 and 9.3 hereof.
11. TERMINATION OF AGREEMENT
11.1 TERMINATION. This Agreement may be terminated by written notice
from the party asserting termination to the other parties at any time prior to
the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of QSI and the
Company;
(ii) by the Stockholders or the Company (acting through its board of
directors), on the one hand, or by QSI (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
June 1, 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 Funding and Consummation
Date;
(iii) by the Stockholders or Company, on the one hand, or by QSI, 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, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Funding and
Consummation Date;
(iv) pursuant to Section 2.1 hereof;
(v) pursuant to Section 6.8 hereof; or
(vi) pursuant to Section 3 hereof.
11.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 6.8 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 relating to the
transactions contemplated hereby. No party hereto shall be liable to any other
party if the Agreement is terminated under Sections 11.1(i), (ii) (except as set
forth therein), (iv), (v) or (vi).
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12. NONCOMPETITION
12.1 PROHIBITED ACTIVITIES. Provided that QSI shall have complied
with and performed all of its obligations hereunder and that the Stockholders
shall have received payment in full of the consideration described in Section 2,
the Stockholders shall not, for a period of five (5) years following the Funding
and 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 engineering and construction business in
direct competition with QSI or any of the subsidiaries thereof, within 100
miles of where the Company or any of its subsidiaries conducted business
prior to the effectiveness of the Funding and Consummation Date (the
"Territory");
(ii) call upon any person who is, at that time, within the Territory,
an employee of QSI (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of QSI (including the
subsidiaries thereof), provided that each Stockholder shall be permitted to
call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is at that time, or which
has been, within one (l) year prior to the Funding and Consummation Date, a
customer of QSI (including the subsidiaries 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 QSI
within the Territory;
(iv) call upon any prospective acquisition candidate, on the Company's
or any Stockholder's own behalf or on behalf of any competitor in the
electrical engineering and construction business, which candidate, to the
actual Knowledge of the Company or such Stockholder after due inquiry, was
called upon by QSI (including the subsidiaries thereof) or for which, to
the actual Knowledge of the Company or such Stockholder after due inquiry,
QSI (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 types of persons to whom
disclosure is then presently contemplated for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
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12.2 DAMAGES. Because of the difficulty of measuring economic losses
to QSI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to QSI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by QSI or the Company in the event of breach by such
Stockholder, by injunctions and restraining orders.
12.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 12 impose a reasonable restraint on the
Stockholders in light of the activities and business of QSI (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of QSI.
12.4 SEVERABILITY; REFORMATION. The covenants in this Section 12 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.
12.5 INDEPENDENT COVENANT. All of the covenants in this Section 12
shall be construed as an agreement independent of any other provision in this
Agreement. It is specifically agreed that the period of five (5) years stated
at the beginning of this Section 12, during which the agreements and covenants
of each Stockholder made in this Section 12 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 12. The covenants
contained in Section 12 shall have no effect if the transactions contemplated by
this Agreement are not consummated nor may such covenants be enforced by any
party to this Agreement that is in breach of its obligations hereunder.
12.6 MATERIALITY. The Stockholders hereby agree that the covenants in
this Section 12 are a material and substantial part of this transaction.
12.7 LIMITATIONS. In the event that any Stockholder who is employed
by QSI or the Company pursuant to an employment agreement is terminated without
cause (as defined in such employment agreement), the provisions of this Section
12 shall no longer be valid or enforceable by QSI or the Company. If such
employment agreement contains provisions relating to the same subject matter as
this Section 12 that are less restrictive than set forth in this Section 12, the
provisions of such employment agreement shall control.
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 STOCKHOLDERS. The Company and 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 QSI, such as operational policies, trade
secrets and pricing and cost policies that are valuable, special and unique
assets of the
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Company's, the Other Founding Companies' and/or FCI's respective businesses. The
Company and the Stockholders agree that they shall 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 QSI, (b) following the Closing, such information may be
disclosed by the Stockholders as is required in the course of performing their
duties for QSI 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 13.1, unless (i) such information is or becomes known to the
public generally or to businesses operating in the construction industry through
no fault of the Company and the Stockholders, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided,
however, that prior to disclosing any information pursuant to this clause (ii),
the Company and the Stockholders shall, if possible, give two days' prior
written notice thereof to QSI and provide QSI with the opportunity within such
two-day period 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 the Company or any of the Stockholders of the provisions of
this Section, QSI shall be entitled to an injunction restraining the Company and
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting QSI 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, the Company and the Stockholders shall have none
of the above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
13.2 QSI. QSI recognizes and acknowledges that QSI had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, trade secrets, and pricing and cost policies that
are valuable, special and unique assets of the Company's business. QSI 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, however, that such
advisors (other than counsel) agree to the confidentiality provisions of this
Section 13.2 and (c) to the Other Founding Companies and their representatives
pursuant to Section 6.1(a), unless (i) such information becomes known to the
public generally through no fault of QSI, (ii) disclosure is required by law or
the order of any governmental authority under color of law, provided, however,
that prior to disclosing any information pursuant to this clause (ii), QSI
shall, unless otherwise required by law or such order, give two days' prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity within such two-day period 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 QSI of
the provisions of this Section, the Company and the Stockholders shall be
entitled to an injunction restraining QSI 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 as
such breach or threatened breach, including the recovery of damages.
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13.3 DAMAGES. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants in Section 13.1 and 13.2,
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.
13.4 SURVIVAL. The obligations of the parties under this Article 13
shall survive the termination of this Agreement for a period of three years from
(a) the Funding and Consummation Date if the transactions contemplated hereby
are consummated or (b) the date hereof if the transactions contemplated hereby
are not consummated.
14. TRANSFER RESTRICTIONS
14.1 TRANSFER RESTRICTIONS. Except for transfers to Affiliates of the
Stockholders who agree to be bound by the restrictions set forth in this Section
14.1, for a period of two years from the Funding and Consummation Date, except
pursuant to Section 16 hereof, the Stockholders shall not sell, assign,
exchange, transfer, distribute or otherwise dispose of any shares of QSI Stock
received by them as described in Section 2.1. The certificates evidencing the
QSI Stock delivered to the Stockholders pursuant to Section 2 of this Agreement
shall bear a legend substantially in the form set forth below and containing
such other information as QSI may deem necessary or appropriate: THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION, PRIOR TO SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
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.
15. FEDERAL SECURITIES ACT REPRESENTATIONS
Each Stockholder acknowledges that the shares of QSI Stock to be delivered
to such Stockholder pursuant to this Agreement have not been and will not be
registered under the 1933 Act and therefore may not be resold without compliance
with the 1933 Act. The QSI Stock to be acquired by such Stockholder pursuant to
this Agreement is being acquired solely for its own account, for investment
purposes only, and with no present intention of distributing, selling or
otherwise disposing of it in connection with a distribution.
15.1 COMPLIANCE WITH LAW. Each of the Stockholders covenants,
warrants and represents that none of the shares of QSI Stock issued to the
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 of the QSI Stock shall bear the following legend in addition to the
legend required under Section 14 of this
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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.
15.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear
the economic risk of an investment in the QSI Stock acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and has such
Knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment in the QSI Stock.
The Stockholders have had an adequate opportunity to ask questions and receive
answers from the officers of QSI 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 QSI, the plans
for the operations of the business of QSI, 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.
16. REGISTRATION RIGHTS
16.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding
and Consummation Date, whenever QSI proposes to register any QSI Stock for its
own or others account under the 1933 Act for a public offering, other than (i)
any shelf registration of shares to be used as consideration for acquisitions of
additional businesses by QSI and (ii) registrations relating to employee benefit
plans, QSI shall give the Stockholders prompt written notice of its intent to do
so. Upon the written request of the Stockholders given within 30 days after
receipt of such notice, QSI shall cause to be included in such registration all
of the QSI Stock issued to the Stockholders pursuant to this Agreement which the
Stockholders request, provided that QSI shall have the right to reduce the
number of shares included in such registration to the extent that inclusion of
such shares could, in the opinion of tax counsel to QSI or its independent
auditors, jeopardize the qualification of the transactions contemplated hereby
and by the Registration Statement as an exchange meeting the requirements of
Code Section 351. In addition, if QSI 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 16.1 that the
number of shares to be sold by persons other than QSI is greater than the number
of such shares which can be offered without adversely affecting the offering,
QSI may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares desired to be sold by such person) to a
number deemed satisfactory by such managing underwriter, provided, that,
notwithstanding Section 14.1 hereof, for each such offering made by QSI after
the IPO, such reduction shall be made first by reducing the number of shares to
be sold by persons other than QSI, the Company and the Other Founding Companies
or the Stockholders thereof who receive shares of QSI Stock pursuant to the
Other Agreements (collectively, the Company and the Other Founding Companies or
the Stockholders thereof who receive shares of QSI Stock pursuant to the Other
Agreements being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
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16.2 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Article 16 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by QSI. In connection
with registrations under Section 16.1, QSI shall (i) use its best efforts to
prepare and file with the SEC as soon as reasonably practicable, a registration
statement with respect to the QSI Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of at least 45
days (or such shorter period during which the Founding Stockholders shall have
sold all QSI Stock which they requested to be registered); (ii) use its best
efforts to register and qualify the QSI Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution for the QSI Stock; and (iii) take such other
actions as are reasonable and necessary to comply with the requirements of the
1933 Act and the regulations thereunder to enable the Founding Stockholders to
sell their shares pursuant thereto.
16.3 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Section 16.1 covering an underwritten registration public offering,
QSI and each participating holder agree to enter into a written agreement with
the managing underwriters in such form and containing such provisions
(including indemnification provisions) as are customary in the securities
business for such an arrangement between such managing underwriters and
companies of FCI's size and investment stature.
16.4 AVAILABILITY OF RULE 144. QSI shall not be obligated to register
shares of QSI Stock held by the Stockholder at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to the Stockholders.
17. GENERAL
17.1 COOPERATION. The Company, Stockholders and QSI shall each
deliver or cause to be delivered to the other on the Funding and 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 shall cooperate and use its reasonable
efforts to have the present officers, directors and the employees of the Company
cooperate with QSI on and after the Funding and 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 Funding
and Consummation Date.
17.2 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 QSI, and the heirs and legal representatives of the Stockholders.
17.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and
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understanding among the Stockholders, the Company and QSI and supersede any
prior agreement and understanding relating to the subject matter of this
Agreement, including but not limited to any letter of intent entered into by any
of the parties hereto. 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 QSI, acting through their respective officers or
trustees, duly authorized by their respective Boards of Directors.
17.4 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
17.5 BROKERS AND AGENTS. Except as disclosed on Schedule 17.5, 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.
17.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, QSI will pay the fees, expenses and disbursements of QSI
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 QSI under this Agreement, including the fees and
expenses of Arthur Andersen L.L.P., Jackson Walker L.L.P., and any other person
or entity retained by QSI, and the costs of preparing the Registration
Statement. The Stockholders shall pay the fees, expenses and disbursements of
the Stockholders, the Company and their respective 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 the
Company and the Stockholders under this Agreement, including the fees and
expenses of accountants and legal counsel to the Company and the Stockholders.
Notwithstanding the foregoing, if the transactions contemplated by this
Agreement are consummated, QSI shall reimburse the Stockholders for such
reasonable fees, expenses and disbursements upon the closing of the IPO up to
$15,000 plus such additional fees, expenses and disbursements as are set forth
on Schedule 17.6. In addition, 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
transactions contemplated hereby, 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 or she, and not the Company or QSI, shall pay all taxes due
upon receipt of the consideration payable pursuant to Section 2 hereof, and
shall assume all tax risks and liabilities of such Stockholder in connection
with the transactions contemplated hereby.
17.7 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
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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 QSI, addressed to it at:
c/o Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attn: James S. Ryan
(b) If to the Stockholders, addressed to them in care of the Company.
(c) If to the Company, addressed to it at:
Union Power Construction Company
2045 W. Union Avenue
Englewood, Colorado 80110
Attn: Ron Soule
with a copy to:
Phil Egger
Egger Betts Austin Treacy p.l.l.c
2300 City Center Bellevue
500 108/th/ Avenue N.E.
Bellevue, Washington 98004-5500
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware.
17.9 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.
17.10 TIME. Time is of the essence with respect to this Agreement.
17.11 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
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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.
17.12 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.
17.13 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.
17.14 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 QSI, the Company and the Stockholders. Any amendment or
waiver effected in accordance with this Section 17.14 shall be binding upon each
of the parties hereto, any other person receiving QSI Stock in connection with
the transactions contemplated hereby and each future holder of such QSI Stock.
17.15 INCORPORATION BY REFERENCE. To the extent that an item is
disclosed in a particular schedule or a subsection of a particular schedule and
such item is readily apparent on its face as being applicable to another
schedule or another subsection of the same schedule, such item shall be deemed
incorporated by reference in such schedule or such other subsection under the
same schedule.
17.16 DEFINED TERMS. 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.
"Affiliates" has the meaning set forth in Section 4.8.
"Agreement" has the meaning set forth in the first paragraph hereof.
"A/R Aging Reports" has the meaning set forth in Section 4.11.
"Assets" has the meaning set forth in Section 6.13.
"Balance Sheet Date" has the meaning set forth in Section 4.9.
"Charter Documents" has the meaning set forth in Section 4.1.
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"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" means the capital stock of the Company.
"Delaware GCL" has the meaning set forth in Section 2.3.
"Demand Registration" has the meaning set forth in Section 16.2.
"Environmental Laws" has the meaning set forth in Section 4.13.
"ERISA" has the meaning set forth in Section 4.19.
"Expiration Date" has the meaning set forth in Section 4(A).
"QSI" has the meaning set forth in the first paragraph of this Agreement.
"QSI Charter Documents" has the meaning set forth in Section 5.1.
"QSI Financial Statements" has the meaning set forth in Section 5.6.
"QSI Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"QSI Stock" means the common stock, par value $.01 per share, of QSI.
"Founding Companies" has the meaning set forth in the third recital of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"Funding and Consummation Date" has the meaning set forth in Section 3.
"Indemnification Threshold" has the meaning set forth in Section 10.5.
"Indemnified Party" has the meaning set forth in Section 10.3.
"Indemnifying Party" has the meaning set forth in Section 10.3.
"IPO" means the initial public offering of QSI Stock pursuant to the
Registration Statement.
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"Knowledge" or "Knows," when referring to the Knowledge of the Company or
QSI or what the Company or QSI Knows, means the actual knowledge of any director
or officer of the Company or QSI, as the case may be, and the knowledge that an
ordinarily prudent person acting reasonably in a similar capacity as such
director or officer should have after reasonable investigation into the relevant
subject matter.
"Material Adverse Effect" has the meaning set forth in Section 4.1.
"Material Documents" has the meaning set forth in Section 4.23.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 4.19.
"Pricing" means the date of determination by QSI and the Underwriters of
the public offering price of the shares of QSI 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 4.20.
"Registration Statement" means that certain registration statement on Form
S-1 covering the shares of QSI Stock to be issued in the IPO.
"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.
"Statutory Liens" has the meaning set forth in Section 6.3.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" has the meaning set forth in Section 4.6.
"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, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether
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disputed or not, together with any interest, penalties, additions to tax or
additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 12.1.
"Third Person" has the meaning set forth in Section 10.3.
"Transfer Taxes" has the meaning set forth in Section 17.6.
"Underwriters" means the prospective underwriters in the IPO, as identified
in the Registration Statement.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
QUANTA SERVICES, INC.
By: /s/ James H. Haddox
--------------------------------------
Its: Chief Financial Officer
--------------------------------------
UNION POWER CONSTRUCTION COMPANY
By: /s/ Timothy A. Soule
--------------------------------------
Its: Vice President
--------------------------------------
THE SOULE TRUSTS PARTNERSHIP
By: /s/ Timothy A. Soule
--------------------------------------
Its: Trustee
--------------------------------------
/s/ Patricia Nichols
--------------------------------------
Patricia Nichols
/s/ Ron Soule
--------------------------------------
Ron Soule
/s/ Linda Sherman
--------------------------------------
Linda Sherman
/s/ Tim Soule
--------------------------------------
Tim Soule
/s/ Judith Cantrell
--------------------------------------
Judith Cantrell
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/s/ Monty Franssen
--------------------------------------
Monty Franssen
/s/ Ron Soule
--------------------------------------
Ron Soule, as Trustee for The Dana Schrock Trust
/s/ Suzanne Angela Chrisinger
--------------------------------------
Angela Chrisinger
/s/ Shellie Potter
--------------------------------------
Shellie Potter
/s/ April Dempster
--------------------------------------
April Dempster
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EXHIBIT 2.3
AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION
dated as of December 11, 1997
by and among
QUANTA SERVICES, INC.
TRANS TECH ELECTRIC, INC.
and
the Stockholders named herein
<PAGE>
TABLE OF CONTENTS
1. TRANSFER AND EXCHANGE......................................... 1
2. DELIVERY OF CONSIDERATION..................................... 2
2.1 Consideration............................................ 2
2.2 Certificates............................................. 2
2.3 QSI Stock................................................ 2
3. CLOSING....................................................... 2
4. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS.................................................. 3
4.1 Due Organization......................................... 3
4.2 Authorization............................................ 4
4.3 Capital Stock of the Company............................. 4
4.4 Transactions in Capital Stock............................ 4
4.5 No Bonus Shares.......................................... 5
4.6 Subsidiaries............................................. 5
4.7 Predecessor Status; etc.................................. 5
4.8 Spin-Off by the Company.................................. 5
4.9 Financial Statements..................................... 5
4.10 Liabilities and Obligations.............................. 5
4.11 Accounts and Notes Receivable............................ 6
4.12 Permits and Intangibles.................................. 7
4.13 Environmental Matters.................................... 7
4.14 Personal Property........................................ 8
4.15 Significant Customers; Material Contracts
and Commitments......................................... 8
4.16 Real Property............................................ 9
4.17 Insurance; Bonding....................................... 9
4.18 Compensation; Employment Agreements;
Organized Labor Matters................................. 10
4.19 Employee Plans........................................... 10
4.20 Compliance with ERISA.................................... 11
4.21 Conformity with Law; Litigation.......................... 12
4.22 Taxes.................................................... 12
4.23 No Violations............................................ 14
4.24 Government Contracts..................................... 14
4.25 Absence of Changes....................................... 15
4.26 Deposit Accounts; Powers of Attorney..................... 16
4.27 Validity of Obligations.................................. 16
4.28 Relations with Governments............................... 16
4.29 Disclosure............................................... 16
4.30 Prohibited Activities.................................... 17
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4.31 Authority; Ownership..................................... 17
4.32 Preemptive Rights........................................ 17
5. REPRESENTATIONS OF QSI........................................ 18
5.1 Due Organization......................................... 18
5.2 Authorization............................................ 18
5.3 Capital Stock of QSI..................................... 18
5.4 Transactions in Capital Stock............................ 19
5.5 Subsidiaries............................................. 19
5.6 Financial Statements..................................... 19
5.7 Liabilities and Obligations.............................. 19
5.8 Conformity with Law; Litigation.......................... 19
5.9 No Violations............................................ 20
5.10 Validity of Obligations.................................. 20
5.11 QSI Stock................................................ 20
5.12 Business; Real Property; Material Agreements............. 20
5.13 Taxes.................................................... 21
5.14 No Intention to Dispose of Company Stock................. 21
5.15 Other Founding Companies................................. 21
6. COVENANTS PRIOR TO CLOSING.................................... 21
6.1 Access and Cooperation; Due Diligence.................... 21
6.2 Conduct of Business Pending Closing...................... 22
6.3 Prohibited Activities.................................... 23
6.4 No Shop.................................................. 24
6.5 Notice to Bargaining Agents.............................. 24
6.6 Agreements............................................... 24
6.7 Notification of Certain Matters.......................... 24
6.8 Amendment of Schedules................................... 25
6.9 Cooperation in Preparation of Registration Statement..... 26
6.10 Final Financial Statements............................... 27
6.11 Further Assurances....................................... 27
6.12 Authorized Capital....................................... 27
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY.................................................. 27
7.1 Representations and Warranties........................... 27
7.2 Performance of Obligations............................... 28
7.3 No Litigation............................................ 28
7.4 Opinion of Counsel....................................... 28
7.5 Registration Statement................................... 28
7.6 Consents and Approvals................................... 28
7.7 Good Standing Certificates............................... 28
7.8 No Material Adverse Change............................... 28
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7.9 Closing of IPO........................................... 29
7.10 Secretary's Certificate.................................. 29
7.11 Employment Agreements.................................... 29
7.12 Directors and Officers Insurance......................... 29
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF QSI.................... 29
8.1 Representations and Warranties........................... 29
8.2 Performance of Obligations............................... 30
8.3 No Litigation............................................ 30
8.4 Secretary's Certificate.................................. 30
8.5 No Material Adverse Effect............................... 30
8.6 Stockholders' Release.................................... 30
8.7 Termination of Related Party Agreements.................. 30
8.8 Opinion of Counsel....................................... 31
8.9 Consents and Approvals................................... 31
8.10 Good Standing Certificates............................... 31
8.11 Registration Statement................................... 31
8.12 Employment Agreements.................................... 31
8.13 Closing of IPO........................................... 31
8.14 FIRPTA Certificate....................................... 31
8.15 Insurance................................................ 31
8.16 Lockup Agreement......................................... 31
9. COVENANTS OF QSI AND THE STOCKHOLDERS AFTER CLOSING........... 32
9.1 Release From Guarantees; Repayment of
Certain Obligations..................................... 32
9.2 Preservation of Tax Treatment............................ 32
9.3 Preparation and Filing of Returns........................ 32
9.4 Directors and Officers................................... 33
9.5 Maintenance of Books..................................... 33
10. INDEMNIFICATION............................................... 33
10.1 General Indemnification by Founding Stockholders......... 34
10.2 Indemnification by QSI................................... 35
10.3 Third Person Claims...................................... 35
10.4 Exclusive Remedy......................................... 36
10.5 Limitations on Indemnification........................... 36
11. TERMINATION OF AGREEMENT...................................... 37
11.1 Termination.............................................. 37
11.2 Liabilities in Event of Termination...................... 38
12. NONCOMPETITION................................................ 38
12.1 Prohibited Activities.................................... 38
12.2 Damages.................................................. 39
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12.3 Reasonable Restraint..................................... 39
12.4 Severability; Reformation................................ 39
12.5 Independent Covenant..................................... 39
12.6 Materiality.............................................. 40
12.7 Limitations.............................................. 40
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...................... 40
13.1 Stockholders............................................. 40
13.2 QSI...................................................... 40
13.3 Damages.................................................. 41
13.4 Survival................................................. 41
14. TRANSFER RESTRICTIONS.......................................... 41
14.1 Transfer Restrictions.................................... 41
15. FEDERAL SECURITIES ACT REPRESENTATIONS......................... 42
15.1 Compliance with Law...................................... 42
15.2 Economic Risk; Sophistication............................ 42
16. REGISTRATION RIGHTS............................................ 43
16.1 Piggyback Registration Rights............................ 43
16.2 Registration Procedures.................................. 43
16.3 Underwriting Agreement................................... 44
16.4 Availability of Rule 144................................. 44
17. GENERAL........................................................ 44
17.1 Cooperation.............................................. 44
17.2 Successors and Assigns................................... 44
17.3 Entire Agreement......................................... 44
17.4 Counterparts............................................. 45
17.5 Brokers and Agents....................................... 45
17.6 Expenses................................................. 45
17.7 Notices.................................................. 45
17.8 Governing Law............................................ 46
17.9 Exercise of Rights and Remedies.......................... 46
17.10 Time..................................................... 46
17.11 Reformation and Severability............................. 46
17.12 Remedies Cumulative...................................... 46
17.13 Captions................................................. 47
17.14 Amendments and Waivers................................... 47
17.15 Incorporation by Reference............................... 47
17.16 Defined Terms............................................ 47
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INDEX TO SCHEDULES
4.1 Organization; Charter Documents
4.3 Authorized Capital Stock
4.4 Transactions in Capital Stock
4.5 Bonus Shares
4.6 Subsidiaries
4.7 Predecessor Status
4.8 Spin-Offs
4.9 Financial Statements
4.10 Liabilities and Obligations
4.11 Accounts and Notes Receivable
4.12 Permits and Intangibles
4.13 Environmental Matters
4.14 Personal Property
4.15 Significant Customers; Material Contracts and Commitments
4.16 Real Property
4.17 Insurance; Bonding
4.18 Compensation; Employment Agreements; Organized Labor Matters
4.19 Employee Plans
4.21 Violations of Law; Litigation
4.22 Taxes
4.23 Necessary Consents
4.24 Government Contracts
4.25 Absence of Changes
4.26 Deposit Accounts; Powers of Attorney
4.30 Prohibited Activities
4.31 Company Stock Ownership; Liens on Company Stock
5.1 QSI Charter and Bylaws
5.3 QSI Stock Ownership
5.4 Transactions in Capital Stock
5.6 Financial Statements
5.7 Liabilities and Obligations
5.8 Conformity with Law; Litigation
5.9 Required Consents - QSI
5.12 Business; Real Property; Material Agreements
5.13 Taxes
6.2 Conduct of Business Pending Closing - Exceptions
6.3 Prohibited Activities - Exceptions
6.5 Proof of Notice Under Collective Bargaining Agreements
6.6 Termination Agreements
7.11 Employment Agreements
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INDEX TO ANNEXES
Annex I Consideration
Annex II Employment Agreement Form
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AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION (the
"Agreement") is made effective as of December 11, 1997, by and among Quanta
Services, Inc., a Delaware corporation formerly known as Fabal Construction,
Inc. ("QSI"), TRANS TECH Electric, Inc., an Indiana corporation (the
"Company"), Robert Urbanski and John Martell, who are referred to collectively
herein as the "Founding Stockholders" and Indiana Trust and Investment
Management Company, as Trustee for the trusts listed on Annex I hereto (with the
Founding Stockholders, collectively, the "Stockholders"). Capitalized terms
used in this Agreement and not otherwise defined are defined in Section 17.16
hereof.
WHEREAS, the parties have previously executed that certain Agreement and
Plan of Organization dated October 29, 1997, and have agreed to certain
amendments and revisions thereto pursuant to that certain Amended and Restated
Agreement and Plan of Organization dated as of November 10, 1997, and that
certain Amendment No. 1 To Amended and Restated Agreement and Plan of
Organization, dated as of November 24, 1997 (collectively, the "Original
Agreement");
WHEREAS, the parties wish to amend and restate the Original Agreement in
its entirety to reflect certain agreed to amendments and revisions;
WHEREAS, the respective Boards of Directors of QSI and the Company deem it
advisable and in the best interests of QSI and the Company and their respective
stockholders that QSI acquire all of the Company's outstanding shares of capital
stock pursuant to this Agreement;
WHEREAS, QSI is concurrently entering into an Amended and Restated
Agreement and Plan of Organization (collectively, the "Other Agreements") with
each of PAR Electrical Contractors, Inc., Potelco, Inc. and Union Power
Construction Company, and their respective stockholders (the Company, together
with each of the entities with which QSI has entered into the Other Agreements,
are collectively referred to herein as the "Founding Companies");
WHEREAS, this Agreement, the Original Agreement, the Other Agreements and
the IPO of QSI Stock constitute the "QSI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors and the stockholders
of QSI and each of the Other Founding Companies have approved and adopted the
QSI Plan of Organization as an integrated plan pursuant to which QSI will
acquire the capital stock or assets of each of the Founding Companies in
exchange for shares of QSI Stock and cash concurrent with the IPO of QSI Stock
and which is intended to qualify as an exchange meeting the requirements of
Section 351 of the Code; and
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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1. TRANSFER AND EXCHANGE
On the Funding and Consummation Date, (a) each Stockholder shall transfer,
convey, assign and deliver to QSI, and QSI shall acquire and accept from such
Stockholder, all of such Stockholder's outstanding shares of Company Stock, free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind.
2. DELIVERY OF CONSIDERATION
2.1 CONSIDERATION. On the Funding and Consummation Date the Stockholders,
who are on that date the holders of all outstanding certificates representing
Company Stock, shall, upon surrender of such certificates, receive the number of
shares of QSI Stock and the amount of cash set forth on Annex I hereto, said
cash to be payable by certified check or wire transfer. Also set forth on Annex
I are actions permitted to be taken by the Company with respect to disposition
of its assets prior to the Closing Date.
2.2 CERTIFICATES. The Stockholders shall deliver to QSI at the Closing
the certificates representing Company Stock, duly endorsed in blank by the
appropriate Stockholder, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Company's
expense, affixed and canceled. Each Stockholder agrees promptly to cure any
deficiencies with respect to the endorsement of the interest certificates or
other documents of conveyance with respect to such Company Stock or with respect
to the stock powers accompanying the Company Stock.
2.3 QSI STOCK. All QSI Stock received by the Stockholders pursuant to
this Agreement shall, except for restrictions on resale or transfer described in
Sections 14 and 15 hereof, have the same rights as all of the other shares of
outstanding QSI Stock by reason of the provisions of the Certificate of
Incorporation of QSI or as otherwise provided by the Delaware General
Corporation Law (the "Delaware GCL"). All voting rights of such QSI Stock
received by the Stockholders shall be fully exercisable by the Stockholders and
the Stockholders shall not be deprived nor restricted in exercising those
rights. On the Funding and Consummation Date, QSI shall have no class of
capital stock issued and outstanding other than the QSI Stock. Notwithstanding
anything herein to the contrary, the sponsors of QSI will hold a class of stock
which will be identical to the QSI Stock, except that holders of such class of
stock will have the right to elect only one or two directors and with such other
limited voting rights as recommended by counsel.
3. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary to
prepare to (i) effect the transfer and delivery of the shares of Company Stock
as contemplated by Section 1 hereof and (ii) effect the delivery of the
consideration referred to in Section 2 hereof; provided, however, that such
actions shall not include the actual completion of the transfer and delivery of
the shares of
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Company Stock or the delivery of the consideration by certified check(s) or wire
transfer(s) referred to in Section 2 hereof, each of which actions shall only be
taken upon the Funding and Consummation Date as herein provided. The taking of
the actions described in clauses (i) and (ii) above (the "Closing") shall take
place on the closing date (the "Closing Date") at the offices of Jackson Walker
L.L.P., 901 Main Street, Suite 6000, Dallas, Texas 75202. On the Funding and
Consummation Date (x) all transactions contemplated by this Agreement, including
the delivery of the shares of Company Stock and the delivery of shares of QSI
Stock and certified check(s) or wire transfer(s) in an amount equal to the cash
portion of the consideration which the Stockholders shall be entitled to receive
pursuant to Section 2 hereof shall occur and (y) the closing with respect to the
IPO shall be completed. The date on which the actions described in the preceding
clauses (x) and (y) occur shall be referred to as the "Funding and Consummation
Date." Except as provided in Sections 7 and 8 hereof with respect to actions to
be taken on the Funding and Consummation Date, during the period from the
Closing Date to the Funding and Consummation Date this Agreement may only be
terminated by a party if the underwriting agreement in respect of the IPO is
terminated pursuant to the terms of such agreement. This Agreement shall in any
event terminate if the Funding and Consummation Date has not occurred within 15
business days of the Closing Date. Time is of the essence.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND FOUNDING STOCKHOLDERS.
Each of the Company and the Founding Stockholders jointly and severally
represents and warrants that all of the following representations and warranties
in this Section 4(A) are true at the date of this Agreement and, subject to
Section 6.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date. Each of the Company and the Founding Stockholders agrees
that such representations and warranties shall survive the Funding and
Consummation Date for a period of two years (the last day of such period being
the "Expiration Date"), except that (i) the warranties and representations set
forth in Section 4.22 hereof shall survive until such time as the limitations
period has run for all Tax periods ended on or prior to or including the Funding
and Consummation Date, which shall be deemed to be the Expiration Date for
Section 4.22, (ii) the warranties and representations set forth in Section
4.29(c) hereof shall survive until such time as the limitations period has run
for determining the Tax treatment of the transaction contemplated herein, and
(iii) solely for purposes of determining whether a claim for indemnification
under Section 10.1(iii) hereof has been made on a timely basis, and solely to
the extent that in connection with the IPO, QSI actually incurs liability under
the 1933 Act, the 1934 Act, or any other federal or state securities laws as a
result of a breach of a representation or warranty by the Company or a
Stockholder, 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. For purposes of this Section 4,
the term "Company" shall mean and refer to the Company and all of its
Subsidiaries.
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4.1 DUE ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and the Company is duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on its business in the places and in the manner as now
conducted, except (i) as set forth on Schedule 4.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the Company taken as a whole (as used herein with
respect to the Company, or with respect to any other person, a "Material Adverse
Effect"). Schedule 4.1 sets forth the jurisdiction in which the Company is
incorporated and contains a list of all such jurisdictions in which the Company
is authorized or qualified to do business. True, complete and correct copies of
the Certificate of Incorporation and Bylaws, each as amended, of the Company
(the "Charter Documents") are all attached hereto as Schedule 4.1. The stock
records of the Company, as heretofore made available to QSI, are correct and
complete in all material respects. There are no minutes in the possession of
the Company or the Stockholders that have not been made available to QSI, and
all of such minutes are correct and complete in all respects. Except as set
forth on Schedule 4.1, the most recent minutes of the Company, which are dated
no earlier than ten business days prior to the date hereof, affirm and ratify
all prior acts of the Company, and of its officers and directors on behalf of
the Company.
4.2 AUTHORIZATION. (i) The 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 and perform this Agreement, and all required approvals
of the equity holders and the Board of Directors of the Company have been
obtained.
4.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 4.3. 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 4.3 and further, except as set forth on Schedule
4.3, 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 the
preemptive rights of any past or present equity holder of the Company.
4.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 4.4,
the Company has not acquired any Company Stock since January l, 1994. Except as
set forth on Schedule 4.4, (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
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respective equity holders has been altered or changed in contemplation of the
transactions contemplated hereby and/or the QSI Plan of Organization. Schedule
4.4 also includes complete and accurate copies of all stock option or stock
purchase plans, including a list of all outstanding options, warrants or other
rights to acquire shares of the Company's stock and the material terms of such
outstanding options, warrants or other rights.
4.5 NO BONUS SHARES. Except as set forth on Schedule 4.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
4.6 SUBSIDIARIES. Schedule 4.6 attached hereto lists the name of each of
the Company's subsidiaries (each, a "Subsidiary"), and sets forth the number and
class of the authorized capital stock of each Subsidiary and the number of
shares or interests of each Subsidiary which are issued and outstanding, all of
which shares or interests (except as set forth on Schedule 4.6) are owned by the
Company, free and clear of all liens, security interests, pledges, voting
trusts, equities, restrictions, encumbrances and claims of every kind. Except
as set forth on Schedule 4.6, 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.
4.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 4.7 is a listing of
all names 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. Except as disclosed on Schedule 4.7, the Company has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
4.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 4.8, 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 directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Company ("Affiliates") since January 1, 1994.
4.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 4.9 are copies of
the following financial statements of the Company and any Subsidiaries (the
"Company Financial Statements"): the Company's audited Consolidated Balance
Sheets, if any, as of December 31, 1996, 1995 and 1994 and Consolidated
Statements of Income, Cash Flows and Retained Earnings, if any, for each of the
years in the three-year period ended December 31, 1996, and Consolidated
Statements of Income, Cash Flows and Retained Earnings for the nine-month period
ending September 30, 1997 and Consolidated Balance Sheets as of September 30,
1997 (September 30, 1997 being hereinafter referred to as the "Balance Sheet
Date"). Except as set forth on Schedule 4.9, such Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated. Except as set
forth on Schedule 4.9, such Consolidated Balance Sheets as of September 30,
1997, December 31, 1996, 1995 and 1994 present
5
<PAGE>
fairly the financial position of the Company and each Subsidiary, if any, as of
the dates indicated thereon, and such Consolidated Statements of Income, Cash
Flows and Retained Earnings present fairly the results of operations for the
periods indicated thereon.
4.10 LIABILITIES AND OBLIGATIONS. The Company has delivered to QSI an
accurate list (which is set forth on Schedule 4.10) as of the Balance Sheet Date
of (i) all 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 (other than liabilities
incurred in the ordinary course of business), (ii) any liabilities of the
Company in excess of $25,000 and (iii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, liens, pledges or other security
agreements in each case evidencing indebtedness in excess of $15,000, including
copies thereof. Except as set forth on Schedule 4.10, since the Balance Sheet
Date the Company has not incurred any material liabilities of any kind,
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to QSI on Schedule 4.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed or are being contested, the
following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation 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; and
(iii) the date such claim, suit or proceeding as instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which 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.
4.11 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to QSI
an accurate list (which is set forth on Schedule 4.11) 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 receivables from and advances to employees and the
Stockholders. The Company shall also provide to QSI (x) an accurate list of all
receivables obtained subsequent to the Balance Sheet Date up to the Closing Date
and (y) an aging of all accounts and notes receivable showing amounts due in 30
day aging categories (the "A/R Aging Reports"). Except to the extent reflected
on Schedule 4.11 or as disclosed by the Company to QSI in a writing
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accompanying the A/R Aging Reports, the accounts, notes and other receivables
shown on Schedule 4.11 and on the A/R Aging Reports represent bona-fide
obligations and are and shall be collectible in the amounts shown, net of
reserves reflected in the balance sheet as of the Balance Sheet Date with
respect to accounts receivable as of the Balance Sheet Date, and net of reserves
reflected in the books and records of the Company (consistent with the methods
used for the balance sheet) with respect to accounts receivable of the Company
after the Balance Sheet Date.
4.12 PERMITS AND INTANGIBLES. The Company holds all licenses,
franchises, permits and other governmental authorizations the absence of any of
which could have a Material Adverse Effect on its business, and the Company has
delivered to QSI an accurate list and summary description (which is set forth on
Schedule 4.12) of all such licenses, franchises, permits and other governmental
authorizations, including permits, titles, licenses, franchises, certificates,
trademarks, trade names, patents, patent applications and copyrights owned or
held by the Company (including interests in software or other technology
systems, programs and intellectual property) (it being understood and agreed
that a list of all environmental permits and other environmental approvals is
set forth on Schedule 4.13). To the Knowledge of the Company, the licenses,
franchises, permits and other governmental authorizations listed on Schedules
4.12 and 4.13 are valid, and the Company has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The Company has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 4.12 and 4.13
and is not in violation of any of the foregoing except where such noncompliance
or violation would not have a Material Adverse Effect on the Company. Except as
specifically provided on Schedule 4.12, 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, franchises, permits or government authorizations.
4.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 4.13, (i)
the Company has complied with and is in compliance with all federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations
and rules, and all judgments, orders and decrees to which it is a party,
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) the Company has obtained and adhered to all necessary permits and
other approvals necessary to treat, transport, store, dispose of and otherwise
handle Hazardous Wastes and Hazardous Substances, a list of all of which permits
and approvals is set forth on Schedule 4.13; (iii) there have been no releases
or threats of releases (as defined in Environmental Laws) at, from, in or on any
property owned or operated by the Company except as permitted by Environmental
Laws; (iv) the Company Knows of no on-site or off-site location to which the
Company has transported or disposed of Hazardous Wastes and Hazardous Substances
or arranged for the transportation of Hazardous Wastes and Hazardous Substances,
which site is the subject of any federal, state, local or foreign
7
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enforcement action or any other investigation which could lead to any claim
against the Company or QSI for any clean-up cost, remedial work, damage to
natural resources, property damage or personal injury, including, but not
limited to, any claim under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; and (v) the Company has no
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
4.14 PERSONAL PROPERTY. The Company has delivered to QSI an accurate
list (which is set forth on Schedule 4.14) of (x) all personal property included
in "depreciable plant, property and equipment" on the balance sheet of the
Company as of the Balance Sheet Date or that will be included on any balance
sheet of the Company prepared after the Balance Sheet Date, (y) all other
personal property owned by the Company with a value in excess of $10,000 (i) as
of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z)
all leases and agreements in respect of personal property with a value in excess
of $10,000, including, true, complete and correct copies of all such leases and
agreements. The Company shall indicate on Schedule 4.14 those assets leased or
used by the Company that are currently owned, or that were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except
as set forth on Schedule 4.14, (i) all personal property 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 4.14, (ii) all of the personal property listed on
Schedule 4.14 is in good working order and condition, ordinary wear and tear
excepted and (iii) all leases and agreements included on Schedule 4.14 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.
The Assets constitute all of the property and assets used in, and/or
necessary to operate, the business of the Company as it is now being conducted
and as contemplated to be conducted on and after the Funding and Consummation
Date.
4.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to QSI an accurate list (which is set forth on Schedule
4.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 4.15, means a customer (or
person or entity) representing 5% or more of the Company's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 4.15, none
of the Company's significant customers (or persons or entities that are sources
of a significant number of customers) have canceled or substantially reduced or,
to the Knowledge of the Company, are currently attempting or threatening to
cancel a contract or substantially reduce utilization of the services provided
by the Company.
The Company has listed on Schedule 4.15 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 contracts, commitments and agreements otherwise listed on Schedules
4.10, 4.14 or 4.16,
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(a) in existence as of the Balance Sheet Date and (b) entered into since the
Balance Sheet Date, and in each case has delivered or made available true,
complete and correct copies of such agreements to QSI. The Company has complied
with all material commitments and obligations pertaining to it, and is not in
default under any contracts or agreements listed on Schedule 4.15 and no notice
of default under any such contract or agreement has been received. Where
required under such contracts or agreements, the Company has furnished notice of
the QSI Plan of Organization to third parties and has, where required, obtained
consent from third parties to enter into the transactions contemplated by this
Agreement. The Company has also indicated on Schedule 4.15 a summary description
of all plans or projects involving the opening of new operations, expansion of
existing operations, the acquisition of any personal property, business or
assets requiring, in any event, the payment of more than $25,000 by the Company.
Notwithstanding the foregoing, it is agreed and understood that the
Company's customers competitively bid most contracts and that there can be no
assurance that the Company will win future competitive bids.
4.16 REAL PROPERTY. Schedule 4.16 includes a list of all real
property owned or leased by the Company (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date, and all other interests in real
property, if any, used by the Company in the conduct of its business. The
Company has good and insurable title to the real property owned by it, including
those reflected on Schedule 4.14, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 4.10 or 4.16 as securing specified
liabilities (with respect to which no 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 shown of record in the office of the Registry of Deeds for the County
in which the properties, assets and leasehold estates are located which do
not materially adversely affect the current use of the property.
Schedule 4.16 contains, without limitation, true, complete and correct
copies of all title reports and title insurance policies currently in possession
of the Company with respect to real property owned by the Company.
The Company has also delivered to QSI an accurate list of real property
leased by the Company (which list is set forth on Schedule 4.16), together with
true, complete and correct copies of all leases and agreements in respect of
such real property leased by the Company (which copies are attached to Schedule
4.16), and an indication as to which such properties, if any, are currently
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owned, or were formerly owned, by Stockholders or business or personal
affiliates of the Company or Stockholders. Except as set forth on Schedule
4.16, all of such leases included on Schedule 4.16 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.
4.17 INSURANCE; BONDING. (a) The Company has delivered to QSI, as
set forth on and attached to Schedule 4.17, (i) an accurate list as of the
Balance Sheet Date of all insurance policies carried by the Company, (ii) an
accurate list and copies of all insurance loss runs for the past five (5) policy
years and (iii) true, complete and correct copies of all insurance policies
which were in effect the past three (3) years and which are currently in effect.
Such insurance policies evidence all of the insurance that 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
Funding and Consummation Date. No insurance carried by the Company has ever
been canceled by the insurer and the Company has never been unable to obtain
insurance coverage for its assets and operations.
(b) Schedule 4.17 includes an accurate list of all performance bonds
securing obligations of the Company, together with the amount bonded and any
guaranty issued by a Stockholder or other third party with respect thereto.
4.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
The Company has delivered to QSI an accurate list (which is set forth on
Schedule 4.18) showing all officers, directors and key employees of the Company,
listing all employment and severance 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 (i) as of the Balance Sheet Date and (ii) as of the date hereof.
The Company has provided to QSI true, complete and correct copies of any
employment agreements for persons listed on Schedule 4.18. Since the Balance
Sheet Date, 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,
or except as set forth on Schedule 4.18.
Except as set forth on Schedule 4.18, (i) the Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
arrangement with any labor union, (ii) no employees of the Company are
represented by any labor union or covered by any collective bargaining
agreement, (iii) no campaign to establish such representation is in progress and
(iv) there is no pending or, to the best of the Company's 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.
4.19 EMPLOYEE PLANS. The Company has delivered to QSI an accurate
schedule (Schedule 4.19) showing all employee benefit plans currently sponsored
or maintained or contributed to by, or which cover the current or former
employees or directors of the Company, all employment and
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severance agreements and other agreements or arrangements containing "golden
parachute" or other similar provisions, and all 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. Except for the employee benefit
plans, if any, described on Schedule 4.19, the Company does not sponsor,
maintain or contribute to any plan, program, fund or arrangement that
constitutes an "employee pension benefit plan," nor has the Company 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, agreements, arrangement and trusts set forth on Schedule
4.19, nor is the Company 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 otherwise listed on Schedule 4.19, the Company is not now, and
cannot 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.
Except as otherwise listed on Schedule 4.19, all employee benefit plans,
agreements, arrangements and trusts listed on Schedule 4.19 and the
administration thereof are in substantial compliance 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.
Except as otherwise listed on Schedule 4.19, all accrued contribution
obligations of the Company with respect to any plan listed on Schedule 4.19 have
either been fulfilled in their entirety or are fully reflected on the balance
sheet of the Company as of the Balance Sheet Date.
4.20 COMPLIANCE WITH ERISA. Except as disclosed on Schedule 4.19, all
such plans, agreements, arrangements and trusts of the Company that are
currently maintained or contributed to by the Company or cover employees or
former employees of the Company listed on Schedule 4.19 that are intended to
qualify under Section 401(a) of the Code (the "Qualified Plans") are, and have
been so qualified and have been determined by the Internal Revenue Service to
be so qualified. Except as disclosed on Schedule 4.19, 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, audit reports or Tax Returns) have been timely filed or distributed.
Except as disclosed on Schedule 4.19, neither Stockholders, any such plan listed
on Schedule 4.19, nor the Company has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA.
Except as disclosed on Schedule 4.19, no such plan listed on Schedule
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4.19 has incurred an accumulated funding deficiency, as defined in Section
412(a) of the Code and Section 302(1) 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 Stockholders
further represent that:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice of and approval by
the Internal Revenue Service;
(ii) no such plan listed on Schedule 4.19 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 on
Schedule 4.19;
(iv) the Company 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 multi employer plan or the Pension Benefit Guaranty
Corporation 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.
4.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth
on Schedules 4.21 or 4.13, the Company is not in violation of any law or
regulation which would have a Material Adverse Effect, or of any order of any
court or federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over the Company;
and except to the extent set forth on Schedules 4.10 or 4.13, there are no
claims, actions, suits or proceedings, commenced or, to the Knowledge of the
Company, threatened, against or affecting the Company, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the Company and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. The Company has conducted and is
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 4.12 and 4.13, and is not in violation of any
of the foregoing.
4.22 TAXES. (i) For purposes of this Section 4.22 only, the term
"Company" shall include each Subsidiary, if any.
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(ii) All Returns required to have been filed by the Company have been
timely filed (taking into account duly granted extensions) and are true,
correct and complete in all respects. Except as disclosed in Schedule
4.22, (i) the Company is not currently the beneficiary of any extension of
time within which to file any Return, and (ii) no claim has ever been made
by any governmental authority in a jurisdiction where the Company does not
file Returns that the Company is or may be subject to taxation by that
jurisdiction, which claim has not been resolved as of the date hereof.
(iii) All Taxes of the Company which have become due (without regard
to any extension of the time for payment and whether or not shown on any
Return) have been paid. The Company has withheld and paid over all Taxes
required to have been withheld and paid over by it and has complied with
all information reporting and back-up withholding requirements relating to
Taxes. There are no liens with respect to Taxes on any of the assets of
the Company, other than liens for Taxes not yet due and payable or for
Taxes disclosed in Schedule 4.22 that are being contested in good faith
through appropriate proceedings and for which adequate reserves have been
established in the Company Financial Statements.
(iv) The unpaid Taxes of the Company for all periods ending on or
before the Balance Sheet Date did not exceed the amount of the current
liability accruals for Taxes (exclusive of reserves for deferred Taxes
established to reflect timing differences) reflected on the face of the
balance sheet of the Company as of the Balance Sheet Date, and the unpaid
Taxes of the Company for all periods ending on or before the Funding and
Consummation Date will not exceed the amount of such current liability
accruals reflected on the balance sheet of the Company as of September 30,
1997 as adjusted for Company operations in the ordinary course of business
through the Funding and Consummation Date in accordance with generally
accepted accounting principles applied on a consistent basis and, to the
extent consistent therewith, the most recent custom and practices of the
Company.
(v) No deficiencies exist or have been asserted or are expected to be
asserted (verbally or in writing) with respect to Taxes of the Company and
the Company has not received notice nor does it expect to receive notice
(verbally or in writing) that it has not filed a Return or paid any Taxes
required to be filed or paid by it. No audit, examination, investigation,
action, suit, claim or proceeding relating to the determination, assessment
or collection of any Tax of the Company is currently in process, pending or
threatened (verbally or in writing). Except as disclosed in Schedule 4.22,
no waiver or extension of any statute of limitations relating to the
assessment or collection of any Tax of the Company is in effect. There are
no outstanding requests for rulings with any Tax authority relating to
Taxes of the Company.
(vi) Except as disclosed in Schedule 4.22, the Company is not and has
never been (i) a party to any tax sharing agreement or arrangement (formal
or informal, verbal or in writing), or (ii) a member of an affiliated group
of corporations (within the meaning of Code
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Section 1504) filing a consolidated federal income Return, or any similar
group under analogous provisions of other law.
(vii) The Company is not liable for the unpaid Taxes of any person
other than the Company under Treasury Regulation Section 1.1502-6 or any
similar provision of state, local or foreign law, or by contract or
otherwise.
(viii) The Company has delivered to QSI true and complete copies of
all federal, state, local and foreign income Returns filed by the Company
for its three (3) most recently ended taxable years, together with all
related examination reports, statements of deficiencies and closing and
other agreements. Schedule 4.22 indicates which, if any, of such Returns
have been, or currently are, the subject of any audit, examination or other
Tax proceeding.
(ix) The Company (i) has not filed a consent under Code Section 341(f)
concerning collapsible corporations; (ii) has not made any payments,
obligated itself to make any payments or become a party to any agreement
that under any circumstance could obligate it or any successor or assignee
of it to make any payments that are not or will not be deductible under
Code Section 280G, or that would be subject to excise Tax under Code
Section 4999; (iii) is not a "foreign person" as defined in Code Section
1445(f)(3); (iv) is not and has not been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii); (v) does not
own and has not owned any interest in any "controlled foreign corporation"
as defined in Code Section 957 or "passive foreign investment company" as
defined in Code Section 1296; (vi) is not and has not been a party to any
agreement or arrangement for which partnership Returns are required to be
filed; (vii) does not own any asset that is subject to a "safe harbor
lease" within the meaning of Code Section 168(f)(8), as in effect prior to
amendment by the Tax Equity and Fiscal Responsibility Act of 1982; (viii)
does not own any "tax-exempt use property" within the meaning of Code
Section 168(h) or "tax exempt bond financed property" within the meaning of
Code Section 168(g)(5); and (ix) has not agreed to and is not required to
make any adjustment under Code Section 481(a) by reason of a change in
accounting method or otherwise.
(x) The Company is an S corporation within the meaning of Code Section
1361(a)(1) for which a valid election has been made pursuant to Code
Section 1362(a) (the "S Corporation Election"). Except as set forth in
Schedule 4.22, the S Corporation Election has been in effect from the date
of inception of the Company and will continue to be in effect until the
Funding and Consummation Date. The Company has never been and is not (i)
subject to any Tax as a C corporation within the meaning of Code Section
1361(a)(2) or (ii) subject to any Tax on net recognized built-in gain under
Code Section 1374.
4.23 NO VIOLATIONS. The Company is not in violation of any Charter
Document. Neither the Company nor, to the Knowledge of the Company, any other
party thereto, is in default under any lease, instrument, agreement, license or
permit set forth on Schedules 4.12, 4.13, 4.14, 4.15 or 4.16,
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or any other material agreement to which it is a party or by which its
properties are bound (the "Material Documents"); and, except as set forth on
Schedule 4.23, (a) the rights and benefits of the Company under the Material
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any violation or breach or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 4.23, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
with respect to any of the transactions contemplated hereby in order to remain
in full force and effect, and consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit. Except as set forth on Schedule
4.23, none of the Material Documents by its terms prohibits the use or
publication by the Company or QSI 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 to any other customer or potential
customer of the Company, QSI or any Other Founding Company.
4.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 4.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
4.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 4.25 or any other Schedule of the Company attached hereto,
there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of 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;
(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, materially adversely affecting the
business of the Company;
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(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Company to any person,
including, without limitation, the Stockholders and their affiliates;
(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 Stockholder or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(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 material breach, amendment or termination of any 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.
4.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered
to QSI an accurate schedule (which is set forth on Schedule 4.26) 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.
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Schedule 4.26 also sets forth a complete list of the names 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.
4.27 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,
enforceable against the Company in accordance with its terms except as limited
by bankruptcy, insolvency or other similar laws of general application relating
to or affecting the enforcement of creditors' rights generally, and the
individual(s) signing this Agreement on behalf of the Company have the legal
power, authority and capacity to bind the Company.
4.28 RELATIONS WITH GOVERNMENTS. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action 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.
4.29 DISCLOSURE. (a) This Agreement, including the schedules hereto
and all other documents and information made available to QSI and its
representatives in writing pursuant hereto or thereto, present fairly the
business and operations of the Company for the time periods with respect to
which such information was requested. The Company's rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the Company is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the Company (which fact
or circumstance was, or should reasonably, after due inquiry, have been known to
the Company) that is not disclosed pursuant hereto or thereto.
(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 at a
particular price or within a particular range of prices or occur at all; and
(ii) that, except as otherwise expressly provided elsewhere in this Agreement,
neither QSI nor 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.
(c) No Stockholder has any present plan, intention, commitment, binding
agreement or arrangement to dispose of any shares of QSI Stock to be received by
such Stockholder as a result of the transactions contemplated by this Agreement,
and each Stockholder agrees that, for a period of two years from the Funding and
Consummation Date, except pursuant to Section 16 hereof, he or she will not
dispose of any shares of QSI Stock received by them as described in Section 2.1.
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4.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 4.30 or
as contemplated by Annex I, the Company has not, between the Balance Sheet Date
and the date hereof, taken any of the actions set forth in Section 6.3
(Prohibited Activities).
(B) REPRESENTATIONS AND WARRANTIES OF FOUNDING STOCKHOLDERS
Each Founding Stockholder severally represents and warrants, on behalf of
himself and the other Stockholders, that the representations and warranties set
forth below are true as of the date of this Agreement and, subject to Section
6.8 hereof, shall be true at the time of Closing and on the Funding and
Consummation Date, and that the representations and warranties set forth in
Sections 4.31 and 4.32 shall survive until the second anniversary of the Funding
and Consummation Date, which shall be the Expiration Date for purposes of those
Sections.
4.31 AUTHORITY; OWNERSHIP. Each Stockholder has the full legal right,
power and authority to enter into this Agreement. Each Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Schedule 4.31 as being owned by such Stockholder, and, except as set forth on
Schedule 4.31, such Company Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
4.32 PREEMPTIVE RIGHTS. Each Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock that
such Stockholder has or may have had on the date hereof other than rights of any
Stockholder to acquire QSI Stock pursuant to any option granted by QSI.
5. REPRESENTATIONS OF QSI
QSI represents and warrants that all of the following representations and
warranties in this Section 5 are true at the date of this Agreement and, subject
to Section 6.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date, and that such representations and warranties shall survive
the Funding and Consummation Date for a period of two years (the last day of
such period being the "Expiration Date"), except that (i) the warranties and
representations set forth in Section 5.13 hereof shall survive until such time
as the limitations period has run for all Tax periods ended on or prior to the
Funding and Consummation Date, which shall be deemed to be the Expiration Date
for Section 5.13 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 10.2(iv) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, QSI 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.
5.1 DUE ORGANIZATION. QSI is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
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business in the places and in the manner as now conducted except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Certificate of Incorporation
and Bylaws, each as amended, of QSI (the "QSI Charter Documents") are all
attached hereto as Schedule 5.1.
5.2 AUTHORIZATION. (i) The representative of QSI executing this Agreement
has the authority to enter into and bind QSI to the terms of this Agreement and
(ii) QSI has the full legal right, power and authority to enter into and perform
this Agreement.
5.3 CAPITAL STOCK OF QSI. Immediately prior to the Funding and
Consummation Date, the authorized capital stock of QSI will consist of at least
40,000,000 shares of QSI Stock, of which the number of issued and outstanding
shares will be as set forth in the Registration Statement, and 5,000,000 shares
of preferred stock, $.01 par value, of which no shares will be issued and
outstanding. All of the issued and outstanding shares of the capital stock of
QSI are owned by the persons set forth on Schedule 5.3 hereof, in each case,
free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. Upon consummation
of the IPO, the number of outstanding shares of QSI will be as set forth in the
Registration Statement. All of the issued and outstanding shares of the capital
stock of QSI have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the persons set forth on
Schedule 5.3, and further, such shares were offered, issued, sold and delivered
by QSI in compliance with all applicable state and federal laws concerning the
issuance of securities. Further, none of such shares was issued in violation of
the preemptive rights of any past or present Stockholder of QSI.
5.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and
except as set forth on Schedule 5.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates QSI to issue any of its
authorized but unissued capital stock; and (ii) QSI 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. Schedule 5.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of QSI.
5.5 SUBSIDIARIES. QSI has no subsidiaries except for the companies to
become subsidiaries of QSI pursuant to this Agreement and each of the Other
Agreements as of the Funding and Consummation Date. Except as set forth in the
preceding sentence, QSI 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, and QSI is not, directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity.
5.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.6 are copies of
the following financial statements (the "QSI Financial Statements") of QSI,
which reflect the results of its
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operations from inception: FCI's unaudited Balance Sheet as of September 30,
1997 and Statements of Income, Cash Flows and Retained Earnings for the period
from inception through September 30, 1997. Such QSI 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 or on Schedule 5.6). Except as set forth on Schedule 5.6, such Balance
Sheets as of September 30, 1997 present fairly the financial position of QSI as
of such date, and such statements of Income, Cash Flows and Retained Earnings
present fairly the results of operations for the period indicated.
5.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 5.7, QSI
has no material liabilities, contingent or otherwise, except as set forth in or
contemplated by this Agreement and the Other Agreements and except for fees and
expenses incurred in connection with the transactions contemplated hereby and
thereby.
5.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.8, QSI is not in violation of any law or regulation which would have
a Material Adverse Effect, or of any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over QSI; and except to the extent set forth
on Schedule 5.8, there are no material claims, actions, suits or proceedings,
pending or, to the Knowledge of QSI, threatened, against or affecting QSI, 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 QSI and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. QSI has conducted
and is conducting its business in compliance with the requirements, standards,
criteria and conditions set forth in applicable federal, state and local
statutes, ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing. Assuming the
representations and warranties of the Company and the Stockholders contained
herein are complete and correct in all respects (other than representations and
warranties with respect to compliance with laws), this Agreement does not
violate any federal or state securities laws, rules or regulations.
5.9 NO VIOLATIONS. QSI is not in violation of any QSI Charter Document.
Neither QSI or, to the Knowledge of QSI, any other party thereto, is in default
under any lease, instrument, agreement, license or permit to which QSI is a
party, or by which QSI or any of its properties are bound (collectively, the
"QSI Documents"); and (a) the rights and benefits of QSI under the QSI Documents
will not be adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any violation or breach or constitute a default under, any of the terms or
provisions of the QSI Documents or the QSI Charter Documents. Except as set
forth on Schedule 5.9, none of the QSI Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
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5.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by QSI and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of QSI and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of QSI, enforceable against QSI in
accordance with its terms except as limited by bankruptcy, insolvency or other
similar laws of general application relating to or affecting the enforcement of
creditors' rights generally, and the individual signing this Agreement on behalf
of QSI has the legal power, authority and capacity to bind QSI.
5.11 QSI STOCK. At the time of issuance thereof, the QSI Stock to be
delivered to the Stockholders pursuant to this Agreement will constitute valid
and legally issued shares of QSI, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 14 and 15 hereof,
will be identical in all material and substantive respects to the QSI Stock
issued and outstanding as of the date hereof and the QSI Stock to be issued
pursuant to the Other Agreements by reason of the provisions of the Delaware
GCL. The shares of QSI Stock to be issued to the Stockholders pursuant to this
Agreement will not be registered under the 1933 Act, except as provided in
Section 16 hereof.
5.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. QSI has not
conducted any operations or business since inception other than activities
related to the QSI Plan of Organization. QSI 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 agreement, except as listed on Schedule 5.12 and except that
QSI is a party to the Other Agreements and the agreements contemplated thereby
and to such agreements as will be filed as Exhibits to the Registration
Statement.
5.13 TAXES. (i) All Returns required to have been filed by QSI have
been timely filed (taking into account duly granted extensions) and are true,
correct and complete in all respects. Except as disclosed in Schedule 5.13, (i)
QSI is not currently the beneficiary of any extension of time within which to
file any Return, and (ii) no claim has ever been made by any governmental
authority in a jurisdiction where QSI does not file Returns that QSI is or may
be subject to taxation by that jurisdiction.
(ii) All Taxes of QSI which have become due (without regard to any
extension of the time for payment and whether or not shown on any Return)
have been paid. QSI has withheld and paid over all Taxes required to have
been withheld and paid over and has complied with all information reporting
and back-up withholding requirements relating to Taxes. There are no liens
with respect to Taxes on any of the assets of QSI, other than liens for
Taxes not yet due and payable or for Taxes disclosed in Schedule 5.13 that
are being contested in good faith through appropriate proceedings and for
which adequate reserves have been established in the QSI Financial
Statements.
(iii) No deficiencies exist or have been asserted or are expected to
be asserted (verbally or in writing) with respect to Taxes of QSI and QSI
has not received notice nor does it expect to receive notice (verbally or
in writing) that it has not filed a Return or paid any
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Taxes required to be filed or paid by it. No audit, examination,
investigation, action, suit, claim or proceeding relating to the
determination, assessment or collection of any Tax of QSI is currently in
process, pending or threatened (verbally or in writing). Except as
disclosed in Schedule 5.13, no waiver or extension of any statute of
limitations relating to the assessment or collection of any Tax of QSI is
in effect. There are no outstanding requests for rulings with any Tax
authority relating to Taxes of QSI.
5.14 NO INTENTION TO DISPOSE OF COMPANY STOCK. QSI is acquiring the
Company Stock pursuant hereto for its own account for investment purposes and
does not have any present plan, intention, commitment, binding agreement, or
arrangement to dispose of the Company Stock.
5.15 OTHER FOUNDING COMPANIES. QSI has reviewed representations and
warranties from the Other Founding Companies in the Other Agreements that are
substantially similar to those made by the Company and the Shareholders herein.
6. COVENANTS PRIOR TO CLOSING
6.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of QSI and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish QSI with such additional financial and operating data and other
information as to the business and properties of the Company as QSI or the Other
Founding Companies may from time to time reasonably request. The Company will
cooperate with QSI and the Other Founding Companies and their respective
representatives, including FCI's auditors and counsel, in the preparation of any
documents or other material (including the Registration Statement) which may be
required in connection with any documents or materials required by this
Agreement. QSI, the Stockholders and the Company shall treat all information
obtained in connection with the negotiation and performance of this Agreement or
the due diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Section 13
hereof. In addition, QSI will cause each of the Other Founding Companies to
enter into a provision similar to this Section 6.1 requiring each such Other
Founding Company, its Stockholders, directors, officers, representatives,
employees and agents to keep confidential any information obtained by such Other
Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, QSI will afford to the officers and authorized representatives of the
Company access to all of FCI's sites, properties, books and records and all due
diligence, agreements, documents and information of or concerning the Founding
Companies and will furnish the Company with such additional financial and
operating data and other information as to the business and properties of QSI as
the Company may from time to time reasonably request. QSI 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
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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 13 hereof.
6.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company shall, except (x)
as set forth on Schedule 6.2, (y) as requested by QSI or (z) as consented to by
QSI (which consent shall not be unreasonably withheld):
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any new method of management, operation or
accounting;
(ii) maintain its 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 its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(v) maintain and preserve its business organization intact, use its
best efforts to retain its present key employees and relationships with
suppliers, customers and others having business relations with the Company;
(vi) maintain compliance with all 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 and not enter into
new or amended debt or lease instruments, provided that debt and/or lease
instruments may be replaced if such replacement instruments are on terms at
least as favorable to the Company as the instruments being replaced; and
(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.
6.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 6.3 or as set
forth on Annex I, between the date hereof and the Funding and Consummation Date,
the Company shall not, without prior written consent of QSI:
(i) make any change in its Articles of Incorporation or Bylaws;
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(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 on Schedule 4.4;
(iii) 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 $10,000;
(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 $10,000 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 in the Company
Financial Statements) 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 Schedules 4.10 and/or 8.16
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(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 or claims in the ordinary course
of business in a manner consistent with past practice, provided, further,
that such adjustments shall not be deemed to be included on Schedule 4.11
unless specifically listed thereon;
(x) commit a material breach or, except in the ordinary course of
business consistent with past practices, 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.
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6.4 NO SHOP. None of the Stockholders, the Company, or 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 Funding and 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 or entity for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person or entity other than QSI
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.
6.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide QSI on Schedule 6.5 with proof that any required notice has been sent.
6.6 AGREEMENTS. 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
7.11 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date. Copies of such
termination agreements are listed on Schedule 6.6 and copies thereof are
attached hereto.
6.7 NOTIFICATION OF CERTAIN MATTERS. The Founding Stockholders and the
Company shall give prompt notice to QSI 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 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. QSI 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 QSI contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any material failure of QSI 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 6.7 that is
not accompanied by a proposed amendment or supplement to a schedule pursuant to
Section 6.8 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 6.8, (ii) modify the conditions set forth in Sections 7
and 8, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
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6.8 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 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, provided, however, that
supplements and amendments to Schedules 4.10, 4.11, 4.14, 4.15 and 4.18 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 may be made unless QSI and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a schedule prepared by QSI that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect 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 7.1 and 8.1 have been
fulfilled, the Schedules hereto shall be deemed to be the schedules as amended
or supplemented pursuant to this Section 6.8. In the event that one of the
Other Founding Companies seeks to amend or supplement a schedule pursuant to
Section 6.8 of one of the Other Agreements, and such amendment or supplement
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on such Other Founding Company, QSI shall give the Company notice
promptly after it has Knowledge thereof. If QSI and a majority of the Founding
Companies consent to such amendment or supplement, which consent shall have been
deemed given by QSI or any Founding Company if no response is received within 72
hours following receipt of notice of such amendment or supplement (or sooner if
required by the circumstances under which such consent is requested), but the
Company does not give its consent, the Company may terminate this Agreement
pursuant to Section 11.l(iv) hereof. In the event that the Company seeks to
amend or supplement a Schedule pursuant to this Section 6.8, and QSI and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 11.1(i) hereof. In the event that QSI seeks to amend or
supplement a Schedule pursuant to this Section 6.8 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
11.1(i) hereof. No party to this Agreement shall be liable to any other party
if this Agreement shall be terminated pursuant to the provisions of this Section
6.8.
6.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Founding Stockholders shall furnish or cause to be furnished to QSI and the
Underwriters all of the information concerning the Company and the Stockholders
required for inclusion in, and will cooperate with QSI 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 Company and the Founding
Stockholders agree promptly to advise QSI if at any time during the period in
which a prospectus relating to the offering is required to be
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delivered under the 1933 Act, 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. QSI will give the Company and the Stockholders an opportunity to
review and comment on the Registration Statement and all amendments thereto
prior to filing. Insofar as the information relates solely to the Company or the
Stockholders, the Company represents and warrants as to such information with
respect to itself, and each Founding 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 in which they were
made, not misleading and that each Founding Stockholder and the Company has had
the opportunity to review and approve such information. If, prior to the 25th
day after the date of the final prospectus of QSI utilized in connection with
the IPO, the Company or the Founding Stockholders become aware of any fact or
circumstance which would change (or, if after the Funding and Consummation Date,
would have changed) a representation or warranty of the Company or the
Stockholders in this Agreement or would affect any document delivered pursuant
hereto in any material respect, the Company and the Founding Stockholders shall
immediately give notice of such fact or circumstance to QSI. However, subject to
the provisions of Section 6.8, such notification shall not relieve either the
Company or the Founding Stockholders of their respective obligations under this
Agreement, and, subject to the provisions of Section 6.8, at the sole option of
QSI, the truth and accuracy of any and all warranties and representations of the
Company, or on behalf of the Company and of the Founding Stockholders at the
date of this Agreement and on the Closing Date and on the Funding and
Consummation Date, shall be a precondition to the consummation of this
transaction.
6.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to
the Funding and Consummation Date, and QSI shall have had sufficient time to
review, 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 financial condition of the Company or the
results of its operations from the financial statements as of the Balance Sheet
Date. Except as set forth on Schedule 6.10, 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 thereon and shall be for such dates and time periods as
required by Regulation S-X under the 1933 Act and the 1934 Act.
6.11 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 convenient
to carry out the transactions contemplated hereby.
6.12 AUTHORIZED CAPITAL. QSI shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as
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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 QSI
Stock.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of 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. The obligations
of the Stockholders and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 7.2, 7.3, 7.8 and 7.9. From and after the Closing Date or, with
respect to the conditions set forth in Sections 7.2, 7.3, 7.8 and 7.9, from and
after the Funding and Consummation Date, all conditions not satisfied shall be
deemed to have been waived, except that no such waiver shall be deemed to affect
the survival of the representations and warranties of QSI contained in Section 5
hereof:
7.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
QSI contained in Section 5 shall be true and correct in all material respects as
of the Closing Date as though such representations and warranties had been made
as of that time; and a certificate to the foregoing effect dated the Closing
Date and signed by the President or any Vice President of QSI shall have been
delivered to the Stockholders.
7.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by QSI on or
before the Closing Date and the Funding and 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 Funding and Consummation
Date and signed by the President or any Vice President of QSI shall have been
delivered to the Stockholders.
7.3 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 transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of the
Company as a result of which the management of the Company deems it inadvisable
to proceed with the transactions hereunder.
7.4 OPINION OF COUNSEL. The Company and the Underwriters shall have
received an opinion from counsel for QSI, dated the Closing Date, in the form
mutually agreed upon by the parties. The Company and the Stockholders shall
also have received a written opinion from, at the discretion of QSI, either
Jackson Walker L.L.P. or Arthur Andersen, L.L.P., which satisfactorily concludes
that the exchange of Company Stock for QSI Stock will qualify as a transaction
meeting the requirements of Section 351 of the Code. In rendering such opinion,
the opinion given may require and, to the extent it deems necessary or
appropriate, may rely upon representations made in
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certificates of officers of QSI and the Company. Any representations made in
such certificates must also be satisfactory to the Stockholders.
7.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire shares of QSI Stock 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 QSI Stock to be received
by the Stockholders is not less than the amount set forth on Annex I as adjusted
as permitted herein.
7.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made.
7.7 GOOD STANDING CERTIFICATES. QSI 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
QSI is authorized to do business, showing that QSI is in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for QSI for all periods prior to the Closing have been filed and paid.
7.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to QSI which would constitute a Material Adverse Effect,
and QSI 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 QSI to conduct its business.
7.9 CLOSING OF IPO. The closing of the sale of the QSI Stock to the
Underwriters in the IPO and the acquisitions of the Other Founding Companies
pursuant to the Other Agreements shall have occurred simultaneously with the
Funding and Consummation Date hereunder.
7.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of QSI, certifying the truth and correctness of attached copies of FCI's
Certificate of Incorporation (including amendments thereto), Bylaws (including
amendments thereto), and resolutions of the board of directors and, if required,
the Stockholders of QSI approving FCI's entering into this Agreement and the
consummation of the transactions contemplated hereby. Such certificate or
certificates also shall be addressed to the Underwriters and copies thereof
shall be delivered to the Underwriters.
7.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
7.11 shall have been afforded the opportunity to enter into an employment
agreement substantially in the form of Annex II hereto.
7.12 DIRECTORS AND OFFICERS INSURANCE. QSI shall have obtained
Directors and Officers Liability Insurance in amounts that are customary and
commercially reasonable.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF QSI
The obligations of QSI 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. The obligations of QSI with respect to
actions to be taken on the Funding and Consummation Date are subject to the
satisfaction or waiver on or prior to the Funding and Consummation Date of the
conditions set forth in Sections 8.2, 8.3, 8.5 and 8.13. From and after the
Closing Date or, with respect to the conditions set forth in Sections 8.2, 8.3,
8.5 and 8.13, from and after the Funding and Consummation Date, all conditions
not satisfied shall be deemed to have been waived, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the Company contained in Section 4 hereof.
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
the Founding Stockholders and the Company contained in this Agreement shall be
true and correct in all material respects as of the Closing Date and the Funding
and Consummation Date with the same effect as though such representations and
warranties had been made on and as of such date; and the Founding Stockholders
shall have delivered to QSI certificates dated the Closing Date and signed by
them to such effect.
8.2 PERFORMANCE OF OBLIGATIONS. 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 Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the Founding Stockholders and the
Company shall have delivered to QSI certificates dated the Closing Date and the
Funding and Consummation Date, respectively, and signed by them to such effect.
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 transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of QSI as a
result of which the management of QSI deems it inadvisable to proceed with the
transactions hereunder.
8.4 SECRETARY'S CERTIFICATE. QSI 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), Bylaws (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. Such certificate also shall be addressed to
the Underwriters and a copy thereof shall be delivered to the Underwriters.
8.5 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
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covered by insurance, which change, loss or damage materially affects or impairs
the ability of the Company to conduct its business.
8.6 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to QSI
an instrument dated the Closing Date releasing the Company from (i) any and all
claims of the Stockholders against the Company and (ii) obligations of the
Company to the Stockholders, except for (x) items specifically identified on
Schedules 4.10 and 4.16 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.
8.7 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the Company and the Stockholders shall have been canceled effective
prior to or as of the Funding and Consummation Date.
8.8 OPINION OF COUNSEL. QSI shall have received an opinion from Counsel
to the Company and the Stockholders, dated the Closing Date, in the form
mutually agreed to by the parties, and the Underwriters shall have received a
copy of the same opinion addressed to the Underwriters.
8.9 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 and all
consents and approvals of third parties listed on Schedule 4.23 shall have been
obtained.
8.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
QSI 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 QSI, 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.
8.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
8.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
7.11 shall have entered into an employment agreement substantially in the form
of Annex II hereto.
8.13 CLOSING OF IPO. The closing of the sale of the QSI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to QSI
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury Regulations promulgated under the Code.
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8.15 INSURANCE. QSI shall have been named as an additional insured on
all liability, theft, casualty and property insurance policies of the Company
and certificates of insurance to that effect shall have been delivered to QSI.
8.16 LOCKUP AGREEMENT. Each Stockholder shall have signed an
agreement with the Underwriters, in form and substance identical to agreements
signed by the Founding Stockholders in connection with the Other Agreements, by
which such Stockholder covenants to hold all of the QSI Stock acquired hereunder
for a period of at least 180 days after the Funding and Consummation Date.
9. COVENANTS OF QSI AND THE STOCKHOLDERS AFTER CLOSING
9.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. QSI shall,
within ninety (90) days of the Funding and Consummation Date, use commercially
reasonable efforts to have the Stockholders and any spouse of a Stockholder
released from any and all indemnities on bonds and guarantees on any
indebtedness or contractual obligations that they personally guaranteed and from
any and all pledges of assets that they pledged to secure such indebtedness for
the benefit of the Company, with all such indemnities on bonds and guarantees on
indebtedness or contractual obligations being assumed by QSI. QSI shall
indemnify and hold harmless Stockholders and any spouse of a Stockholder from
the payment of any indemnities on bonds, guaranties on any indebtedness or
contractual obligations that they personally guaranteed prior to the Closing
Date and from any and all pledges of assets that they pledged to secure such
indebtedness for the benefit of the Company, provided that such indebtedness or
obligations are either related to the business of the Company as being conducted
at the Closing Date or are made in order to facilitate distributions
contemplated under this Agreement. The indemnification contained in this
Section shall not be subject to the time and other limitations on
indemnification contained in Sections 10.2 and 10.5 hereof.
9.2 PRESERVATION OF TAX TREATMENT. (a) Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, QSI shall not and shall not permit any of its subsidiaries to undertake
any act that would prevent qualification of the transaction as an exchange
meeting the requirements of Code Section 351, including:
(i) the retirement or reacquisition, directly or indirectly, of all or
part of the QSI Stock issued in connection with the transactions
contemplated hereby; or
(ii) the entering into of financial arrangements for the benefit of
the Stockholders.
(b) Except as contemplated by this Agreement or the Registration Statement,
after the Funding and Consummation Date, the Stockholders shall not undertake
any act that would prevent qualification of the transaction as an exchange
meeting the requirements of Code Section 351.
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(c) Each of the Company, QSI and each Stockholder shall comply with the
reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and shall not take any position on any Return
inconsistent with characterization of the transaction as an exchange meeting the
requirements of Code Section 351.
9.3 PREPARATION AND FILING OF RETURNS.
(i) The Company's S Corporation Election shall terminate on the Funding and
Consummation Date and the Company shall have a short taxable year as an S
corporation (the "S Corporation Short Year") ending as of the close of business
on the day immediately preceding the Funding and Consummation Date and a short
taxable year as a C corporation (the "C Corporation Short Year") beginning on
the Funding and Consummation Date. For purposes of allocating income, gain,
loss and deduction of the Company between its S Corporation Short Year and its C
Corporation Short Year, the books of the Company shall be closed as of the close
of business on the day immediately preceding the Funding and Consummation Date
and the Company shall make the election described in Code Section 1362(e)(3) and
shall obtain the consent of all necessary stockholders unless such election is
unnecessary by reason of Code Section 1362(e)(6)(D).
(ii) QSI shall duly, accurately and timely (with regard to any duly granted
extension) file or cause to be filed all federal, state, local and foreign
income Returns required to be filed for the S Corporation Short Year and shall
timely furnish to each Stockholder a copy thereof together with all other
information required to be furnished to each Stockholder in respect thereof.
Each Stockholder shall be permitted a period of at least thirty (30) days prior
to the filing of any such Return, to review and comment on such Return.
(iii) The Company shall duly, accurately and timely (with regard to any
duly granted extension) file or cause to be filed all Returns other than the
Returns described in Section 9.3 hereof, required to be filed for taxable
periods ending on or before the day immediately preceding the Funding and
Consummation Date.
(iv) QSI shall duly, accurately and timely (with regard to any duly granted
extension) file or cause to be filed all Returns required to be filed for all
taxable periods ending on or after the Funding and Consummation Date.
9.4 DIRECTORS AND OFFICERS. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of QSI, as and
to the extent set forth in the Registration Statement, promptly following the
effective date of the Registration Statement. The QSI Board of Directors will
consist of nine members, up to two of whom shall be existing directors of QSI
and five of whom shall be from the Founding Companies (two nominees from PAR
Electrical Contractors, Inc. and one from each of Potelco, Inc., Union Power
Construction Company and TRANS TECH Electric, Inc.). QSI shall make
arrangements to compensate each Director for attending meetings of the Board of
Directors and to reimburse them for related expenses.
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9.5 MAINTENANCE OF BOOKS. QSI will cause the Company (a) to maintain the
books and records of the Company existing prior to the Closing Date for a period
of six years after the Closing Date and (b) to make such books and records
available to the Stockholders for any reasonable purpose.
10. INDEMNIFICATION
The Founding Stockholders and QSI each make the following covenants that
are applicable to them, respectively:
10.1 GENERAL INDEMNIFICATION BY FOUNDING STOCKHOLDERS. The Founding
Stockholders covenant and agree that they, jointly and severally, will
indemnify, defend, protect and hold harmless QSI and the Company at all times,
from and after the date of this Agreement, 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) (collectively, "Claims") incurred by QSI or
the Company for which QSI or the Company deliver notice of such Claims to the
Founding Stockholders prior to the Expiration Date and which Claims are as a
result of or arising from (i) any breach of the representations and warranties
of the Founding 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 under this Agreement; (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 the Company
or the Stockholders, and provided to QSI or its counsel by the Company or the
Stockholders 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; (iv) the matters
described on Schedule 10.1(iv) (relating to specifically identified matters such
as ongoing claims and/or litigation), which schedule shall be prepared by QSI;
(v) any liability asserted against QSI or the Company from matters occurring
prior to the Closing Date and not listed on any Schedule of the Company, where
such liability would have been required to be listed on a Schedule; (vi) all
Taxes of the Company with respect to any taxable period ending on or before the
Funding and Consummation Date (or for any taxable period beginning before and
ending after the Funding and Consummation Date to the extent allocable to the
portion of such period beginning before and ending on the Funding and
Consummation Date) to the extent such Taxes exceed the amount of the current
liability accruals for Taxes (exclusive of reserves for deferred Taxes
established to reflect timing differences) reflected on the balance sheet of the
Company as of September 30, 1997 as adjusted for Company operations in the
ordinary course of business through the Funding and Consummation Date in
accordance with generally accepted accounting principles consistently applied
and, to the extent consistent therewith, the most recent custom and practices of
the Company; provided that the portion of any periodic Tax attributable to a
taxable year or period beginning before and ending after the Funding and
Consummation Date shall be determined by
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apportioning the Tax for the entire year or period based upon the number of days
in the year or period, except that any such Tax measured by income or receipts
shall be apportioned based upon actual results of operations through the end of
the Funding and Consummation Date; (vii) all liabilities of the Company, if any,
for the Taxes of any other person, pursuant to Code Section 1.1502-6 or other
law, as a transferee or successor, by contract or otherwise; and (viii) all
Transfer and other Taxes arising from the transactions contemplated by this
Agreement; provided, however, (A) that in the case of any indemnity arising
pursuant to clause (iii) such indemnity shall not inure to the benefit of QSI 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 QSI counsel and to QSI for inclusion in the final prospectus, and
such information was not so included or properly delivered, and (B) that no
Stockholder shall be liable for any indemnification obligation pursuant to this
Section 10.1 to the extent attributable to a breach of any representation,
warranty or agreement made herein individually by any other Stockholder.
10.2 INDEMNIFICATION BY QSI. QSI 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 from and against all Claims incurred by the
Company or the Stockholders for which the Company or the Stockholders deliver
notice of such Claims to QSI prior to the Expiration Date and which Claims are
as a result of or arising from (i) any breach by QSI of its representations and
warranties set forth herein or on the schedules or certificates attached hereto,
(ii) any nonfulfillment of any agreement on the part of QSI under this
Agreement, (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 QSI 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 QSI or any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading, or (iv) the
matters described on Schedule 10.2(iv) (relating to specifically identified
matters), which schedule shall be prepared by the Founding Stockholders.
10.3 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 10.1
or 10.2 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 (such settlement to be subject to the consent of
the Indemnified Party, as hereinafter provided), 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.
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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 the 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 the
Indemnified Party, the Indemnified Party shall have the right to participate in
such matter through counsel of its own choosing and the Indemnifying Party will
reimburse the Indemnified Party for the reasonable expenses of its counsel.
Further, absent a conflict, the Indemnified Party may select counsel and have
such counsel participate in such matter at the sole cost of the Indemnified
Party. 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. 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 Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement 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.
10.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 10 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, however, 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.
10.5 LIMITATIONS ON INDEMNIFICATION. No Indemnified Party shall
assert any claim for indemnification hereunder against an Indemnifying Party
until such time as, and solely to the extent that, the aggregate of all claims
which such Indemnified Party may have against such Indemnifying
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Party shall exceed $75,000, provided, however, that QSI, the Company and the
other persons or entities indemnified pursuant to Section 10.1 may assert and
shall be indemnified for any claim under Section 10.1(v) at any time, regardless
of whether the aggregate of all claims which such persons may have against any
Stockholder or all Stockholders exceeds $75,000, it being understood that the
amount of any such claim under such Sections shall not be counted towards such
$75,000 amount; and further provided that the $75,000 amount shall be reduced to
$5,000 for claims under Sections 10.l(i) to the extent it relates to breaches of
the representations and warranties set forth in Section 4.22, 10.1(vi),
10.1(vii) and 10.1(viii) (except for claims with respect to taxes due as a
result of an Internal Revenue Service audit related to percentage of completion
of related contracts, in which case the amount shall be reduced to $50,000) it
being understood that the amount of any such claim under such Sections shall not
be counted towards such $75,000 amount; and further provided that the
Stockholders and the other persons or entities indemnified pursuant to Section
10.2 may assert and shall be indemnified for any claim under Section 10.2(v) at
any time, regardless of whether the aggregate of all claims which such persons
may have against QSI exceeds $75,000, it being understood that the amount of any
such claim under Section 10.2(v) shall not be counted towards such $75,000
amount. No person shall be entitled to indemnification under this Section 10 if
and to the extent that: (a) such person's claim for indemnification is directly
or indirectly related to and substantially the result of a breach by such person
of any representation, warranty, covenant or other agreement set forth in this
Agreement; or (b) such person receives a tax benefit equal to or in excess of
the amount of such claim as a result of the claim or loss for which
indemnification is sought.
Notwithstanding any other term of this Agreement, no Indemnifying Party
shall be liable under this Section 10 for an amount which exceeds the amount of
proceeds received by all of the Stockholders in connection with the transactions
contemplated hereby. Indemnity obligations hereunder of the Founding
Stockholders may be satisfied through the payment of cash or the delivery of QSI
Stock, or a combination thereof, at the Founding Stockholder's election. For
purposes of calculating the value of the QSI Stock received or delivered by the
Stockholders (for purposes of determining the limitation on indemnity set forth
in the second preceding sentence and the amount of any indemnity paid), QSI
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. Any indemnification payment made by the Founding
Stockholders pursuant to this Section 10 shall be deemed to be a reduction in
the consideration received by the Founding Stockholders pursuant to Section 2.
Without limitation of any of the foregoing, the limitations set forth in
this Section shall not apply to breaches of representations, warranties or
covenants set forth in Sections 4.29(c), 5.13, 5.14, 9.2 and 9.3 hereof.
11. TERMINATION OF AGREEMENT
11.1 TERMINATION. This Agreement may be terminated by written notice
from the party asserting termination to the other parties at any time prior to
the Funding and Consummation Date solely:
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(i) by mutual consent of the boards of directors of QSI and the
Company;
(ii) by the Stockholders or the Company (acting through its board of
directors), on the one hand, or by QSI (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
June 1, 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 Funding and Consummation
Date;
(iii) by the Stockholders or Company, on the one hand, or by QSI, 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, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Funding and
Consummation Date;
(iv) pursuant to Section 2.1 hereof;
(v) pursuant to Section 6.8 hereof; or
(vi) pursuant to Section 3 hereof.
11.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 6.8 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 relating to the
transactions contemplated hereby. No party hereto shall be liable to any other
party if the Agreement is terminated under Sections 11.1(i), (ii) (except as set
forth therein), (iv), (v) or (vi).
12. NONCOMPETITION
12.1 PROHIBITED ACTIVITIES. Provided that QSI shall have complied
with and performed all of its obligations hereunder and that the Stockholders
shall have received payment in full of the consideration described in Section 2,
the Stockholders shall not, for a period of five (5) years following the Funding
and 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 engineering and construction business in
direct competition with QSI or any of the subsidiaries thereof, within 100
miles of where
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the Company or any of its subsidiaries conducted business prior to the
effectiveness of the Funding and Consummation Date (the "Territory");
(ii) call upon any person who is, at that time, within the Territory,
an employee of QSI (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of QSI (including the
subsidiaries thereof), provided that each Stockholder shall be permitted to
call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is at that time, or which
has been, within one (l) year prior to the Funding and Consummation Date, a
customer of QSI (including the subsidiaries 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 QSI
within the Territory;
(iv) call upon any prospective acquisition candidate, on the Company's
or any Stockholder's own behalf or on behalf of any competitor in the
electrical engineering and construction business, which candidate, to the
actual Knowledge of the Company or such Stockholder after due inquiry, was
called upon by QSI (including the subsidiaries thereof) or for which, to
the actual Knowledge of the Company or such Stockholder after due inquiry,
QSI (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 types of persons to whom
disclosure is then presently contemplated for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
12.2 DAMAGES. Because of the difficulty of measuring economic losses
to QSI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to QSI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by QSI or the Company in the event of breach by such
Stockholder, by injunctions and restraining orders.
12.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 12 impose a reasonable restraint on the
Stockholders in light of the activities and business of QSI (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of QSI.
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12.4 SEVERABILITY; REFORMATION. The covenants in this Section 12 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.
12.5 INDEPENDENT COVENANT. All of the covenants in this Section 12
shall be construed as an agreement independent of any other provision in this
Agreement. It is specifically agreed that the period of five (5) years stated
at the beginning of this Section 12, during which the agreements and covenants
of each Stockholder made in this Section 12 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 12. The covenants
contained in Section 12 shall have no effect if the transactions contemplated by
this Agreement are not consummated nor may such covenants be enforced by any
party to this Agreement that is in breach of its obligations hereunder.
12.6 MATERIALITY. The Stockholders hereby agree that the covenants in
this Section 12 are a material and substantial part of this transaction.
12.7 LIMITATIONS. In the event that any Stockholder who is employed
by QSI or the Company pursuant to an employment agreement is terminated without
cause (as defined in such employment agreement), the provisions of this Section
12 shall no longer be valid or enforceable by QSI or the Company. If such
employment agreement contains provisions relating to the same subject matter as
this Section 12 that are less restrictive than set forth in this Section 12, the
provisions of such employment agreement shall control.
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 STOCKHOLDERS. The Company and 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 QSI, such as operational policies, trade
secrets and pricing and cost policies that are valuable, special and unique
assets of the Company's, the Other Founding Companies' and/or FCI's respective
businesses. The Company and the Stockholders agree that they shall 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 QSI, (b) following the Closing, such information may be
disclosed by the Stockholders as is required in the course of performing their
duties for QSI 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 13.1, unless (i) such information is or becomes known to the
public generally or to businesses operating in the construction industry through
no fault of the Company and the Stockholders, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided,
however, that prior to disclosing any information pursuant to this clause (ii),
the Company and the Stockholders shall, if possible, give two days' prior
written
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notice thereof to QSI and provide QSI with the opportunity within such two-day
period 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 the Company or any of the Stockholders of the provisions of this
Section, QSI shall be entitled to an injunction restraining the Company and such
Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting QSI 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, the Company and the Stockholders shall have none
of the above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
13.2 QSI. QSI recognizes and acknowledges that QSI had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, trade secrets, and pricing and cost policies that
are valuable, special and unique assets of the Company's business. QSI 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, however, that such
advisors (other than counsel) agree to the confidentiality provisions of this
Section 13.2 and (c) to the Other Founding Companies and their representatives
pursuant to Section 6.1(a), unless (i) such information becomes known to the
public generally through no fault of QSI, (ii) disclosure is required by law or
the order of any governmental authority under color of law, provided, however,
that prior to disclosing any information pursuant to this clause (ii), QSI
shall, unless otherwise required by law or such order, give two days' prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity within such two-day period 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 QSI of
the provisions of this Section, the Company and the Stockholders shall be
entitled to an injunction restraining QSI 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 as
such breach or threatened breach, including the recovery of damages.
13.3 DAMAGES. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants in Section 13.1 and 13.2,
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.
13.4 SURVIVAL. The obligations of the parties under this Article 13
shall survive the termination of this Agreement for a period of three years from
(a) the Funding and Consummation Date if the transactions contemplated hereby
are consummated or (b) the date hereof if the transactions contemplated hereby
are not consummated.
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14. TRANSFER RESTRICTIONS
14.1 TRANSFER RESTRICTIONS. Except for transfers to Affiliates of the
Stockholders who agree to be bound by the restrictions set forth in this Section
14.1, for a period of two years from the Funding and Consummation Date, except
pursuant to Section 16 hereof, the Stockholders shall not sell, assign,
exchange, transfer, distribute or otherwise dispose of any shares of QSI Stock
received by them as described in Section 2.1. The certificates evidencing the
QSI Stock delivered to the Stockholders pursuant to Section 2 of this Agreement
shall bear a legend substantially in the form set forth below and containing
such other information as QSI may deem necessary or appropriate: THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION, PRIOR TO SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
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.
15. FEDERAL SECURITIES ACT REPRESENTATIONS
Each Stockholder acknowledges that the shares of QSI Stock to be delivered
to such Stockholder pursuant to this Agreement have not been and will not be
registered under the 1933 Act and therefore may not be resold without compliance
with the 1933 Act. The QSI Stock to be acquired by such Stockholder pursuant to
this Agreement is being acquired solely for its own account, for investment
purposes only, and with no present intention of distributing, selling or
otherwise disposing of it in connection with a distribution.
15.1 COMPLIANCE WITH LAW. Each of the Stockholders covenants,
warrants and represents that none of the shares of QSI Stock issued to the
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 of the QSI Stock shall bear the following legend in addition to the
legend required under Section 14 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.
15.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear
the economic risk of an investment in the QSI Stock acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and has such
Knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment in the QSI Stock.
The Stockholders have had an adequate opportunity to ask questions and receive
answers from the
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officers of QSI 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 QSI, the plans for the
operations of the business of QSI, 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.
16. REGISTRATION RIGHTS
16.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding
and Consummation Date, whenever QSI proposes to register any QSI Stock for its
own or others account under the 1933 Act for a public offering, other than (i)
any shelf registration of shares to be used as consideration for acquisitions of
additional businesses by QSI and (ii) registrations relating to employee benefit
plans, QSI shall give the Stockholders prompt written notice of its intent to do
so. Upon the written request of the Stockholders given within 30 days after
receipt of such notice, QSI shall cause to be included in such registration all
of the QSI Stock issued to the Stockholders pursuant to this Agreement which the
Stockholders request, provided that QSI shall have the right to reduce the
number of shares included in such registration to the extent that inclusion of
such shares could, in the opinion of tax counsel to QSI or its independent
auditors, jeopardize the qualification of the transactions contemplated hereby
and by the Registration Statement as an exchange meeting the requirements of
Code Section 351. In addition, if QSI 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 16.1 that the
number of shares to be sold by persons other than QSI is greater than the number
of such shares which can be offered without adversely affecting the offering,
QSI may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares desired to be sold by such person) to a
number deemed satisfactory by such managing underwriter, provided, that,
notwithstanding Section 14.1 hereof, for each such offering made by QSI after
the IPO, such reduction shall be made first by reducing the number of shares to
be sold by persons other than QSI, the Company and the Other Founding Companies
or the Stockholders thereof who receive shares of QSI Stock pursuant to the
Other Agreements (collectively, the Company and the Other Founding Companies or
the Stockholders thereof who receive shares of QSI Stock pursuant to the Other
Agreements being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
16.2 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Article 16 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by QSI. In connection
with registrations under Section 16.1, QSI shall (i) use its best efforts to
prepare and file with the SEC as soon as reasonably practicable, a registration
statement with respect to the QSI Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of at least 45
days (or such shorter period during which the Founding Stockholders shall have
sold all QSI Stock which they requested to be registered); (ii) use its best
efforts to register and qualify the QSI Stock
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covered by such registration statement under applicable state securities laws as
the holders shall reasonably request for the distribution for the QSI Stock; and
(iii) take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder to enable the
Founding Stockholders to sell their shares pursuant thereto.
16.3 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Section 16.1 covering an underwritten registration public offering,
QSI and each participating holder agree to enter into a written agreement with
the managing underwriters in such form and containing such provisions
(including indemnification provisions) as are customary in the securities
business for such an arrangement between such managing underwriters and
companies of FCI's size and investment stature.
16.4 AVAILABILITY OF RULE 144. QSI shall not be obligated to register
shares of QSI Stock held by the Stockholder at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to the Stockholders.
17. GENERAL
17.1 COOPERATION. The Company, Stockholders and QSI shall each
deliver or cause to be delivered to the other on the Funding and 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 shall cooperate and use its reasonable
efforts to have the present officers, directors and the employees of the Company
cooperate with QSI on and after the Funding and 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 Funding
and Consummation Date.
17.2 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 QSI, and the heirs and legal representatives of the Stockholders.
17.3 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 QSI and supersede any prior agreement and understanding relating
to the subject matter of this Agreement, including but not limited to any letter
of intent entered into by any of the parties hereto and the Original 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 QSI, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors.
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17.4 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
17.5 BROKERS AND AGENTS. Except as disclosed on Schedule 17.5, 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.
17.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, QSI will pay the fees, expenses and disbursements of QSI
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 QSI under this Agreement, including the fees and
expenses of Arthur Andersen L.L.P., Jackson Walker L.L.P., and any other person
or entity retained by QSI, and the costs of preparing the Registration
Statement. The Stockholders shall pay the fees, expenses and disbursements of
the Stockholders, the Company and their respective 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 the
Company and the Stockholders under this Agreement, including the fees and
expenses of accountants and legal counsel to the Company and the Stockholders.
Notwithstanding the foregoing, if the transactions contemplated by this
Agreement are consummated, QSI shall reimburse the Stockholders for such
reasonable fees, expenses and disbursements upon the closing of the IPO up to
$15,000 plus such additional fees, expenses and disbursements as are set forth
on Schedule 17.6. In addition, 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
transactions contemplated hereby, 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 or she, and not the Company or QSI, shall pay all taxes due
upon receipt of the consideration payable pursuant to Section 2 hereof, and
shall assume all tax risks and liabilities of such Stockholder in connection
with the transactions contemplated hereby.
17.7 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.
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(a) If to QSI, addressed to it at:
c/o Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attn: James S. Ryan
(b) If to the Stockholders, addressed to them in care of the Company.
(c) If to the Company, addressed to it at:
TRANS TECH Electric, Inc.
c/o Rich Cullar
Beres & Cullar, P.C.
209 N. Main, Suite 200
South Bend, Indiana 46601
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware.
17.9 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.
17.10 TIME. Time is of the essence with respect to this Agreement.
17.11 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.
17.12 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.
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17.13 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.
17.14 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 QSI, the Company and the Stockholders. Any amendment or
waiver effected in accordance with this Section 17.14 shall be binding upon each
of the parties hereto, any other person receiving QSI Stock in connection with
the transactions contemplated hereby and each future holder of such QSI Stock.
17.15 INCORPORATION BY REFERENCE. To the extent that an item is
disclosed in a particular schedule or a subsection of a particular schedule and
such item is readily apparent on its face as being applicable to another
schedule or another subsection of the same schedule, such item shall be deemed
incorporated by reference in such schedule or such other subsection under the
same schedule.
17.16 DEFINED TERMS. 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.
"Affiliates" has the meaning set forth in Section 4.8.
"Agreement" has the meaning set forth in the first paragraph hereof.
"A/R Aging Reports" has the meaning set forth in Section 4.11.
"Assets" has the meaning set forth in Section 6.13.
"Balance Sheet Date" has the meaning set forth in Section 4.9.
"C Corporation Short Year" has the meaning set forth in Section 9.3(i).
"Charter Documents" has the meaning set forth in Section 4.1.
"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
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"Company Stock" means the capital stock of the Company.
"Delaware GCL" has the meaning set forth in Section 2.3.
"Demand Registration" has the meaning set forth in Section 16.2.
"Environmental Laws" has the meaning set forth in Section 4.13.
"ERISA" has the meaning set forth in Section 4.19.
"Expiration Date" has the meaning set forth in Section 4(A).
"QSI" has the meaning set forth in the first paragraph of this Agreement.
"QSI Charter Documents" has the meaning set forth in Section 5.1.
"QSI Financial Statements" has the meaning set forth in Section 5.6.
"QSI Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"QSI Stock" means the common stock, par value $.01 per share, of QSI.
"Founding Companies" has the meaning set forth in the third recital of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"Funding and Consummation Date" has the meaning set forth in Section 3.
"Indemnification Threshold" has the meaning set forth in Section 10.5.
"Indemnified Party" has the meaning set forth in Section 10.3.
"Indemnifying Party" has the meaning set forth in Section 10.3.
"IPO" means the initial public offering of QSI Stock pursuant to the
Registration Statement.
"Knowledge" or "Knows," when referring to the Knowledge of the Company or
QSI or what the Company or QSI Knows, means the actual knowledge of any director
or officer of the Company or QSI, as the case may be, and the knowledge that an
ordinarily prudent person acting reasonably in a similar capacity as such
director or officer should have after reasonable investigation into the relevant
subject matter.
"Material Adverse Effect" has the meaning set forth in Section 4.1.
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"Material Documents" has the meaning set forth in Section 4.23.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 4.19.
"Pricing" means the date of determination by QSI and the Underwriters of
the public offering price of the shares of QSI 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 4.20.
"Registration Statement" means that certain registration statement on Form
S-1 covering the shares of QSI Stock to be issued in the IPO.
"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.
"S Corporation Election" has the meaning set forth in Section 4.22(x).
"S Corporation Short Year" has the meaning set forth in Section 9.3(i).
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 6.3.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" has the meaning set forth in Section 4.6.
"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, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
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"Territory" has the meaning set forth in Section 12.1.
"Third Person" has the meaning set forth in Section 10.3.
"Transfer Taxes" has the meaning set forth in Section 17.6.
"Underwriters" means the prospective underwriters in the IPO, as identified
in the Registration Statement.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
QUANTA SERVICES, INC.
By: /s/ James H. Haddox
----------------------------------------
Its: Chief Financial Officer
----------------------------------------
TRANS TECH ELECTRIC, INC.
By: /s/ Robert J. Urbanski
-----------------------------------------
Its: President
---------------------------------------
/s/ Robert Urbanski
--------------------------------------------
Robert Urbanski
/s/ John Martell
--------------------------------------------
John Martell
Each of
John and Bonnie Martell 1997 Children's Trust for the sole benefit of John L.
Martell;
John and Bonnie Martell 1997 Children's Trust for the sole benefit of Jennifer
Martell;
Robert and Debra Urbanski 1997 Children's Trust for the sole benefit of Michael
Urbanski;
Robert and Debra Urbanski 1997 Children's Trust for the sole benefit of Timothy
Urbanski;
Robert and Debra Urbanski 1997 Children's Trust for the sole benefit of Nicole
Rogers;
Robert and Debra Urbanski 1997 Children's Trust for the sole benefit of James
Pluta; and
Robert and Debra Urbanski 1997 Children's Trust for the sole benefit of Edward
Rogers.
In each case, by
Indiana Trust and Investment
Management Company, as Trustee
By: /s/ David A. Hosinski
------------------------------------------
Its: President
-----------------------------------------
<PAGE>
EXHIBIT 2.4
AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION
dated as of December 11, 1997
by and among
QUANTA SERVICES, INC.
POTELCO, INC.
and
the Stockholder named herein
<PAGE>
TABLE OF CONTENTS
1. TRANSFER AND EXCHANGE................................................. 1
2. DELIVERY OF CONSIDERATION............................................. 2
2.1 Consideration.................................................... 2
2.2 Certificates..................................................... 2
2.3 QSI Stock........................................................ 2
3. CLOSING............................................................... 2
4. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDER........................................................... 3
4.1 Due Organization................................................ 3
4.2 Authorization................................................... 4
4.3 Capital Stock of the Company.................................... 4
4.4 Transactions in Capital Stock................................... 4
4.5 No Bonus Shares................................................. 4
4.6 Subsidiaries.................................................... 5
4.7 Predecessor Status; etc......................................... 5
4.8 Spin-Off by the Company......................................... 5
4.9 Financial Statements............................................ 5
4.10 Liabilities and Obligations..................................... 5
4.11 Accounts and Notes Receivable................................... 6
4.12 Permits and Intangibles......................................... 6
4.13 Environmental Matters........................................... 7
4.14 Personal Property............................................... 7
4.15 Significant Customers; Material Contracts and Commitments....... 8
4.16 Real Property................................................... 9
4.17 Insurance; Bonding.............................................. 9
4.18 Compensation; Employment Agreements; Organized Labor Matters....10
4.19 Employee Plans..................................................10
4.20 Compliance with ERISA...........................................11
4.21 Conformity with Law; Litigation.................................12
4.22 Taxes...........................................................12
4.23 No Violations...................................................14
4.24 Government Contracts............................................15
4.25 Absence of Changes..............................................15
4.26 Deposit Accounts; Powers of Attorney............................16
4.27 Validity of Obligations.........................................16
4.28 Relations with Governments......................................16
4.29 Disclosure......................................................17
4.30 Prohibited Activities...........................................17
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4.31 Authority; Ownership............................................17
4.32 Preemptive Rights...............................................18
5. REPRESENTATIONS OF QSI................................................18
5.1 Due Organization................................................18
5.2 Authorization...................................................18
5.3 Capital Stock of QSI............................................18
5.4 Transactions in Capital Stock...................................19
5.5 Subsidiaries....................................................19
5.6 Financial Statements............................................19
5.7 Liabilities and Obligations.....................................19
5.8 Conformity with Law; Litigation.................................19
5.9 No Violations...................................................20
5.10 Validity of Obligations.........................................20
5.11 QSI Stock.......................................................20
5.12 Business; Real Property; Material Agreements....................20
5.13 Taxes...........................................................21
5.14 No Intention to Dispose of Company Stock........................21
5.15 Other Founding Companies........................................21
6. COVENANTS PRIOR TO CLOSING............................................21
6.1 Access and Cooperation; Due Diligence...........................21
6.2 Conduct of Business Pending Closing.............................22
6.3 Prohibited Activities...........................................23
6.4 No Shop.........................................................24
6.5 Notice to Bargaining Agents.....................................24
6.6 Agreements......................................................24
6.7 Notification of Certain Matters.................................25
6.8 Amendment of Schedules..........................................25
6.9 Cooperation in Preparation of Registration Statement............26
6.10 Final Financial Statements......................................27
6.11 Further Assurances..............................................27
6.12 Authorized Capital..............................................27
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND
COMPANY...............................................................27
7.1 Representations and Warranties..................................28
7.2 Performance of Obligations......................................28
7.3 No Litigation...................................................28
7.4 Opinion of Counsel..............................................28
7.5 Registration Statement..........................................28
7.6 Consents and Approvals..........................................28
7.7 Good Standing Certificates......................................28
7.8 No Material Adverse Change......................................29
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7.9 Closing of IPO..................................................29
7.10 Secretary's Certificate.........................................29
7.11 Employment Agreements...........................................29
7.12 Directors and Officers Insurance................................29
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF QSI............................29
8.1 Representations and Warranties..................................30
8.2 Performance of Obligations......................................30
8.3 No Litigation...................................................30
8.4 Secretary's Certificate.........................................30
8.5 No Material Adverse Effect......................................30
8.6 Stockholder's Release...........................................30
8.7 Termination of Related Party Agreements.........................31
8.8 Opinion of Counsel..............................................31
8.9 Consents and Approvals..........................................31
8.10 Good Standing Certificates......................................31
8.11 Registration Statement..........................................31
8.12 Employment Agreements...........................................31
8.13 Closing of IPO..................................................31
8.14 FIRPTA Certificate..............................................31
8.15 Insurance.......................................................31
8.16 Lockup Agreement................................................31
9. COVENANTS OF QSI AND THE STOCKHOLDER AFTER CLOSING....................32
9.1 Release From Guarantees; Repayment of Certain Obligations.......32
9.2 Preservation of Tax Treatment...................................32
9.3 Preparation and Filing of Returns...............................33
9.4 Directors and Officers..........................................34
9.5 Maintenance of Books............................................34
10. INDEMNIFICATION.......................................................34
10.1 General Indemnification by Stockholder..........................34
10.2 Indemnification by QSI..........................................35
10.3 Third Person Claims.............................................36
10.4 Exclusive Remedy................................................37
10.5 Limitations on Indemnification..................................37
11. TERMINATION OF AGREEMENT..............................................38
11.1 Termination.....................................................38
11.2 Liabilities in Event of Termination.............................38
12. NONCOMPETITION........................................................39
12.1 Prohibited Activities...........................................39
12.2 Damages.........................................................40
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12.3 Reasonable Restraint............................................40
12.4 Severability; Reformation.......................................40
12.5 Independent Covenant............................................40
12.6 Materiality.....................................................40
12.7 Limitations.....................................................40
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................40
13.1 Stockholder.....................................................40
13.2 QSI.............................................................41
13.3 Damages.........................................................42
13.4 Survival........................................................42
14. TRANSFER RESTRICTIONS.................................................42
14.1 Transfer Restrictions...........................................42
15. FEDERAL SECURITIES ACT REPRESENTATIONS................................43
15.1 Compliance with Law.............................................43
15.2 Economic Risk; Sophistication...................................43
16. REGISTRATION RIGHTS...................................................43
16.1 Piggyback Registration Rights...................................43
16.2 Registration Procedures.........................................44
16.3 Underwriting Agreement..........................................44
16.4 Availability of Rule 144........................................44
17. GENERAL...............................................................45
17.1 Cooperation.....................................................45
17.2 Successors and Assigns..........................................45
17.3 Entire Agreement................................................45
17.4 Counterparts....................................................45
17.5 Brokers and Agents..............................................45
17.6 Expenses........................................................45
17.7 Notices.........................................................46
17.8 Governing Law...................................................46
17.9 Exercise of Rights and Remedies.................................47
17.10 Time............................................................47
17.11 Reformation and Severability....................................47
17.12 Remedies Cumulative.............................................47
17.13 Captions........................................................47
17.14 Amendments and Waivers..........................................47
17.15 Incorporation by Reference......................................47
17.16 Defined Terms...................................................47
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INDEX TO SCHEDULES
4.1 Organization; Charter Documents
4.3 Authorized Capital Stock
4.4 Transactions in Capital Stock
4.5 Bonus Shares
4.6 Subsidiaries
4.7 Predecessor Status
4.8 Spin-Offs
4.9 Financial Statements
4.10 Liabilities and Obligations
4.11 Accounts and Notes Receivable
4.12 Permits and Intangibles
4.13 Environmental Matters
4.14 Personal Property
4.15 Significant Customers; Material Contracts and Commitments
4.16 Real Property
4.17 Insurance; Bonding
4.18 Compensation; Employment Agreements; Organized Labor Matters
4.19 Employee Plans
4.21 Violations of Law; Litigation
4.22 Taxes
4.23 Necessary Consents
4.24 Government Contracts
4.25 Absence of Changes
4.26 Deposit Accounts; Powers of Attorney
4.30 Prohibited Activities
4.31 Company Stock Ownership; Liens on Company Stock
5.1 QSI Charter and Bylaws
5.3 QSI Stock Ownership
5.4 Transactions in Capital Stock
5.6 Financial Statements
5.7 Liabilities and Obligations
5.8 Conformity with Law; Litigation
5.9 Required Consents - QSI
5.12 Business; Real Property; Material Agreements
5.13 Taxes
6.2 Conduct of Business Pending Closing - Exceptions
6.3 Prohibited Activities - Exceptions
6.5 Proof of Notice Under Collective Bargaining Agreements
6.6 Termination Agreements
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INDEX TO ANNEXES
Annex I Consideration
Annex II Employment Agreement Form
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AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF ORGANIZATION (the
"Agreement") is made effective as of December 11, 1997, by and among Quanta
Services, Inc., a Delaware corporation formerly known as Fabal Construction,
Inc. ("QSI"), Potelco, Inc., a Washington corporation (the "Company"), and Gary
Tucci, referred to herein as the "Stockholder." Capitalized terms used in this
Agreement and not otherwise defined are defined in Section 17.16 hereof.
WHEREAS, the parties have previously executed that certain Agreement and
Plan of Organization dated October 29, 1997, and have agreed to certain
amendments and revisions thereto pursuant to that certain Amended and Restated
Agreement and Plan of Organization dated as of November 10, 1997, and that
certain Amendment No. 1 To Amended and Restated Agreement and Plan of
Organization, dated as of November 24, 1997 (collectively, the "Original
Agreement");
WHEREAS, the parties wish to amend and restate the Original Agreement in
its entirety to reflect certain agreed to amendments and revisions;
WHEREAS, the respective Boards of Directors of QSI and the Company deem it
advisable and in the best interests of QSI and the Company and their respective
stockholders that QSI acquire all of the Company's outstanding shares of capital
stock pursuant to this Agreement;
WHEREAS, QSI is concurrently entering into an Amended and Restated
Agreement and Plan of Organization (collectively, the "Other Agreements") with
each of PAR Electrical Contractors, Inc., Union Power Construction Company and
TRANS TECH Electric, Inc., and their respective stockholders (the Company,
together with each of the entities with which QSI has entered into the Other
Agreements, are collectively referred to herein as the "Founding Companies");
WHEREAS, this Agreement, the Original Agreement, the Other Agreements and
the IPO of QSI Stock constitute the "QSI Plan of Organization";
WHEREAS, the Stockholder and the Boards of Directors and the stockholders
of QSI and each of the Other Founding Companies have approved and adopted the
QSI Plan of Organization as an integrated plan pursuant to which QSI will
acquire the capital stock or assets of each of the Founding Companies in
exchange for shares of QSI Stock and cash concurrent with the IPO of QSI Stock
and which is intended to qualify as an exchange meeting the requirements of
Section 351 of the Code; and
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:
<PAGE>
1. TRANSFER AND EXCHANGE
On the Funding and Consummation Date, (a) Stockholder shall transfer,
convey, assign and deliver to QSI, and QSI shall acquire and accept from
Stockholder, all of Stockholder's outstanding shares of Company Stock, free and
clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind.
2. DELIVERY OF CONSIDERATION
2.1 CONSIDERATION. On the Funding and Consummation Date the Stockholder,
who is on that date the holder of all outstanding certificates representing
Company Stock, shall, upon surrender of such certificates, receive the number of
shares of QSI Stock and the amount of cash set forth on Annex I hereto, said
cash to be payable by certified check or wire transfer. QSI shall have the
right, in its sole discretion, to revise the consideration set forth on Annex I
at any time prior to the Closing Date based upon the trailing twelve month
revenue performance of the Company; provided that if either the cash or stock
portion of such consideration is adjusted downward by more than 5%, the Company
or any Stockholder shall have the right to terminate this Agreement by giving
written notice of their intention to do so not later than fifteen days following
receipt of notice of the adjustment. Also set forth on Annex I are actions
permitted to be taken by the Company with respect to disposition of its assets
prior to the Closing Date.
2.2 CERTIFICATES. The Stockholder shall deliver to QSI at the Closing the
certificates representing Company Stock, duly endorsed in blank by Stockholder,
or accompanied by blank stock powers, and with all necessary transfer tax and
other revenue stamps, acquired at the Company's expense, affixed and canceled.
Stockholder agrees promptly to cure any deficiencies with respect to the
endorsement of the interest certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
the Company Stock.
2.3 QSI STOCK. All QSI Stock received by the Stockholder pursuant to this
Agreement shall, except for restrictions on resale or transfer described in
Sections 14 and 15 hereof, have the same rights as all of the other shares of
outstanding QSI Stock by reason of the provisions of the Certificate of
Incorporation of QSI or as otherwise provided by the Delaware General
Corporation Law (the "Delaware GCL"). All voting rights of such QSI Stock
received by the Stockholder shall be fully exercisable by the Stockholder and
the Stockholder shall not be deprived nor restricted in exercising those rights.
On the Funding and Consummation Date, QSI shall have no class of capital stock
issued and outstanding other than the QSI Stock. Notwithstanding anything
herein to the contrary, the sponsors of QSI will hold a class of stock which
will be identical to the QSI Stock, except that holders of such class of stock
will have the right to elect only one or two directors and with such other
limited voting rights as recommended by counsel.
3. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary to
prepare to (i) effect the transfer and delivery of the shares of Company Stock
as contemplated by Section 1 hereof and
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(ii) effect the delivery of the consideration referred to in Section 2 hereof;
provided, however, that such actions shall not include the actual completion of
the transfer and delivery of the shares of Company Stock or the delivery of the
consideration by certified check(s) or wire transfer(s) referred to in Section 2
hereof, each of which actions shall only be taken upon the Funding and
Consummation Date as herein provided. The taking of the actions described in
clauses (i) and (ii) above (the "Closing") shall take place on the closing date
(the "Closing Date") at the offices of Jackson Walker L.L.P., 901 Main Street,
Suite 6000, Dallas, Texas 75202. On the Funding and Consummation Date (x) all
transactions contemplated by this Agreement, including the delivery of the
shares of Company Stock and the delivery of shares of QSI Stock and certified
check(s) or wire transfer(s) in an amount equal to the cash portion of the
consideration which the Stockholder shall be entitled to receive pursuant to
Section 2 hereof shall occur and (y) the closing with respect to the IPO shall
be completed. The date on which the actions described in the preceding clauses
(x) and (y) occur shall be referred to as the "Funding and Consummation Date."
Except as provided in Sections 7 and 8 hereof with respect to actions to be
taken on the Funding and Consummation Date, during the period from the Closing
Date to the Funding and Consummation Date this Agreement may only be terminated
by a party if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such agreement. This Agreement shall in any event
terminate if the Funding and Consummation Date has not occurred within 15
business days of the Closing Date. Time is of the essence.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDER
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDER.
Each of the Company and the Stockholder jointly and severally represents
and warrants that all of the following representations and warranties in this
Section 4(A) are true at the date of this Agreement and, subject to Section 6.8
hereof, shall be true at the time of Closing and the Funding and Consummation
Date. Each of the Company and the Stockholder agrees that such representations
and warranties shall survive the Funding and Consummation Date for a period of
two years (the last day of such period being the "Expiration Date"), except that
(i) the warranties and representations set forth in Section 4.22 hereof shall
survive until such time as the limitations period has run for all Tax periods
ended on or prior to or including the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 4.22, (ii) the warranties and
representations set forth in Section 4.29(c) hereof shall survive until such
time as the limitations period has run for determining the Tax treatment of the
transaction contemplated herein, and (iii) solely for purposes of determining
whether a claim for indemnification under Section 10.1(iii) hereof has been made
on a timely basis, and solely to the extent that in connection with the IPO, QSI
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws as a result of a breach of a representation or warranty
by the Company or Stockholder, 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. For purposes
of this Section 4, the term "Company" shall mean and refer to the Company and
all of its Subsidiaries.
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4.1 DUE ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and the Company is duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on its business in the places and in the manner as now
conducted, except (i) as set forth on Schedule 4.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the Company taken as a whole (as used herein with
respect to the Company, or with respect to any other person, a "Material Adverse
Effect"). Schedule 4.1 sets forth the jurisdiction in which the Company is
incorporated and contains a list of all such jurisdictions in which the Company
is authorized or qualified to do business. True, complete and correct copies of
the Certificate of Incorporation and Bylaws, each as amended, of the Company
(the "Charter Documents") are all attached hereto as Schedule 4.1. The stock
records of the Company, as heretofore made available to QSI, are correct and
complete in all material respects. There are no minutes in the possession of
the Company or the Stockholder that have not been made available to QSI, and all
of such minutes are correct and complete in all respects. Except as set forth
on Schedule 4.1, the most recent minutes of the Company, which are dated no
earlier than ten business days prior to the date hereof, affirm and ratify all
prior acts of the Company, and of its officers and directors on behalf of the
Company.
4.2 AUTHORIZATION. (i) The 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 and perform this Agreement, and all required approvals
of the equity holders and the Board of Directors of the Company have been
obtained.
4.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 4.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholder in the
amounts set forth in Schedule 4.3 and further, except as set forth on Schedule
4.3, 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 Stockholder 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 the preemptive rights
of any past or present equity holder of the Company.
4.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 4.4,
the Company has not acquired any Company Stock since January l, 1994. Except as
set forth on Schedule 4.4, (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
equity holders has been altered or changed in contemplation of the transactions
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contemplated hereby and/or the QSI Plan of Organization. Schedule 4.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the Company's stock and the material terms of such outstanding
options, warrants or other rights.
4.5 NO BONUS SHARES. Except as set forth on Schedule 4.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
4.6 SUBSIDIARIES. Schedule 4.6 attached hereto lists the name of each of
the Company's subsidiaries (each, a "Subsidiary"), and sets forth the number and
class of the authorized capital stock of each Subsidiary and the number of
shares or interests of each Subsidiary which are issued and outstanding, all of
which shares or interests (except as set forth on Schedule 4.6) are owned by the
Company, free and clear of all liens, security interests, pledges, voting
trusts, equities, restrictions, encumbrances and claims of every kind. Except
as set forth on Schedule 4.6, 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.
4.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 4.7 is a listing of
all names 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. Except as disclosed on Schedule 4.7, the Company has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
4.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 4.8, 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 directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Company ("Affiliates") since January 1, 1994.
4.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 4.9 are copies of
the following financial statements of the Company and any Subsidiaries (the
"Company Financial Statements"): the Company's audited Consolidated Balance
Sheets, if any, as of December 31, 1996, 1995 and 1994 and Consolidated
Statements of Income, Cash Flows and Retained Earnings, if any, for each of the
years in the three-year period ended December 31, 1996, and Consolidated
Statements of Income, Cash Flows and Retained Earnings for the nine-month period
ending September 30, 1997 and Consolidated Balance Sheets as of September 30,
1997 (September 30, 1997 being hereinafter referred to as the "Balance Sheet
Date"). Except as set forth on Schedule 4.9, such Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated. Except as set
forth on Schedule 4.9, such Consolidated Balance Sheets as of September 30,
1997, December 31, 1996, 1995 and 1994 present fairly the financial position of
the Company and each Subsidiary, if any, as of the dates indicated
5
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thereon, and such Consolidated Statements of Income, Cash Flows and Retained
Earnings present fairly the results of operations for the periods indicated
thereon.
4.10 LIABILITIES AND OBLIGATIONS. The Company has delivered to QSI an
accurate list (which is set forth on Schedule 4.10) as of the Balance Sheet Date
of (i) all 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 (other than liabilities
incurred in the ordinary course of business), (ii) any liabilities of the
Company in excess of $10,000 and (iii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, liens, pledges or other security
agreements in each case evidencing indebtedness in excess of $15,000, including
copies thereof. Except as set forth on Schedule 4.10, since the Balance Sheet
Date the Company has not incurred any material liabilities of any kind,
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to QSI on Schedule 4.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed or are being contested, the
following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation 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; and
(iii) the date such claim, suit or proceeding as instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which 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.
4.11 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to QSI
an accurate list (which is set forth on Schedule 4.11) 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 receivables from and advances to employees and the
Stockholder. The Company shall also provide to QSI (x) an accurate list of all
receivables obtained subsequent to the Balance Sheet Date up to the Closing Date
and (y) an aging of all accounts and notes receivable showing amounts due in 30
day aging categories (the "A/R Aging Reports"). Except to the extent reflected
on Schedule 4.11 or as disclosed by the Company to QSI in a writing accompanying
the A/R Aging Reports, the accounts, notes and other receivables shown on
Schedule 4.11 and on the A/R Aging Reports represent bona-fide obligations and
are and shall be collectible
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in the amounts shown, net of reserves reflected in the balance sheet as of the
Balance Sheet Date with respect to accounts receivable as of the Balance Sheet
Date, and net of reserves reflected in the books and records of the Company
(consistent with the methods used for the balance sheet) with respect to
accounts receivable of the Company after the Balance Sheet Date.
4.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have a Material Adverse Effect on its business, and the Company has delivered to
QSI an accurate list and summary description (which is set forth on Schedule
4.12) of all such licenses, franchises, permits and other governmental
authorizations, including permits, titles, licenses, franchises, certificates,
trademarks, trade names, patents, patent applications and copyrights owned or
held by the Company (including interests in software or other technology
systems, programs and intellectual property) (it being understood and agreed
that a list of all environmental permits and other environmental approvals is
set forth on Schedule 4.13). To the Knowledge of the Company, the licenses,
franchises, permits and other governmental authorizations listed on Schedules
4.12 and 4.13 are valid, and the Company has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The Company has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 4.12 and 4.13
and is not in violation of any of the foregoing except where such noncompliance
or violation would not have a Material Adverse Effect on the Company. Except as
specifically provided on Schedule 4.12, 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, franchises, permits or government authorizations.
4.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 4.13, (i)
the Company has complied with and is in compliance with all federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations
and rules, and all judgments, orders and decrees to which it is a party,
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) the Company has obtained and adhered to all necessary permits and
other approvals necessary to treat, transport, store, dispose of and otherwise
handle Hazardous Wastes and Hazardous Substances, a list of all of which permits
and approvals is set forth on Schedule 4.13; (iii) there have been no releases
or threats of releases (as defined in Environmental Laws) at, from, in or on any
property owned or operated by the Company except as permitted by Environmental
Laws; (iv) the Company Knows of no on-site or off-site location to which the
Company has transported or disposed of Hazardous Wastes and Hazardous Substances
or arranged for the transportation of Hazardous Wastes and Hazardous Substances,
which site is the subject of any federal, state, local or foreign enforcement
action or any other investigation which could lead to any claim against the
Company or QSI for any clean-up cost, remedial work, damage to natural
resources, property damage or personal injury, including, but not limited to,
any claim under the Comprehensive Environmental Response,
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Compensation and Liability Act of 1980, as amended; and (v) the Company has no
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
4.14 PERSONAL PROPERTY. The Company has delivered to QSI an accurate list
(which is set forth on Schedule 4.14) of (x) all personal property included in
"depreciable plant, property and equipment" on the balance sheet of the Company
as of the Balance Sheet Date or that will be included on any balance sheet of
the Company prepared after the Balance Sheet Date, (y) all other personal
property owned by the Company with a value in excess of $10,000 (i) as of the
Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all
leases and agreements in respect of personal property with a value in excess of
$10,000, including, true, complete and correct copies of all such leases and
agreements. The Company shall indicate on Schedule 4.14 those assets leased or
used by the Company that are currently owned, or that were formerly owned, by
Stockholder, relatives of Stockholder, or Affiliates of the Company. Except as
set forth on Schedule 4.14, (i) all personal property 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 4.14, (ii) all of the personal property listed on
Schedule 4.14 is in good working order and condition, ordinary wear and tear
excepted and (iii) all leases and agreements included on Schedule 4.14 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.
The Assets constitute all of the property and assets used in, and/or
necessary to operate, the business of the Company as it is now being conducted
and as contemplated to be conducted on and after the Funding and Consummation
Date.
4.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to QSI an accurate list (which is set forth on Schedule
4.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 4.15, means a customer (or
person or entity) representing 5% or more of the Company's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 4.15, none
of the Company's significant customers (or persons or entities that are sources
of a significant number of customers) have canceled or substantially reduced or,
to the Knowledge of the Company, are currently attempting or threatening to
cancel a contract or substantially reduce utilization of the services provided
by the Company.
The Company has listed on Schedule 4.15 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 contracts, commitments and agreements otherwise listed on Schedules
4.10, 4.14 or 4.16, (a) in existence as of the Balance Sheet Date and (b)
entered into since the Balance Sheet Date, and in each case has delivered or
made available true, complete and correct copies of such agreements to QSI. The
Company has complied with all material commitments and obligations pertaining to
it, and is not in default under any contracts or agreements listed on Schedule
4.15 and no notice of
8
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default under any such contract or agreement has been received. Where required
under such contracts or agreements, the Company has furnished notice of the QSI
Plan of Organization to third parties and has, where required, obtained consent
from third parties to enter into the transactions contemplated by this
Agreement. The Company has also indicated on Schedule 4.15 a summary description
of all plans or projects involving the opening of new operations, expansion of
existing operations, the acquisition of any personal property, business or
assets requiring, in any event, the payment of more than $50,000 by the Company.
Notwithstanding the foregoing, it is agreed and understood that the
Company's customers competitively bid most contracts and that there can be no
assurance that the Company will win future competitive bids.
4.16 REAL PROPERTY. Schedule 4.16 includes a list of all real property
owned or leased by the Company (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other interests in real property,
if any, used by the Company in the conduct of its business. The Company has good
and insurable title to the real property owned by it, including those reflected
on Schedule 4.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 4.10 or 4.16 as securing specified
liabilities (with respect to which no 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 shown of record in the office of the Registry of Deeds for the County
in which the properties, assets and leasehold estates are located which do
not materially adversely affect the current use of the property.
Schedule 4.16 contains, without limitation, true, complete and correct
copies of all title reports and title insurance policies currently in possession
of the Company with respect to real property owned by the Company.
The Company has also delivered to QSI an accurate list of real property
leased by the Company (which list is set forth on Schedule 4.16), together with
true, complete and correct copies of all leases and agreements in respect of
such real property leased by the Company (which copies are attached to Schedule
4.16), and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by Stockholder or business or personal affiliates
of the Company or Stockholder. Except as set forth on Schedule 4.16, all of
such leases included on Schedule 4.16 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.
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4.17 INSURANCE; BONDING. (a) The Company has delivered to QSI, as set
forth on and attached to Schedule 4.17, (i) an accurate list as of the Balance
Sheet Date of all insurance policies carried by the Company, (ii) an accurate
list and copies of all insurance loss runs for the past five (5) policy years
and (iii) true, complete and correct copies of all insurance policies which were
in effect the past three (3) years and which are currently in effect. Such
insurance policies evidence all of the insurance that 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 Funding and
Consummation Date. No insurance carried by the Company has ever been canceled by
the insurer and the Company has never been unable to obtain insurance coverage
for its assets and operations.
(b) Schedule 4.17 includes an accurate list of all performance bonds
securing obligations of the Company, together with the amount bonded and any
guaranty issued by Stockholder or other third party with respect thereto.
4.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to QSI an accurate list (which is set forth on Schedule
4.18) showing all officers, directors and key employees of the Company, listing
all employment and severance 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 (i)
as of the Balance Sheet Date and (ii) as of the date hereof. The Company has
provided to QSI true, complete and correct copies of any employment agreements
for persons listed on Schedule 4.18. Since the Balance Sheet Date, 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, or except as
set forth on Schedule 4.18.
Except as set forth on Schedule 4.18, (i) the Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
arrangement with any labor union, (ii) no employees of the Company are
represented by any labor union or covered by any collective bargaining
agreement, (iii) no campaign to establish such representation is in progress and
(iv) there is no pending or, to the best of the Company's 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.
4.19 EMPLOYEE PLANS. The Company has delivered to QSI an accurate schedule
(Schedule 4.19) showing all employee benefit plans currently sponsored or
maintained or contributed to by, or which cover the current or former employees
or directors of the Company, all employment and severance agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and all 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. Except for the employee benefit plans, if any, described on Schedule
4.19, the Company does not sponsor, maintain or contribute to any plan, program,
fund or arrangement that constitutes an "employee pension benefit plan," nor has
the
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Company 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, agreements, arrangement and trusts set forth
on Schedule 4.19, nor is the Company 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 otherwise listed on Schedule 4.19, the Company is not now, and
cannot 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.
Except as otherwise listed on Schedule 4.19, all employee benefit plans,
agreements, arrangements and trusts listed on Schedule 4.19 and the
administration thereof are in substantial compliance 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.
Except as otherwise listed on Schedule 4.19, all accrued contribution
obligations of the Company with respect to any plan listed on Schedule 4.19 have
either been fulfilled in their entirety or are fully reflected on the balance
sheet of the Company as of the Balance Sheet Date.
4.20 COMPLIANCE WITH ERISA. Except as disclosed on Schedule 4.19, all
such plans, agreements, arrangements and trusts of the Company that are
currently maintained or contributed to by the Company or cover employees or
former employees of the Company listed on Schedule 4.19 that are intended to
qualify under Section 401(a) of the Code (the "Qualified Plans") are, and have
been so qualified and have been determined by the Internal Revenue Service to
be so qualified. Except as disclosed on Schedule 4.19, 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, audit reports or Tax Returns) have been timely filed or distributed.
Except as disclosed on Schedule 4.19, neither Stockholder, any such plan listed
on Schedule 4.19, nor the Company has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA.
Except as disclosed on Schedule 4.19, no such plan listed on Schedule 4.19 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) 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 Stockholder further represent
that:
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(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice of and approval by
the Internal Revenue Service;
(ii) no such plan listed on Schedule 4.19 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 on
Schedule 4.19;
(iv) the Company 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 multi employer plan or the Pension Benefit Guaranty
Corporation 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.
4.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedules 4.21 or 4.13, the Company is not in violation of any law or regulation
which would have a Material Adverse Effect, or of any order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over the Company; and
except to the extent set forth on Schedules 4.10 or 4.13, there are no claims,
actions, suits or proceedings, commenced or, to the Knowledge of the Company,
threatened, against or affecting the Company, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over the Company
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in applicable federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 4.12 and 4.13, and is not in violation of any of the foregoing.
4.22 TAXES. (i) For purposes of this Section 4.22 only, the term
"Company" shall include each Subsidiary, if any.
(ii) All Returns required to have been filed by the Company have
been timely filed (taking into account duly granted extensions) and are
true, correct and complete in all respects. Except as disclosed in Schedule
4.22, (i) the Company is not currently the beneficiary of any extension of
time within which to file any Return, and (ii) no claim has ever been made
by any governmental authority in a jurisdiction where the Company does not
file
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Returns that the Company is or may be subject to taxation by that
jurisdiction, which claim has not been resolved as of the date hereof.
(iii) All Taxes of the Company which have become due (without regard
to any extension of the time for payment and whether or not shown on any
Return) have been paid. The Company has withheld and paid over all Taxes
required to have been withheld and paid over by it and has complied with
all information reporting and back-up withholding requirements relating to
Taxes. There are no liens with respect to Taxes on any of the assets of
the Company, other than liens for Taxes not yet due and payable or for
Taxes disclosed in Schedule 4.22 that are being contested in good faith
through appropriate proceedings and for which adequate reserves have been
established in the Company Financial Statements.
(iv) The unpaid Taxes of the Company for all periods ending on or
before the Balance Sheet Date did not exceed the amount of the current
liability accruals for Taxes (exclusive of reserves for deferred Taxes
established to reflect timing differences) reflected on the face of the
balance sheet of the Company as of the Balance Sheet Date, and the unpaid
Taxes of the Company for all periods ending on or before the Funding and
Consummation Date will not exceed the amount of such current liability
accruals reflected on the balance sheet of the Company as of September 30,
1997 as adjusted for Company operations in the ordinary course of business
through the Funding and Consummation Date in accordance with generally
accepted accounting principles applied on a consistent basis and, to the
extent consistent therewith, the most recent custom and practices of the
Company.
(v) No deficiencies exist or have been asserted or are expected to
be asserted (verbally or in writing) with respect to Taxes of the Company
and the Company has not received notice nor does it expect to receive
notice (verbally or in writing) that it has not filed a Return or paid any
Taxes required to be filed or paid by it. No audit, examination,
investigation, action, suit, claim or proceeding relating to the
determination, assessment or collection of any Tax of the Company is
currently in process, pending or threatened (verbally or in writing).
Except as disclosed in Schedule 4.22, no waiver or extension of any statute
of limitations relating to the assessment or collection of any Tax of the
Company is in effect. There are no outstanding requests for rulings with
any Tax authority relating to Taxes of the Company.
(vi) Except as disclosed in Schedule 4.22, the Company is not and
has never been (i) a party to any tax sharing agreement or arrangement
(formal or informal, verbal or in writing), or (ii) a member of an
affiliated group of corporations (within the meaning of Code Section 1504)
filing a consolidated federal income Return, or any similar group under
analogous provisions of other law.
(vii) The Company is not liable for the unpaid Taxes of any person
other than the Company under Treasury Regulation Section 1.1502-6 or any
similar provision of state, local or foreign law, or by contract or
otherwise.
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(viii) The Company has delivered to QSI true and complete copies of
all federal, state, local and foreign income Returns filed by the Company
for its three (3) most recently ended taxable years, together with all
related examination reports, statements of deficiencies and closing and
other agreements. Schedule 4.22 indicates which, if any, of such Returns
have been, or currently are, the subject of any audit, examination or other
Tax proceeding.
(ix) The Company (i) has not filed a consent under Code Section
341(f) concerning collapsible corporations; (ii) has not made any payments,
obligated itself to make any payments or become a party to any agreement
that under any circumstance could obligate it or any successor or assignee
of it to make any payments that are not or will not be deductible under
Code Section 280G, or that would be subject to excise Tax under Code
Section 4999; (iii) is not a "foreign person" as defined in Code Section
1445(f)(3); (iv) is not and has not been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii); (v) does not
own and has not owned any interest in any "controlled foreign corporation"
as defined in Code Section 957 or "passive foreign investment company" as
defined in Code Section 1296; (vi) is not and has not been a party to any
agreement or arrangement for which partnership Returns are required to be
filed; (vii) does not own any asset that is subject to a "safe harbor
lease" within the meaning of Code Section 168(f)(8), as in effect prior to
amendment by the Tax Equity and Fiscal Responsibility Act of 1982; (viii)
does not own any "tax-exempt use property" within the meaning of Code
Section 168(h) or "tax exempt bond financed property" within the meaning of
Code Section 168(g)(5); and (ix) has not agreed to and is not required to
make any adjustment under Code Section 481(a) by reason of a change in
accounting method or otherwise.
(x) The Company is an S corporation within the meaning of Code
Section 1361(a)(1) for which a valid election has been made pursuant to
Code Section 1362(a) (the "S Corporation Election"). Except as set forth in
Schedule 4.22, the S Corporation Election has been in effect from the date
of inception of the Company and will continue to be in effect until the
Funding and Consummation Date. The Company has never been and is not (i)
subject to any Tax as a C corporation within the meaning of Code Section
1361(a)(2) or (ii) subject to any Tax on net recognized built-in gain under
Code Section 1374.
4.23 NO VIOLATIONS. The Company is not in violation of any Charter
Document. Neither the Company nor, to the Knowledge of the Company, any other
party thereto, is in default under any lease, instrument, agreement, license or
permit set forth on Schedules 4.12, 4.13, 4.14, 4.15 or 4.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth on Schedule 4.23, (a) the
rights and benefits of the Company under the Material Documents will not be
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 4.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third
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party with respect to any of the transactions contemplated hereby in order to
remain in full force and effect, and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit. Except as set forth on Schedule
4.23, none of the Material Documents by its terms prohibits the use or
publication by the Company or QSI 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 to any other customer or potential
customer of the Company, QSI or any Other Founding Company.
4.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 4.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
4.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 4.25 or any other Schedule of the Company attached hereto,
there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of 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;
(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, Stockholder, 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, materially adversely affecting the
business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Company to any person,
including, without limitation, the Stockholder and its affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of Stockholder 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 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 material breach, amendment or termination of any 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.
4.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered
to QSI an accurate schedule (which is set forth on Schedule 4.26) 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 4.26 also sets forth a complete list of the names 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.
4.27 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,
enforceable against the Company in accordance with its terms except as limited
by bankruptcy, insolvency or other similar laws of general application relating
to or affecting the
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enforcement of creditors' rights generally, and the individual(s) signing this
Agreement on behalf of the Company have the legal power, authority and capacity
to bind the Company.
4.28 RELATIONS WITH GOVERNMENTS. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action 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.
4.29 DISCLOSURE. (a) This Agreement, including the schedules hereto and
all other documents and information made available to QSI and its
representatives in writing pursuant hereto or thereto, present fairly the
business and operations of the Company for the time periods with respect to
which such information was requested. The Company's rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the Company is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the Company (which fact
or circumstance was, or should reasonably, after due inquiry, have been known to
the Company) that is not disclosed pursuant hereto or thereto.
(b) The Company and the Stockholder 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 at a
particular price or within a particular range of prices or occur at all; and
(ii) that, except as otherwise expressly provided elsewhere in this Agreement,
neither QSI nor any of its officers, directors, agents or representatives nor
any Underwriter shall have any liability to the Company, the Stockholder 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.
(c) No Stockholder has any present plan, intention, commitment, binding
agreement or arrangement to dispose of any shares of QSI Stock to be received by
such Stockholder as a result of the transactions contemplated by this Agreement,
and each Stockholder agrees that, for a period of two years from the Funding and
Consummation Date, except pursuant to Section 16 hereof, he or she will not
dispose of any shares of QSI Stock received by them as described in Section 2.1.
4.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 4.30 or
as contemplated by Annex I, the Company has not, between the Balance Sheet Date
and the date hereof, taken any of the actions set forth in Section 6.3
(Prohibited Activities).
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder represents and warrants that the representations and warranties
set forth below are true as of the date of this Agreement and, subject to
Section 6.8 hereof, shall be true at the time of Closing and on the Funding and
Consummation Date, and that the representations and warranties
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set forth in Sections 4.31 and 4.32 shall survive until the second anniversary
of the Funding and Consummation Date, which shall be the Expiration Date for
purposes of those Sections.
4.31 AUTHORITY; OWNERSHIP. Stockholder has the full legal right, power and
authority to enter into this Agreement. Stockholder owns beneficially and of
record all of the shares of the Company Stock identified on Schedule 4.31 as
being owned by Stockholder, and, except as set forth on Schedule 4.31, such
Company Stock is owned free and clear of all liens, encumbrances and claims of
every kind.
4.32 PREEMPTIVE RIGHTS. Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock that
Stockholder has or may have had on the date hereof other than rights of
Stockholder to acquire QSI Stock pursuant to any option granted by QSI.
5. REPRESENTATIONS OF QSI
QSI represents and warrants that all of the following representations and
warranties in this Section 5 are true at the date of this Agreement and, subject
to Section 6.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date, and that such representations and warranties shall survive
the Funding and Consummation Date for a period of two years (the last day of
such period being the "Expiration Date"), except that (i) the warranties and
representations set forth in Section 5.13 hereof shall survive until such time
as the limitations period has run for all Tax periods ended on or prior to the
Funding and Consummation Date, which shall be deemed to be the Expiration Date
for Section 5.13 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 10.2(iv) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, QSI 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.
5.1 DUE ORGANIZATION. QSI is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Certificate of Incorporation
and Bylaws, each as amended, of QSI (the "QSI Charter Documents") are all
attached hereto as Schedule 5.1.
5.2 AUTHORIZATION. (i) The representative of QSI executing this Agreement
has the authority to enter into and bind QSI to the terms of this Agreement and
(ii) QSI has the full legal right, power and authority to enter into and perform
this Agreement.
5.3 CAPITAL STOCK OF QSI. Immediately prior to the Funding and
Consummation Date, the authorized capital stock of QSI will consist of at least
40,000,000 shares of QSI Stock, of which
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the number of issued and outstanding shares will be as set forth in the
Registration Statement, and 5,000,000 shares of preferred stock, $.01 par value,
of which no shares will be issued and outstanding. All of the issued and
outstanding shares of the capital stock of QSI are owned by the persons set
forth on Schedule 5.3 hereof, in each case, free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions, encumbrances
and claims of every kind. Upon consummation of the IPO, the number of
outstanding shares of QSI will be as set forth in the Registration Statement.
All of the issued and outstanding shares of the capital stock of QSI have been
duly authorized and validly issued, are fully paid and nonassessable, are owned
of record and beneficially by the persons set forth on Schedule 5.3, and
further, such shares were offered, issued, sold and delivered by QSI in
compliance with all applicable state and federal laws concerning the issuance of
securities. Further, none of such shares was issued in violation of the
preemptive rights of any past or present Stockholder of QSI.
5.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and
except as set forth on Schedule 5.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates QSI to issue any of its
authorized but unissued capital stock; and (ii) QSI 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. Schedule 5.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of QSI.
5.5 SUBSIDIARIES. QSI has no subsidiaries except for the companies to
become subsidiaries of QSI pursuant to this Agreement and each of the Other
Agreements as of the Funding and Consummation Date. Except as set forth in the
preceding sentence, QSI 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, and QSI is not, directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity.
5.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.6 are copies of
the following financial statements (the "QSI Financial Statements") of QSI,
which reflect the results of its operations from inception: FCI's unaudited
Balance Sheet as of September 30, 1997 and Statements of Income, Cash Flows and
Retained Earnings for the period from inception through September 30, 1997.
Such QSI 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 or on Schedule 5.6). Except as set
forth on Schedule 5.6, such Balance Sheets as of September 30, 1997 present
fairly the financial position of QSI as of such date, and such statements of
Income, Cash Flows and Retained Earnings present fairly the results of
operations for the period indicated.
5.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 5.7, QSI
has no material liabilities, contingent or otherwise, except as set forth in or
contemplated by this Agreement
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and the Other Agreements and except for fees and expenses incurred in connection
with the transactions contemplated hereby and thereby.
5.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.8, QSI is not in violation of any law or regulation which would have
a Material Adverse Effect, or of any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over QSI; and except to the extent set forth
on Schedule 5.8, there are no material claims, actions, suits or proceedings,
pending or, to the Knowledge of QSI, threatened, against or affecting QSI, 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 QSI and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. QSI has conducted
and is conducting its business in compliance with the requirements, standards,
criteria and conditions set forth in applicable federal, state and local
statutes, ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing. Assuming the
representations and warranties of the Company and the Stockholder contained
herein are complete and correct in all respects (other than representations and
warranties with respect to compliance with laws), this Agreement does not
violate any federal or state securities laws, rules or regulations.
5.9 NO VIOLATIONS. QSI is not in violation of any QSI Charter Document.
Neither QSI or, to the Knowledge of QSI, any other party thereto, is in default
under any lease, instrument, agreement, license or permit to which QSI is a
party, or by which QSI or any of its properties are bound (collectively, the
"QSI Documents"); and (a) the rights and benefits of QSI under the QSI Documents
will not be adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any violation or breach or constitute a default under, any of the terms or
provisions of the QSI Documents or the QSI Charter Documents. Except as set
forth on Schedule 5.9, none of the QSI Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
5.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by QSI and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of QSI and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of QSI, enforceable against QSI in
accordance with its terms except as limited by bankruptcy, insolvency or other
similar laws of general application relating to or affecting the enforcement of
creditors' rights generally, and the individual signing this Agreement on behalf
of QSI has the legal power, authority and capacity to bind QSI.
5.11 QSI STOCK. At the time of issuance thereof, the QSI Stock to be
delivered to the Stockholder pursuant to this Agreement will constitute valid
and legally issued shares of QSI, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 14 and
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15 hereof, will be identical in all material and substantive respects to the QSI
Stock issued and outstanding as of the date hereof and the QSI Stock to be
issued pursuant to the Other Agreements by reason of the provisions of the
Delaware GCL. The shares of QSI Stock to be issued to the Stockholder pursuant
to this Agreement will not be registered under the 1933 Act, except as provided
in Section 16 hereof.
5.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. QSI has not
conducted any operations or business since inception other than activities
related to the QSI Plan of Organization. QSI 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 agreement, except as listed on Schedule 5.12 and except that
QSI is a party to the Other Agreements and the agreements contemplated thereby
and to such agreements as will be filed as Exhibits to the Registration
Statement.
5.13 TAXES. (i) All Returns required to have been filed by QSI have
been timely filed (taking into account duly granted extensions) and are true,
correct and complete in all respects. Except as disclosed in Schedule 5.13, (i)
QSI is not currently the beneficiary of any extension of time within which to
file any Return, and (ii) no claim has ever been made by any governmental
authority in a jurisdiction where QSI does not file Returns that QSI is or may
be subject to taxation by that jurisdiction.
(ii) All Taxes of QSI which have become due (without regard to any
extension of the time for payment and whether or not shown on any Return)
have been paid. QSI has withheld and paid over all Taxes required to have
been withheld and paid over and has complied with all information reporting
and back-up withholding requirements relating to Taxes. There are no liens
with respect to Taxes on any of the assets of QSI, other than liens for
Taxes not yet due and payable or for Taxes disclosed in Schedule 5.13 that
are being contested in good faith through appropriate proceedings and for
which adequate reserves have been established in the QSI Financial
Statements.
(iii) No deficiencies exist or have been asserted or are expected to
be asserted (verbally or in writing) with respect to Taxes of QSI and QSI
has not received notice nor does it expect to receive notice (verbally or
in writing) that it has not filed a Return or paid any Taxes required to be
filed or paid by it. No audit, examination, investigation, action, suit,
claim or proceeding relating to the determination, assessment or collection
of any Tax of QSI is currently in process, pending or threatened (verbally
or in writing). Except as disclosed in Schedule 5.13, no waiver or
extension of any statute of limitations relating to the assessment or
collection of any Tax of QSI is in effect. There are no outstanding
requests for rulings with any Tax authority relating to Taxes of QSI.
5.14 NO INTENTION TO DISPOSE OF COMPANY STOCK. QSI is acquiring the
Company Stock pursuant hereto for its own account for investment purposes and
does not have any present plan, intention, commitment, binding agreement, or
arrangement to dispose of the Company Stock.
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5.15 OTHER FOUNDING COMPANIES. QSI has reviewed representations and
warranties from the Other Founding Companies in the Other Agreements that are
substantially similar to those made by the Company and the Shareholders herein.
6. COVENANTS PRIOR TO CLOSING
6.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of QSI and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish QSI with such additional financial and operating data and other
information as to the business and properties of the Company as QSI or the Other
Founding Companies may from time to time reasonably request. The Company will
cooperate with QSI and the Other Founding Companies and their respective
representatives, including FCI's auditors and counsel, in the preparation of any
documents or other material (including the Registration Statement) which may be
required in connection with any documents or materials required by this
Agreement. QSI, the Stockholder and the Company shall treat all information
obtained in connection with the negotiation and performance of this Agreement or
the due diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Section 13
hereof. In addition, QSI will cause each of the Other Founding Companies to
enter into a provision similar to this Section 6.1 requiring each such Other
Founding Company, its Stockholders, directors, officers, representatives,
employees and agents to keep confidential any information obtained by such Other
Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, QSI will afford to the officers and authorized representatives of the
Company access to all of FCI's sites, properties, books and records and all due
diligence, agreements, documents and information of or concerning the Founding
Companies and will furnish the Company with such additional financial and
operating data and other information as to the business and properties of QSI as
the Company may from time to time reasonably request. QSI 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 13 hereof.
6.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company shall, except (x)
as set forth on Schedule 6.2, (y) as requested by QSI or (z) as consented to by
QSI (which consent shall not be unreasonably withheld):
(i) carry on its business in substantially the same manner as it
has heretofore and not introduce any new method of management, operation or
accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
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(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) maintain and preserve its business organization intact, use its
best efforts to retain its present key employees and relationships with
suppliers, customers and others having business relations with the Company;
(vi) maintain compliance with all 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 and not enter into
new or amended debt or lease instruments, provided that debt and/or lease
instruments may be replaced if such replacement instruments are on terms at
least as favorable to the Company as the instruments being replaced; and
(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.
6.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 6.3 or as set
forth on Annex I, between the date hereof and the Funding and Consummation Date,
the Company shall not, without prior written consent of QSI:
(i) make any change in its Articles of Incorporation or Bylaws;
(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 on Schedule 4.4;
(iii) 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 $10,000;
(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
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equipment with an aggregate cost not in excess of $10,000 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 in the Company Financial Statements) 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 Schedules 4.10 and/or 8.16 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(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 or claims in the ordinary
course of business in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included on
Schedule 4.11 unless specifically listed thereon;
(x) commit a material breach or, except in the ordinary course of
business consistent with past practices, 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.
6.4 NO SHOP. None of the Stockholder, the Company, or 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 Funding and 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 or entity for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person or entity other than QSI
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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6.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide QSI on Schedule 6.5 with proof that any required notice has been sent.
6.6 AGREEMENTS. The Stockholder and the Company shall terminate (i) any
Stockholder agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
7.11 hereto and (ii) any existing agreement between the Company and Stockholder,
on or prior to the Funding and Consummation Date. Copies of such termination
agreements are listed on Schedule 6.6 and copies thereof are attached hereto.
6.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholder and the Company
shall give prompt notice to QSI 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 the Company or the Stockholder contained herein to
be untrue or inaccurate in any material respect at or prior to the Closing and
(ii) any material failure of Stockholder or the Company to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
such person hereunder. QSI 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 QSI contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of QSI 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 6.7 that is not
accompanied by a proposed amendment or supplement to a schedule pursuant to
Section 6.8 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 6.8, (ii) modify the conditions set forth in Sections 7
and 8, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
6.8 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 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, provided, however, that
supplements and amendments to Schedules 4.10, 4.11, 4.14, 4.15 and 4.18 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 may be made unless QSI and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a schedule prepared by QSI that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect 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 7.1 and 8.1 have been
fulfilled,
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the Schedules hereto shall be deemed to be the schedules as amended or
supplemented pursuant to this Section 6.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a schedule pursuant to Section
6.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, QSI shall give the Company notice promptly after it
has Knowledge thereof. If QSI and a majority of the Founding Companies consent
to such amendment or supplement, which consent shall have been deemed given by
QSI or any Founding Company if no response is received within 72 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the Company does not
give its consent, the Company may terminate this Agreement pursuant to Section
11.l(iv) hereof. In the event that the Company seeks to amend or supplement a
Schedule pursuant to this Section 6.8, and QSI and a majority of the Other
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
11.1(i) hereof. In the event that QSI seeks to amend or supplement a Schedule
pursuant to this Section 6.8 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 11.1(i) hereof. No party to
this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 6.8.
6.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholder shall furnish or cause to be furnished to QSI and the Underwriters
all of the information concerning the Company and the Stockholder required for
inclusion in, and will cooperate with QSI 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 Company and the Stockholder agree promptly to
advise QSI if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the 1933 Act, any information
contained in the prospectus concerning the Company or the Stockholder becomes
incorrect or incomplete in any material respect, and to provide the information
needed to correct such inaccuracy. QSI will give the Company and the Stockholder
an opportunity to review and comment on the Registration Statement and all
amendments thereto prior to filing. Insofar as the information relates solely
to the Company or the Stockholder, the Company represents and warrants as to
such information with respect to itself, and 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 in
which they were made, not misleading and that Stockholder and the Company has
had the opportunity to review and approve such information. If, prior to the
25th day after the date of the final prospectus of QSI utilized in connection
with the IPO, the Company or the Stockholder become aware of any fact or
circumstance which would change (or, if after the Funding and Consummation Date,
would have changed) a representation or warranty of the Company or the
Stockholder in this Agreement or would affect any document delivered pursuant
hereto in any material respect, the Company and the Stockholder shall
immediately give notice of such fact or circumstance to QSI. However, subject
to the provisions of Section 6.8, such notification shall not relieve either the
Company or the Stockholder of their
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respective obligations under this Agreement, and, subject to the provisions of
Section 6.8, at the sole option of QSI, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholder at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
6.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to
the Funding and Consummation Date, and QSI shall have had sufficient time to
review, 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 financial condition of the Company or the
results of its operations from the financial statements as of the Balance Sheet
Date. Except as set forth on Schedule 6.10, 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 thereon and shall be for such dates and time periods as
required by Regulation S-X under the 1933 Act and the 1934 Act.
6.11 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 convenient
to carry out the transactions contemplated hereby.
6.12 AUTHORIZED CAPITAL. QSI shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
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 QSI Stock.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND COMPANY
The obligations of Stockholder 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. The obligations
of the Stockholder and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 7.2, 7.3, 7.8 and 7.9. From and after the Closing Date or, with
respect to the conditions set forth in Sections 7.2, 7.3, 7.8 and 7.9, from and
after the Funding and Consummation Date, all conditions not satisfied shall be
deemed to have been waived, except that no such waiver shall be deemed to affect
the survival of the representations and warranties of QSI contained in Section 5
hereof:
7.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
QSI contained in Section 5 shall be true and correct in all material respects as
of the Closing Date as though such representations and warranties had been made
as of that time; and a certificate to the
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foregoing effect dated the Closing Date and signed by the President or any Vice
President of QSI shall have been delivered to the Stockholder.
7.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by QSI on or
before the Closing Date and the Funding and 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 Funding and Consummation
Date and signed by the President or any Vice President of QSI shall have been
delivered to the Stockholder.
7.3 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 transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of the
Company as a result of which the management of the Company deems it inadvisable
to proceed with the transactions hereunder.
7.4 OPINION OF COUNSEL. The Company and the Underwriters shall have
received an opinion from counsel for QSI, dated the Closing Date, in the form
mutually agreed upon by the parties. The Company and the Stockholders shall
also have received a written opinion from, at the discretion of QSI, either
Jackson Walker L.L.P. or Arthur Andersen, L.L.P., which satisfactorily
concludes that the exchange of Company Stock for QSI Stock will qualify as a
transaction meeting the requirements of Section 351 of the Code. In rendering
such opinion, the opinion given may require and, to the extent it deems
necessary or appropriate, may rely upon representation made in certificates of
officers of QSI and the Company.
7.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire shares of QSI Stock 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 QSI Stock to be received
by the Stockholder is not less than the amount set forth on Annex I as adjusted
as permitted herein.
7.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made.
7.7 GOOD STANDING CERTIFICATES. QSI 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
QSI is authorized to do business, showing that QSI is in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for QSI for all periods prior to the Closing have been filed and paid.
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7.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to QSI which would constitute a Material Adverse Effect,
and QSI 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 QSI to conduct its business.
7.9 CLOSING OF IPO. The closing of the sale of the QSI Stock to the
Underwriters in the IPO and the acquisitions of the Other Founding Companies
pursuant to the Other Agreements shall have occurred simultaneously with the
Funding and Consummation Date hereunder.
7.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of QSI, certifying the truth and correctness of attached copies of FCI's
Certificate of Incorporation (including amendments thereto), Bylaws (including
amendments thereto), and resolutions of the board of directors and, if required,
the Stockholders of QSI approving FCI's entering into this Agreement and the
consummation of the transactions contemplated hereby. Such certificate or
certificates also shall be addressed to the Underwriters and copies thereof
shall be delivered to the Underwriters.
7.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
7.11 shall have been afforded the opportunity to enter into an employment
agreement substantially in the form of Annex II hereto.
7.12 DIRECTORS AND OFFICERS INSURANCE. QSI shall have obtained Directors
and Officers Liability Insurance in amounts that are customary and commercially
reasonable.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF QSI
The obligations of QSI 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. The obligations of QSI with respect to
actions to be taken on the Funding and Consummation Date are subject to the
satisfaction or waiver on or prior to the Funding and Consummation Date of the
conditions set forth in Sections 8.2, 8.3, 8.5 and 8.13. From and after the
Closing Date or, with respect to the conditions set forth in Sections 8.2, 8.3,
8.5 and 8.13, from and after the Funding and Consummation Date, all conditions
not satisfied shall be deemed to have been waived, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the Company contained in Section 4 hereof.
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
the Stockholder and the Company contained in this Agreement shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date with the same effect as though such representations and
warranties had been made on and as of such date; and the Stockholder shall have
delivered to QSI certificates dated the Closing Date and signed by them to such
effect.
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8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the Stockholder and the
Company on or before the Closing Date or the Funding and Consummation Date, as
the case may be, shall have been duly performed or complied with in all material
respects; and the Stockholder and the Company shall have delivered to QSI
certificates dated the Closing Date and the Funding and Consummation Date,
respectively, and signed by them to such effect.
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 transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of QSI as a
result of which the management of QSI deems it inadvisable to proceed with the
transactions hereunder.
8.4 SECRETARY'S CERTIFICATE. QSI 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), Bylaws (including amendments
thereto), and resolutions of the board of directors and the Stockholder
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby. Such certificate also shall be addressed to
the Underwriters and a copy thereof shall be delivered to the Underwriters.
8.5 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.
8.6 STOCKHOLDER'S RELEASE. The Stockholder shall have delivered to QSI an
instrument dated the Closing Date releasing the Company from (i) any and all
claims of the Stockholder against the Company and (ii) obligations of the
Company to the Stockholder, except for (x) items specifically identified on
Schedules 4.10 and 4.16 as being claims of or obligations to the Stockholder,
(y) continuing obligations to Stockholder relating to their employment by the
Company and (z) obligations arising under this Agreement or the transactions
contemplated hereby.
8.7 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the Company and the Stockholder shall have been canceled effective prior
to or as of the Funding and Consummation Date.
8.8 OPINION OF COUNSEL. QSI shall have received an opinion from Counsel
to the Company and the Stockholder, dated the Closing Date, in the form
mutually agreed to by the parties, and the Underwriters shall have received a
copy of the same opinion addressed to the Underwriters.
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8.9 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 and all
consents and approvals of third parties listed on Schedule 4.23 shall have been
obtained.
8.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to QSI 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 QSI, 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.
8.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
8.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 7.11
shall have entered into an employment agreement substantially in the form of
Annex II hereto.
8.13 CLOSING OF IPO. The closing of the sale of the QSI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.14 FIRPTA CERTIFICATE. Stockholder shall have delivered to QSI a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury Regulations promulgated under the Code.
8.15 INSURANCE. QSI shall have been named as an additional insured on
all liability, theft, casualty and property insurance policies of the Company
and certificates of insurance to that effect shall have been delivered to QSI.
8.16 LOCKUP AGREEMENT. Stockholder shall have signed an agreement
with the Underwriters, in form and substance identical to agreements signed by
the Founding Stockholders in connection with the Other Agreements, by which
Stockholder covenants to hold all of the QSI Stock acquired hereunder for a
period of at least 180 days after the Funding and Consummation Date.
9. COVENANTS OF QSI AND THE STOCKHOLDER AFTER CLOSING
9.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. QSI shall,
within ninety (90) days of the Funding and Consummation Date, use commercially
reasonable efforts to have the Stockholder and the spouse of Stockholder
released from any and all indemnities on bonds and
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guarantees on any indebtedness or contractual obligations that they personally
guaranteed and from any and all pledges of assets that they pledged to secure
such indebtedness for the benefit of the Company, with all such indemnities on
bonds and guarantees on indebtedness or contractual obligations being assumed by
QSI. QSI shall indemnify and hold harmless Stockholder and the spouse of
Stockholder from the payment of any indemnities on bonds, guaranties on any
indebtedness or contractual obligations that they personally guaranteed prior to
the Closing Date and from any and all pledges of assets that they pledged to
secure such indebtedness for the benefit of the Company, provided that such
indebtedness or obligations are either related to the business of the Company as
being conducted at the Closing Date or are made in order to facilitate
distributions contemplated under this Agreement. The indemnification contained
in this Section shall not be subject to the time and other limitations on
indemnification contained in Sections 10.2 and 10.5 hereof.
9.2 PRESERVATION OF TAX TREATMENT. (a) Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, QSI shall not and shall not permit any of its subsidiaries to undertake
any act that would prevent qualification of the transaction as an exchange
meeting the requirements of Code Section 351, including:
(i) the retirement or reacquisition, directly or indirectly, of all
or part of the QSI Stock issued in connection with the transactions
contemplated hereby; or
(ii) the entering into of financial arrangements for the benefit of
the Stockholder.
(b) Except as contemplated by this Agreement or the Registration Statement,
after the Funding and Consummation Date, the Stockholder shall not undertake any
act that would prevent qualification of the transaction as an exchange meeting
the requirements of Code Section 351.
(c) Each of the Company, QSI and Stockholder shall comply with the
reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and shall not take any position on any Return
inconsistent with characterization of the transaction as an exchange meeting the
requirements of Code Section 351.
9.3 PREPARATION AND FILING OF RETURNS.
(i) The Company's S Corporation Election shall terminate on the
Funding and Consummation Date and the Company shall have a short taxable
year as an S corporation (the "S Corporation Short Year") ending as of the
close of business on the day immediately preceding the Funding and
Consummation Date and a short taxable year as a C corporation (the "C
Corporation Short Year") beginning on the Funding and Consummation Date.
For purposes of allocating income, gain, loss and deduction of the Company
between its S Corporation Short Year and its C Corporation Short Year, the
books of the Company shall be closed as of the close of business on the day
immediately preceding the Funding and Consummation Date and the Company
shall make the election described in Code Section 1362(e)(3) and shall
obtain the consent of all necessary stockholders unless such election is
unnecessary by reason of Code Section 1362(e)(6)(D).
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(ii) QSI shall duly, accurately and timely (with regard to any duly
granted extension) file or cause to be filed all federal, state, local and
foreign income Returns required to be filed for the S Corporation Short
Year and shall timely furnish to Stockholder a copy thereof together with
all other information required to be furnished to Stockholder in respect
thereof. Stockholder shall be permitted a period of at least thirty (30)
days prior to the filing of any such Return, to review and comment on such
Return.
(iii) The Company shall duly, accurately and timely (with regard to
any duly granted extension) file or cause to be filed all Returns other
than the Returns described in Section 9.3 hereof, required to be filed for
taxable periods ending on or before the day immediately preceding the
Funding and Consummation Date.
(iv) QSI shall duly, accurately and timely (with regard to any duly
granted extension) file or cause to be filed all Returns required to be
filed for all taxable periods ending on or after the Funding and
Consummation Date.
(v) 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.
(vi) Each of the Company, QSI and 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 transfer to a
controlled corporation under Section 351(a) of the Code.
9.4 DIRECTORS AND OFFICERS. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of QSI, as and
to the extent set forth in the Registration Statement, promptly following the
effective date of the Registration Statement. The QSI Board of Directors will
consist of nine members, up to two of whom shall be existing directors of QSI
and five of whom shall be from the Founding Companies (two nominees from PAR
Electrical Contractors, Inc. and one from each of Potelco, Inc., Union Power
Construction Company and TRANS TECH Electric, Inc.). QSI shall make
arrangements to compensate each Director for attending meetings of the Board of
Directors and to reimburse them for related expenses.
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9.5 MAINTENANCE OF BOOKS. QSI will cause the Company (a) to maintain the
books and records of the Company existing prior to the Closing Date for a period
of six years after the Closing Date and (b) to make such books and records
available to the Stockholder for any reasonable purpose.
10. INDEMNIFICATION
The Stockholder and QSI each make the following covenants that are
applicable to them, respectively:
10.1 GENERAL INDEMNIFICATION BY STOCKHOLDER. The Stockholder covenants and
agrees that it, will indemnify, defend, protect and hold harmless QSI and the
Company at all times, from and after the date of this Agreement, 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) (collectively,
"Claims") incurred by QSI or the Company for which QSI or the Company deliver
notice of such Claims to the Stockholder prior to the Expiration Date and which
Claims are as a result of or arising from (i) any breach of the representations
and warranties of the Stockholder 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 Stockholder under this Agreement; (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 the Company
or the Stockholder, and provided to QSI or its counsel by the Company or the
Stockholder 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 Stockholder required to be stated therein or
necessary to make the statements therein not misleading; (iv) the matters
described on Schedule 10.1(iv) (relating to specifically identified matters such
as ongoing claims and/or litigation), which schedule shall be prepared by QSI;
(v) any liability asserted against QSI or the Company from matters occurring
prior to the Closing Date and not listed on any Schedule of the Company, where
such liability would have been required to be listed on a Schedule; (vi) all
Taxes of the Company with respect to any taxable period (including any S
Corporation Short Year) ending on or before the day immediately preceding the
Funding and Consummation Date, or for any taxable period beginning before and
ending on or after the Funding and Consummation Date to the extent allocable to
the portion of such period beginning before and ending on the day immediately
preceding the Funding and Consummation Date, to the extent such Taxes exceed the
amount of the current liability accruals for Taxes reflected on the balance
sheet of the Company as of September 30, 1997 as adjusted for Company operations
in the ordinary course of business through the day immediately preceding the
Funding and Consummation Date in accordance with generally accepted accounting
principles consistently applied and, to the extent consistent therewith, the
most recent custom and practices of the Company; provided that the portion of
any Tax attributable to a taxable year or period beginning before and ending
after the Funding and Consummation Date shall be determined by apportioning the
Tax for the entire year or period based upon the number of days in the year or
period, except that any such Tax measured by income or receipts shall be
apportioned based upon actual results of operations
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through the end of the day immediately preceding the Funding and Consummation
Date; (vii) all liabilities of the Company, if any, for the Taxes of any other
person, pursuant to Code Section 1.1502-6 or other law, as a transferee or
successor, by contract or otherwise; or (viii) all Transfer and other Taxes
arising from the transactions contemplated by this Agreement; provided, however,
(A) that in the case of any indemnity arising pursuant to clause (iii) such
indemnity shall not inure to the benefit of QSI 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
Stockholder provided, in writing, corrected information to QSI counsel and to
QSI for inclusion in the final prospectus, and such information was not so
included or properly delivered, and (B) that no Stockholder shall be liable for
any indemnification obligation pursuant to this Section 10.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
10.2 INDEMNIFICATION BY QSI. QSI covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholder at all times from
and after the date of this Agreement from and against all Claims incurred by the
Company or the Stockholder for which the Company or the Stockholder delivers
notice of such Claims to QSI prior to the Expiration Date and which Claims are
as a result of or arising from (i) any breach by QSI of its representations and
warranties set forth herein or on the schedules or certificates attached hereto,
(ii) any nonfulfillment of any agreement on the part of QSI under this
Agreement, (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 QSI 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 QSI or any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading, or (iv) the
matters described on Schedule 10.2(iv) (relating to specifically identified
matters), which schedule shall be prepared by the Stockholder.
10.3 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 10.1 or 10.2 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 (such settlement to be subject to the consent of the
Indemnified Party, as hereinafter provided), 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
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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 the 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
the Indemnified Party, the Indemnified Party shall have the right to participate
in such matter through counsel of its own choosing and the Indemnifying Party
will reimburse the Indemnified Party for the reasonable expenses of its counsel.
Further, absent a conflict, the Indemnified Party may select counsel and have
such counsel participate in such matter at the sole cost of the Indemnified
Party. 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. 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 Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement 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.
10.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 10
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, however, 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.
10.5 LIMITATIONS ON INDEMNIFICATION. No Indemnified Party shall
assert any claim for indemnification hereunder against an Indemnifying Party
until such time as, and solely to the extent that, the aggregate of all claims
which such Indemnified Party may have against such Indemnifying Party shall
exceed $75,000, provided, however, that QSI, the Company and the other persons
or entities indemnified pursuant to Section 10.1 may assert and shall be
indemnified for any claim under Section 10.1(v) at any time, regardless of
whether the aggregate of all claims which such persons may have against
Stockholder exceeds $75,000, it being understood that the amount of any such
claim
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under such Sections shall not be counted towards such $75,000 amount; and
further provided that the $75,000 amount shall be reduced to $5,000 for claims
under Sections 10.l(i) to the extent it relates to breaches of the
representations and warranties set forth in Section 4.22, 10.1(vi), 10.1(vii)
and 10.1(viii) (except for claims with respect to taxes due as a result of an
Internal Revenue Service audit related to percentage of completion of related
contracts, in which case the amount shall be reduced to $50,000) it being
understood that the amount of any such claim under such Sections shall not be
counted towards such $75,000 amount; and further provided that the Stockholder
and the other persons or entities indemnified pursuant to Section 10.2 may
assert and shall be indemnified for any claim under Section 10.2(v) at any time,
regardless of whether the aggregate of all claims which such persons may have
against QSI exceeds $75,000, it being understood that the amount of any such
claim under Section 10.2(v) shall not be counted towards such $75,000 amount. No
person shall be entitled to indemnification under this Section 10 if and to the
extent that: (a) such person's claim for indemnification is directly or
indirectly related to and substantially the result of a breach by such person of
any representation, warranty, covenant or other agreement set forth in this
Agreement; or (b) such person receives a tax benefit equal to or in excess of
the amount of such claim as a result of the claim or loss for which
indemnification is sought.
Notwithstanding any other term of this Agreement, no Indemnifying Party
shall be liable under this Section 10 for an amount which exceeds the amount of
proceeds received by the Stockholder in connection with the transactions
contemplated hereby. Indemnity obligations hereunder of the Stockholder may be
satisfied through the payment of cash or the delivery of QSI Stock, or a
combination thereof, at the Stockholder's election. For purposes of calculating
the value of the QSI Stock received or delivered by the Stockholder (for
purposes of determining the limitation on indemnity set forth in the second
preceding sentence and the amount of any indemnity paid), QSI Stock shall be
valued at its initial public offering price as set forth in the Registration
Statement. Any indemnification payment made by the Stockholder pursuant to this
Section 10 shall be deemed to be a reduction in the consideration received by
the Stockholder pursuant to Section 2.
Without limitation of any of the foregoing, the limitations set forth in
this Section shall not apply to breaches of representations, warranties or
covenants set forth in Sections 4.29(c), 5.13, 5.14, 9.2 and 9.3 hereof.
11. TERMINATION OF AGREEMENT
11.1 TERMINATION. This Agreement may be terminated by written notice from
the party asserting termination to the other parties at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of QSI and the
Company;
(ii) by the Stockholder or the Company (acting through its board of
directors), on the one hand, or by QSI (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
June 1, 1998, unless the failure of such transactions to be consummated is
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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 Funding and Consummation
Date;
(iii) by the Stockholder or Company, on the one hand, or by QSI, 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, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Funding and
Consummation Date;
(iv) pursuant to Section 2.1 hereof;
(v) pursuant to Section 6.8 hereof; or
(vi) pursuant to Section 3 hereof.
11.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section 6.8
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 relating to the transactions contemplated
hereby. No party hereto shall be liable to any other party if the Agreement is
terminated under Sections 11.1(i), (ii) (except as set forth therein), (iv), (v)
or (vi).
12. NONCOMPETITION
12.1 PROHIBITED ACTIVITIES. Provided that QSI shall have complied
with and performed all of its obligations hereunder and that the Stockholder
shall have received payment in full of the consideration described in Section 2,
the Stockholder shall not, for a period of five (5) years following the Funding
and 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 engineering and construction business in
direct competition with QSI or any of the subsidiaries thereof, within 100
miles of where the Company or any of its subsidiaries conducted business
prior to the effectiveness of the Funding and Consummation Date (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of QSI (including the subsidiaries thereof) in a
sales representative or managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of
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QSI (including the subsidiaries thereof), provided that Stockholder shall
be permitted to call upon and hire any member of his or her immediate
family;
(iii) call upon any person or entity which is at that time, or which
has been, within one (l) year prior to the Funding and Consummation Date, a
customer of QSI (including the subsidiaries 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 QSI
within the Territory;
(iv) call upon any prospective acquisition candidate, on the
Company's or any Stockholder's own behalf or on behalf of any competitor in
the electrical engineering and construction business, which candidate, to
the actual Knowledge of the Company or Stockholder after due inquiry, was
called upon by QSI (including the subsidiaries thereof) or for which, to
the actual Knowledge of the Company or Stockholder after due inquiry, QSI
(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 types of persons to whom
disclosure is then presently contemplated for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Stockholder from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business whose stock is traded on a
national securities exchange or over-the-counter.
12.2 DAMAGES. Because of the difficulty of measuring economic losses
to QSI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to QSI for which it would
have no other adequate remedy, Stockholder agrees that the foregoing covenant
may be enforced by QSI or the Company in the event of breach by Stockholder, by
injunctions and restraining orders.
12.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 12 impose a reasonable restraint on the
Stockholder in light of the activities and business of QSI (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of QSI.
12.4 SEVERABILITY; REFORMATION. The covenants in this Section 12 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.
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12.5 INDEPENDENT COVENANT. All of the covenants in this Section 12
shall be construed as an agreement independent of any other provision in this
Agreement. It is specifically agreed that the period of five (5) years stated
at the beginning of this Section 12, during which the agreements and covenants
of Stockholder made in this Section 12 shall be effective, shall be computed by
excluding from such computation any time during which Stockholder is in
violation of any provision of this Section 12. The covenants contained in
Section 12 shall have no effect if the transactions contemplated by this
Agreement are not consummated nor may such covenants be enforced by any party to
this Agreement that is in breach of its obligations hereunder.
12.6 MATERIALITY. The Stockholder hereby agrees that the covenants in
this Section 12 are a material and substantial part of this transaction.
12.7 LIMITATIONS. In the event that Stockholder who is employed by QSI or
the Company pursuant to an employment agreement is terminated without cause (as
defined in such employment agreement), the provisions of this Section 12 shall
no longer be valid or enforceable by QSI or the Company. If such employment
agreement contains provisions relating to the same subject matter as this
Section 12 that are less restrictive than set forth in this Section 12, the
provisions of such employment agreement shall control.
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 STOCKHOLDER. The Company and the Stockholder 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 QSI, such as operational policies, trade
secrets and pricing and cost policies that are valuable, special and unique
assets of the Company's, the Other Founding Companies' and/or FCI's respective
businesses. The Company and the Stockholder agree that they shall 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 QSI, (b) following the Closing, such information may be
disclosed by the Stockholder as is required in the course of performing their
duties for QSI 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 13.1, unless (i) such information is or becomes known to the
public generally or to businesses operating in the construction industry through
no fault of the Company and the Stockholder, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided,
however, that prior to disclosing any information pursuant to this clause (ii),
the Company and the Stockholder shall, if possible, give two days' prior written
notice thereof to QSI and provide QSI with the opportunity within such two-day
period 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 the Company or the Stockholder of the provisions of this Section, QSI
shall be entitled to an injunction restraining the Company and such Stockholder
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting QSI 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, the
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Company and the Stockholder shall have none of the above-mentioned restrictions
on their ability to disseminate confidential information with respect to the
Company.
13.2 QSI. QSI recognizes and acknowledges that QSI had in the past
and currently has access to certain confidential information of the Company,
such as operational policies, trade secrets, and pricing and cost policies that
are valuable, special and unique assets of the Company's business. QSI 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, however, that such
advisors (other than counsel) agree to the confidentiality provisions of this
Section 13.2 and (c) to the Other Founding Companies and their representatives
pursuant to Section 6.1(a), unless (i) such information becomes known to the
public generally through no fault of QSI, (ii) disclosure is required by law or
the order of any governmental authority under color of law, provided, however,
that prior to disclosing any information pursuant to this clause (ii), QSI
shall, unless otherwise required by law or such order, give two days' prior
written notice thereof to the Company and the Stockholder and provide the
Company and the Stockholder with the opportunity within such two-day period 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 QSI of
the provisions of this Section, the Company and the Stockholder shall be
entitled to an injunction restraining QSI from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
the Company and the Stockholder from pursuing any other available remedy for as
such breach or threatened breach, including the recovery of damages.
13.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 13.1 and 13.2, 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.
13.4 SURVIVAL. The obligations of the parties under this Article 13
shall survive the termination of this Agreement for a period of three years from
(a) the Funding and Consummation Date if the transactions contemplated hereby
are consummated or (b) the date hereof if the transactions contemplated hereby
are not consummated.
14. TRANSFER RESTRICTIONS
14.1 TRANSFER RESTRICTIONS. Except for transfers to Affiliates of the
Stockholder who agree to be bound by the restrictions set forth in this Section
14.1, for a period of two years from the Funding and Consummation Date, except
pursuant to Section 16 hereof, the Stockholder shall not sell, assign, exchange,
transfer, distribute or otherwise dispose of any shares of QSI Stock received by
them as described in Section 2.1. The certificates evidencing the QSI Stock
delivered to the Stockholder pursuant to Section 2 of this Agreement shall bear
a legend substantially in the form set
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forth below and containing such other information as QSI may deem necessary or
appropriate: THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION, PRIOR TO SECOND ANNIVERSARY OF
FUNDING AND CONSUMMATION 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.
15. FEDERAL SECURITIES ACT REPRESENTATIONS
Stockholder acknowledges that the shares of QSI Stock to be delivered to
Stockholder pursuant to this Agreement have not been and will not be registered
under the 1933 Act and therefore may not be resold without compliance with the
1933 Act. The QSI Stock to be acquired by Stockholder pursuant to this
Agreement is being acquired solely for its own account, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it in connection with a distribution.
15.1 COMPLIANCE WITH LAW. The Stockholder covenants, warrants and
represents that none of the shares of QSI Stock issued to the Stockholder 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 of the QSI Stock
shall bear the following legend in addition to the legend required under Section
14 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.
15.2 ECONOMIC RISK; SOPHISTICATION. Stockholder is able to bear the
economic risk of an investment in the QSI Stock acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and has such
Knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment in the QSI Stock.
The Stockholder has had an adequate opportunity to ask questions and receive
answers from the officers of QSI 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 QSI, the plans
for the operations of the business of QSI, the business, operations and
financial condition of the Founding Companies other than the Company, and any
plans for additional acquisitions and the like. The Stockholder has asked any
and all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction.
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16. REGISTRATION RIGHTS
16.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding
and Consummation Date, whenever QSI proposes to register any QSI Stock for its
own or others account under the 1933 Act for a public offering, other than (i)
any shelf registration of shares to be used as consideration for acquisitions of
additional businesses by QSI and (ii) registrations relating to employee benefit
plans, QSI shall give the Stockholder prompt written notice of its intent to do
so. Upon the written request of the Stockholder given within 30 days after
receipt of such notice, QSI shall cause to be included in such registration all
of the QSI Stock issued to the Stockholder pursuant to this Agreement which the
Stockholder requests, provided that QSI shall have the right to reduce the
number of shares included in such registration to the extent that inclusion of
such shares could, in the opinion of tax counsel to QSI or its independent
auditors, jeopardize the qualification of the transactions contemplated hereby
and by the Registration Statement as an exchange meeting the requirements of
Code Section 351. In addition, if QSI 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 16.1 that the
number of shares to be sold by persons other than QSI is greater than the number
of such shares which can be offered without adversely affecting the offering,
QSI may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares desired to be sold by such person) to a
number deemed satisfactory by such managing underwriter, provided, that,
notwithstanding Section 14.1 hereof, for each such offering made by QSI after
the IPO, such reduction shall be made first by reducing the number of shares to
be sold by persons other than QSI, the Company and the Other Founding Companies
or the Stockholders thereof who receive shares of QSI Stock pursuant to the
Other Agreements (collectively, the Company and the Other Founding Companies or
the Stockholders thereof who receive shares of QSI Stock pursuant to the Other
Agreements being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
16.2 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Article 16 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by QSI. In connection
with registrations under Section 16.1, QSI shall (i) use its best efforts to
prepare and file with the SEC as soon as reasonably practicable, a registration
statement with respect to the QSI Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of at least 45
days (or such shorter period during which the Founding Stockholders shall have
sold all QSI Stock which they requested to be registered); (ii) use its best
efforts to register and qualify the QSI Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution for the QSI Stock; and (iii) take such other
actions as are reasonable and necessary to comply with the requirements of the
1933 Act and the regulations thereunder to enable the Founding Stockholders to
sell their shares pursuant thereto.
16.3 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Section 16.1 covering an underwritten registration public offering,
QSI and each participating holder agree to enter into a written agreement with
the managing underwriters in such form and containing
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such provisions (including indemnification provisions) as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of FCI's size and investment stature.
16.4 AVAILABILITY OF RULE 144. QSI shall not be obligated to register
shares of QSI Stock held by Stockholder at any time when the resale provisions
of Rule 144(k) (or any similar or successor provision) promulgated under the
1933 Act are available to the Stockholder.
17. GENERAL
17.1 COOPERATION. The Company, Stockholder and QSI shall each deliver
or cause to be delivered to the other on the Funding and 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 shall cooperate and use its reasonable efforts to
have the present officers, directors and the employees of the Company cooperate
with QSI on and after the Funding and 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 Funding
and Consummation Date.
17.2 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
QSI, and the heirs and legal representatives of the Stockholder.
17.3 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 Stockholder, the
Company and QSI and supersede any prior agreement and understanding relating to
the subject matter of this Agreement, including but not limited to any letter of
intent entered into by any of the parties hereto. 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 Stockholder, the Company and QSI, acting
through their respective officers or trustees, duly authorized by their
respective Boards of Directors.
17.4 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
17.5 BROKERS AND AGENTS. Except as disclosed on Schedule 17.5, 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
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fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
17.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, QSI will pay the fees, expenses and disbursements of QSI 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 QSI under this Agreement, including the fees and expenses of
Arthur Andersen L.L.P., Jackson Walker L.L.P., and any other person or entity
retained by QSI, and the costs of preparing the Registration Statement. The
Stockholder shall pay the fees, expenses and disbursements of the Stockholder,
the Company and their respective 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 the Company and the
Stockholder under this Agreement, including the fees and expenses of accountants
and legal counsel to the Company and the Stockholder. Notwithstanding the
foregoing, if the transactions contemplated by this Agreement are consummated,
QSI shall reimburse the Stockholder for such reasonable fees, expenses and
disbursements upon the closing of the IPO up to $15,000 plus such additional
fees, expenses and disbursements as are set forth on Schedule 17.6. In addition,
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 transactions contemplated hereby, other
than Transfer Taxes, if any, imposed by the State of Delaware. Stockholder shall
file all necessary documentation and Returns with respect to such Transfer
Taxes. In addition, Stockholder acknowledges that he or she, and not the Company
or QSI, shall pay all taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof, and shall assume all tax risks and liabilities of
Stockholder in connection with the transactions contemplated hereby.
17.7 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 QSI, addressed to it at:
c/o Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attn: James S. Ryan
(b) If to the Stockholder, addressed to him in care of the Company.
(c) If to the Company, addressed to it at:
Potelco, Inc.
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14103 Eight Street East
Sumner, Washington 98398
Attn: Gary Tucci
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
17.9 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.
17.10 TIME. Time is of the essence with respect to this Agreement.
17.11 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.
17.12 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.
17.13 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.
17.14 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 QSI, the Company and the Stockholder. Any amendment or
waiver effected in accordance with this Section 17.14 shall be binding upon each
of the parties hereto, any other person receiving QSI Stock in connection with
the transactions contemplated hereby and each future holder of such QSI Stock.
17.15 INCORPORATION BY REFERENCE. To the extent that an item is
disclosed in a particular schedule or a subsection of a particular schedule and
such item is readily apparent on its face as being applicable to another
schedule or another subsection of the same schedule, such item shall be deemed
incorporated by reference in such schedule or such other subsection under the
same schedule.
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17.16 DEFINED TERMS. 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.
"Affiliates" has the meaning set forth in Section 4.8.
"Agreement" has the meaning set forth in the first paragraph hereof.
"A/R Aging Reports" has the meaning set forth in Section 4.11.
"Assets" has the meaning set forth in Section 6.13.
"Balance Sheet Date" has the meaning set forth in Section 4.9.
"C Corporation Short Year" has the meaning set forth in Section 9.3(i).
"Charter Documents" has the meaning set forth in Section 4.1.
"Closing" has the meaning set forth in Section 3.
"Closing Date" has the meaning set forth in Section 3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" means the capital stock of the Company.
"Delaware GCL" has the meaning set forth in Section 2.3.
"Demand Registration" has the meaning set forth in Section 16.2.
"Environmental Laws" has the meaning set forth in Section 4.13.
"ERISA" has the meaning set forth in Section 4.19.
"Expiration Date" has the meaning set forth in Section 4(A).
"QSI" has the meaning set forth in the first paragraph of this Agreement.
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"QSI Charter Documents" has the meaning set forth in Section 5.1.
"QSI Financial Statements" has the meaning set forth in Section 5.6.
"QSI Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"QSI Stock" means the common stock, par value $.01 per share, of QSI.
"Founding Companies" has the meaning set forth in the third recital of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"Funding and Consummation Date" has the meaning set forth in Section 3.
"Indemnification Threshold" has the meaning set forth in Section 10.5.
"Indemnified Party" has the meaning set forth in Section 10.3.
"Indemnifying Party" has the meaning set forth in Section 10.3.
"IPO" means the initial public offering of QSI Stock pursuant to the
Registration Statement.
"Knowledge" or "Knows," when referring to the Knowledge of the Company or
QSI or what the Company or QSI Knows, means the actual knowledge of any director
or officer of the Company or QSI, as the case may be, and the knowledge that an
ordinarily prudent person acting reasonably in a similar capacity as such
director or officer should have after reasonable investigation into the relevant
subject matter.
"Material Adverse Effect" has the meaning set forth in Section 4.1.
"Material Documents" has the meaning set forth in Section 4.23.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Plans" has the meaning set forth in Section 4.19.
"Pricing" means the date of determination by QSI and the Underwriters of
the public offering price of the shares of QSI 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 4.20.
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"Registration Statement" means that certain registration statement on Form
S-1 covering the shares of QSI Stock to be issued in the IPO.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"S Corporation Election" has the meaning set forth in Section 4.22(x).
"S Corporation Short Year" has the meaning set forth in Section 9.3(i).
"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.
"Statutory Liens" has the meaning set forth in Section 6.3.
"Stockholder" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" has the meaning set forth in Section 4.6.
"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, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 12.1.
"Third Person" has the meaning set forth in Section 10.3.
"Transfer Taxes" has the meaning set forth in Section 17.6.
"Underwriters" means the prospective underwriters in the IPO, as identified
in the Registration Statement.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
QUANTA SERVICES, INC.
By: /s/ James H. Haddox
------------------------------------------
Its: Chief Financial Officer
-----------------------------------------
POTELCO, INC.
By: /s/ Gary Tucci
------------------------------------------
Its: President
-----------------------------------------
/s/ Gary Tucci
---------------------------------------------
Gary Tucci
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and among Quanta Services,
Inc., a Delaware corporation ("Employer"), and ______________ ("Employee"), is
hereby entered into as of this ____ day of ______, 1998, and shall be effective
as of the date (the "Effective Date") of the consummation of the initial public
offering of the common stock of Employer (the "IPO").
R E C I T A L S
A. As of the date of this Agreement, Employer is engaged primarily in the
business of electrical engineering and construction.
B. Employee is employed hereunder by Employer in a confidential
relationship wherein Employee, in the course of Employee's employment with
Employer, has and will continue to become familiar with and aware of information
as to Employer's customers, specific manner of doing business, including the
processes, techniques and trade secrets utilized by Employer ("Confidential
Information"), and future plans with respect thereto, all of which has been and
will be established and maintained at great expense to Employer; this
information is a trade secret and constitutes the valuable goodwill of Employer.
C. Pursuant to that certain Amended and Restated Agreement and Plan of
Organization dated December 11, 1997 by and among Employer, ________________
(the "Company"), and the Stockholders named therein (the "Acquisition
Agreement"), Employer has agreed to purchase the stock of the Company (the
"Acquisition"), the Stockholders have agreed to be bound by certain
noncompetition provisions and Employee is one of the Stockholders.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and conditions
set forth herein and the performance of each, the parties hereto hereby agree as
follows:
1. EMPLOYMENT AND DUTIES.
(a) Employer hereby employs Employee as _____________________ of Employer.
As such, Employee shall have responsibilities, duties and authority reasonably
accorded to and expected of a _________________ of Employer and will report
directly to [the Board of Directors] [or insert as appropriate] of Employer (the
"Board"). Employee hereby accepts this employment upon the terms and conditions
herein contained and, subject to paragraph 1(c) hereof, agrees to devote
Employee's time, attention and efforts to promote and further the business of
Employer.
(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by the Board.
<PAGE>
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 4 hereof.
2. COMPENSATION.
For all services rendered by Employee, Employer shall compensate Employee
as follows:
(a) Base Salary. The base salary payable to Employee shall be $150,000 per
year, payable on a regular basis in accordance with Employer's standard payroll
procedures but not less than monthly. On at least an annual basis, the Board
will review Employee's performance and may make increases to such base salary
if, in its discretion, any such increase is warranted. Such recommended increase
would, in all likelihood, require approval by the Board or a duly constituted
committee thereof.
(b) Incentive Bonus Plan. For 1998 and subsequent years, it is Employer's
intent to develop, as soon as practicable after the Effective Date, a written
Incentive Bonus Plan setting forth the criteria and performance standards under
which Employee and other officers and key employees will be eligible to receive
year-end bonus awards. Employer contemplates that the maximum bonus for which
Employee may be eligible will be [50%] of Employee's base salary.
(c) Executive Perquisites, Benefits, and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from Employer
in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that Employer may have
in effect from time to time.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of Employee's
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with Employer's expense reporting policy.
(iii) Employer shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee by
the Board and participation in all other Employer-wide employee benefits as
available from time to time.
3. [Intentionally left blank.]
2
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4. NON-COMPETITION.
(a) Employee recognizes that the Company's willingness to enter into the
Acquisition Agreement and to consummate the Acquisition is based in material
part on Employee's agreement to the provisions of this paragraph 4, and that
Employee's breach of the provisions of this paragraph could materially damage
the Company. Therefore, in consideration of the benefits to be received by
Employee as a result of the Acquisition, Employee hereby agrees that Employee
will not, during the period of Employee's employment with Employer, and for a
period of five (5) years following the date of this Agreement, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(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 engineering or construction business in direct
competition with Employer or any subsidiary of Employer, within the United
States or within 100 miles of any other geographic area in which Employer
or any of Employer's subsidiaries conducts business, including any
territory serviced by Employer or any of its subsidiaries (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Employer (including the subsidiaries thereof) in
a managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of Employer (including the
subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to that time, a customer of Employer
(including the respective subsidiaries thereof) within the Territory for
the purpose of soliciting or selling products or services in direct
competition with Employer or any subsidiary of Employer within the
Territory; or
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to
Employee's actual knowledge after due inquiry, either called upon by
Employer including the respective subsidiaries thereof) or for which
Employer made an acquisition analysis, for the purpose of acquiring such
entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as an investment not more than two percent (2%)
of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to Employer as a
result of a breach of the foregoing covenant, and because of the immediate and
irreparable damage that could be caused to Employer for which it would have no
other adequate remedy, Employee agrees that the
3
<PAGE>
foregoing covenant may be enforced by Employer in the event of breach by him, by
injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 4 impose a reasonable restraint on Employee in light of the activities
and business of Employer (including Employer's subsidiaries) on the date of the
execution of this Agreement and the current plans of Employer (including
Employer's subsidiaries); but it is also the intent of Employer and Employee
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of Employer (including Employer's
subsidiaries) throughout the term of this Agreement, whether before or after the
date of termination of the employment of Employee. For example, if, during the
term of this Agreement, Employer (including Employer's subsidiaries) engages in
new and different activities, enters a new business or establishes new locations
for its current activities or business in addition to or other than the
activities or business enumerated under the Recitals above or the locations
currently established therefor, then Employee will be precluded from soliciting
the customers or employees of such new activities or business or from such new
location and from directly competing with such new business within 100 miles of
its then-established operating location(s) through the term of this Agreement.
It is further agreed by the parties hereto that, in the event that Employee
shall cease to be employed hereunder, and shall enter into a business or pursue
other activities not in competition with Employer (including Employer's
subsidiaries), or similar activities, or business in locations the operation of
which, under such circumstances, does not violate clause (i) of this paragraph
4, and in any event such new business, activities or location are not in
violation of this paragraph 4 or of employee's obligations under this paragraph
4, if any, Employee shall not be chargeable with a violation of this paragraph 4
if Employer (including Employer's subsidiaries) shall thereafter enter the same,
similar or a competitive (i) business, (ii) course of activities or (iii)
location, as applicable.
(d) The covenants in this paragraph 4 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 be reformed in accordance therewith.
(e) All of the covenants in this paragraph 4 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against Employer, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Employer of such covenants.
(f) Notwithstanding any other provision of this Agreement, if Employee's
employment is terminated by Employer for other than good cause, then no non-
competition provision shall be enforceable for any period of time during which
or for which the Employee is not receiving or has not received severance
compensation.
4
<PAGE>
5. PLACE OF PERFORMANCE.
Nothing contained herein shall be deemed to require Employee to relocate
from Employee's present residence to another geographic location in order to
carry out Employee's duties and responsibilities under this Agreement.
6. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue for
three (3) years (the "Term"), and, unless terminated sooner as herein provided,
shall continue thereafter on a year-to-year basis on the same terms and
conditions contained herein in effect as of the time of renewal. This Agreement
and Employee's employment may be terminated in any one of the followings ways:
(a) Death. The death of Employee shall immediately terminate this Agreement
with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's full-time
duties hereunder for four (4) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
four (4) month period, but which shall not be effective earlier than the last
day of such four (4) month period), Employer may terminate Employee's employment
hereunder provided Employee is unable to resume Employee's full-time duties at
the conclusion of such notice period. Also, Employee may terminate Employee's
employment hereunder if his or her health should become impaired to an extent
that makes the continued performance of Employee's duties hereunder hazardous to
Employee's physical or mental health or life, provided that Employee shall have
furnished Employer with a written statement from a qualified doctor to such
effect and provided, further, that, at Employer's request made within thirty
(30) days of the date of such written statement, Employee shall submit to an
examination by a doctor selected by Employer who is reasonably acceptable to
Employee or Employee's doctor and such doctor shall have concurred in the
conclusion of Employee's doctor. In the event this Agreement is terminated as a
result of Employee's disability, Employee shall receive from Employer, in a
lump-sum payment due within ten (10) days of the effective date of termination,
the base salary at the rate then in effect for whatever time period is remaining
under the Term of this Agreement or for one (1) year, whichever amount is
greater.
(c) Good Cause. Employer may terminate the Agreement ten (10) days after
delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance or
inattention continuing for ten (10) days after receipt of written notice of need
to cure of any of Employee's material duties and responsibilities hereunder; (3)
Employee's willful dishonesty, fraud or material misconduct with respect to the
business or affairs of Employer; (4) Employee's conviction of a felony crime; or
(5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of a
termination for good cause, as enumerated above, Employee shall have no right to
any severance compensation.
5
<PAGE>
(d) Without Good Cause. At any time after the commencement of employment,
either Employee or Employer may, without good cause, terminate this Agreement
and Employee's employment, effective thirty (30) days after written notice is
provided to the other party. Should Employee be terminated by Employer without
good cause during the Term, Employee shall receive from Employer, in a lump-sum
payment due on the effective date of termination, the base salary at the rate
then in effect for whatever time period is remaining under the Term of this
Agreement or for one (1) year, whichever amount is greater. Further, any
termination without good cause by Employer shall operate to shorten the period
set forth in paragraph 4(a) and during which the terms of paragraph 4 apply to
one (1) year from the date of termination of employment. If Employee resigns or
otherwise terminates Employee's employment without cause pursuant to this
paragraph 6(d), Employee shall receive no severance compensation.
(e) Change in Control of Employer. In the event of a "Change in Control of
Employer" (as defined below) during the Term, refer to paragraph 13 below.
Upon termination of this Agreement for any reason provided above, Employee
shall be entitled to receive all compensation earned and all benefits and
reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 13 hereof. All other rights and obligations of Employer and Employee
under this Agreement shall cease as of the effective date of termination, except
that Employer's obligations under paragraph 10 hereof and Employee's obligations
under paragraphs 4, 7, 8, 9 and 11 hereof shall survive such termination in
accordance with their terms.
If termination of Employee's employment arises out of Employer's failure to
pay Employee on a timely basis the amounts to which he is entitled under this
Agreement or as a result of any other breach of this Agreement by Employer, as
determined by a court of competent jurisdiction or pursuant to the provisions of
paragraph 17 below, Employer shall pay all amounts and damages to which Employee
may be entitled as a result of such breach, including interest thereon and all
reasonable legal fees and expenses and other costs incurred by Employee to
enforce Employee's rights hereunder. Further, none of the provisions of
paragraph 4 hereof shall apply in the event this Agreement is terminated as a
result of a breach by Employer.
7. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists and other property delivered to or compiled by
Employee by or on behalf of Employer, or its representatives, vendors or
customers which pertain to the business of Employer shall be and remain the
property of Employer, and be subject at all times to its discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials,
and other similar data pertaining to the business, activities or future plans of
Employer which is collected by Employee shall be delivered promptly to Employer
without request by it upon termination of Employee's employment.
6
<PAGE>
8. INVENTIONS.
Employee shall disclose promptly to Employer any and all significant
conceptions and ideas for inventions, improvements and valuable discoveries,
whether patentable or not, which are conceived or made by Employee, solely or
jointly with another, during the period of employment or within one (1) year
thereafter, and which are directly related to the business or activities of
Employer and which Employee conceives as a result of Employee's employment by
Employer. Employee hereby assigns and agrees to assign all of Employee's
interests therein to Employer or its nominee. Whenever requested to do so by
Employer, Employee shall execute any and all applications, assignments or other
instruments that Employer shall deem necessary to apply for and obtain Letters
Patent of the United States or any foreign country or to otherwise protect
Employer's interest therein.
9. TRADE SECRETS.
Employee agrees that he will not, during or after the Term of this
Agreement with Employer, disclose the specific terms of Employer's or its
subsidiaries' relationships or agreements with its significant vendors or
customers or any other significant and material trade secret of Employer or its
subsidiaries, whether in existence or proposed, to any person, firm,
partnership, corporation or business for any reason or purpose whatsoever.
10. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by Employer against Employee), by reason of
the fact that Employee is or was performing services under this Agreement, then
Employer shall indemnify Employee against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, as actually and
reasonably incurred by Employee in connection therewith. In the event that both
Employee and Employer are made a party to the same third-party action,
complaint, suit or proceeding, Employer agrees to engage competent legal
representation, and Employee agrees to use the same representation, provided
that if counsel selected by Employer shall have a conflict of interest that
prevents such counsel from representing Employee, Employee may engage separate
counsel and Employer shall pay all attorneys' fees of such separate counsel.
Further, while Employee is expected at all times to use Employee's best efforts
to faithfully discharge his duties under this Agreement, Employee cannot be held
liable to Employer for errors or omissions made in good faith where Employee has
not exhibited gross, willful or wanton negligence or misconduct or performed
criminal and fraudulent acts which materially damage the business of Employer.
11. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to Employer that the execution of
this Agreement by Employee and his employment by Employer and the performance of
Employee's duties hereunder will not violate or be a breach of any agreement
with a former employer, client or any other person
7
<PAGE>
or entity. Further, Employee agrees to indemnify Employer for any claim,
including but not limited to attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against Employer based upon or arising out of any noncompetition agreement,
invention or secrecy agreement between Employee and such third party which was
in existence as of the date of this Agreement.
12. ASSIGNMENT; BINDING EFFECT.
Employee understands that he has been selected for employment by Employer
on the basis of Employee's personal qualifications, experience and skills.
Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 13 below, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.
13. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that Employer may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Employer hereunder or
that Employer may undergo another type of Change in Control. In the event such a
merger or consolidation or other Change in Control is initiated prior to the end
of the Term, then the provisions of this paragraph 13 shall be applicable.
(b) In the event of a pending Change in Control wherein Employer and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of Employer's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform Employer's obligations under this Agreement in the
same manner and to the same extent that Employer is hereby required to perform,
then such Change in Control shall be deemed to be a termination of this
Agreement by Employer without good cause during the Term and the applicable
portions of paragraph 6(d) will apply; however, under such circumstances, the
amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 6(d) and the noncompetition
provisions of paragraph 4 shall not apply.
(c) For purposes of applying paragraph 6 hereof under the circumstances
described in (b) above, the effective date of termination will be the closing
date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by Employer at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase Employer Common Stock, including any
options with accelerated vesting under the provisions of Employer's 1997 Stock
Option Plan, such that Employee may convert the options to shares of
8
<PAGE>
Employer Common Stock at or prior to the closing of the transaction giving rise
to the Change in Control, if Employee so desires.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than Employer or an employee
benefit plan of Employer, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended) of any voting security of Employer and immediately after
such acquisition such person or entity is, directly or indirectly, the
Beneficial Owner of voting securities representing 50% or more of the total
voting power of all of the then-outstanding voting securities of Employer,
unless the transaction pursuant to which such acquisition is made is
approved by at least two-thirds (2/3) of the Board;
(ii) the following individuals no longer constitute a majority of
the members of the Board: (A) the individuals who, as of the closing date
of Employer's initial public offering, constitute the Board (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
and whose election, or nomination for election, to the Board was approved
by a vote of at least two-thirds (2/3) of the Original Directors then still
in office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board and whose election, or nomination for election, to the
Board was approved by a vote of at least two-thirds (2/3) of the Original
Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately
following their election).
(iii) the stockholders of Employer shall approve a merger,
consolidation, recapitalization or reorganization of Employer, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least 75%
of the holders of outstanding voting securities of Employer immediately
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially altered
in the transaction; or
(iv) the stockholders of Employer shall approve a plan of complete
liquidation of Employer or an agreement for the sale or disposition by
Employer of all or a substantial portion of Employer's assets (i.e., 50% or
more of the total assets of Employer).
(e) Employee shall be reimbursed by Employer or its successor for all
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as amended, as a result of any Change in Control. In addition,
Employee shall be reimbursed by Employer or its successor for all federal, state
and local income taxes and additional excise taxes attributable to the payment
9
<PAGE>
pursuant to the preceding sentence and the payment pursuant to this sentence.
Such amount will be due and payable by Employer or its successor within ten (10)
days after Employee delivers a written request for reimbursement accompanied by
a copy of Employee's tax return(s) showing the excise tax actually incurred by
Employee. Such amount shall not be subject to offset or reduction for any
amount owed or claimed to be owed to Employer or its successor by Employee. If
not paid within ten (10) days from date of demand, the amount due under this
subsection shall bear interest at the maximum nonusurious rate allowed by law
from the date of demand to the date of payment.
14. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, between
Employer and Employee, and Employee has no oral representations, understandings
or agreements with Employer or any of its officers, directors or representatives
covering the same subject matter as this Agreement.
This written Agreement is the final, complete and exclusive statement and
expression of the agreement between Employer and Employee and of all the terms
of this Agreement, and it cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of Employer and Employee, and no term of
this Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
15. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To Employer: Quanta Services, Inc.
_____________________________
_____________________________
_____________________________
To Employee: _____________________________
_____________________________
_____________________________
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 15.
16. SEVERABILITY; HEADINGS.
10
<PAGE>
If any portion of this Agreement is held invalid or inoperative, the other
portions of this Agreement shall be deemed valid and operative and, so far as is
reasonable and possible, effect shall be given to the intent manifested by the
portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration, conducted before a
panel of three (3) arbitrators in __________________, in accordance with the
National Rules of the American Arbitration Association for the Resolution of
Employment Disputes in effect on the date of the event giving rise to the claim
or the controversy. The arbitrators shall not have the authority to add to,
detract from or modify any provision hereof nor to award punitive damages to any
injured party. The arbitrators shall have the authority to order back-pay,
severance compensation, vesting of options (or cash compensation in lieu of
vesting of options), reimbursement of costs, including those incurred to enforce
this Agreement, and interest thereon in the event the arbitrators determine that
Employee was terminated without disability or good cause, as defined in
paragraphs 6(b) and 6(c) hereof, respectively, or that Employer has otherwise
materially breached this Agreement. A decision by a majority of the arbitration
panel shall be final and binding. Judgment may be entered on the arbitrators'
award in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by Employer.
18. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws of
the State of ____________.
19. 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.
11
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated December 5, 1997, on the financial statements of the following
businesses included in or made a part of this registration statement on Form
S-1: PAR Electrical Contractors, Inc.; Quanta Services, Inc.; Union Power
Construction Company; TRANS TECH Electric, Inc.; and Potelco, Inc.; and to all
references to our firm included in this registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
December 22, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of Quanta Services, Inc. (the "Registrant") in the
Prospectus constituting a part of the Registration Statement on Form S-1 of
the Registrant filed under the Securities Act of 1933, as amended.
/s/ John R. Colson
_____________________________________
John R. Colson
December 18, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of Quanta Services, Inc. (the "Registrant") in the
Prospectus constituting a part of the Registration Statement on Form S-1 of
the Registrant filed under the Securities Act of 1933, as amended.
/s/ John R. Wilson
_____________________________________
John R. Wilson
December 18, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of Quanta Services, Inc. (the "Registrant") in the
Prospectus constituting a part of the Registration Statement on Form S-1 of
the Registrant filed under the Securities Act of 1933, as amended.
/s/ Timothy A. Soule
_____________________________________
Timothy A. Soule
December 18, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of Quanta Services, Inc. (the "Registrant") in the
Prospectus constituting a part of the Registration Statement on Form S-1 of
the Registrant filed under the Securities Act of 1933, as amended.
/s/ John A. Martell
_____________________________________
John A. Martell
December 18, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of Quanta Services, Inc. (the "Registrant") in the
Prospectus constituting a part of the Registration Statement on Form S-1 of
the Registrant filed under the Securities Act of 1933, as amended.
/s/ Gary A. Tucci
_____________________________________
Gary A. Tucci
December 18, 1997
<PAGE>
EXHIBIT 23.8
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of Quanta Services, Inc. (the "Registrant") in the
Prospectus constituting a part of the Registration Statement on Form S-1 of
the Registrant filed under the Securities Act of 1933, as amended.
/s/ Michael T. Willis
_____________________________________
Michael T. Willis
December 18, 1997
<PAGE>
EXHIBIT 23.9
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of Quanta Services, Inc. (the "Registrant") in the
Prospectus constituting a part of the Registration Statement on Form S-1 of
the Registrant filed under the Securities Act of 1933, as amended.
/s/ Rodney R. Proto
_____________________________________
Rodney R. Proto
December 18, 1997
<PAGE>
EXHIBIT 23.10
WILLAMETTE MANAGEMENT ASSOCIATES
8600 WEST BRYN MAWR AVENUE, SUITE 950-N
CHICAGO, ILLINOIS 60631-3505
773-399-4300 / (FAX) 773-399-4310
As independent appraisers, we hereby consent to the reference of our valuation
study, which was rendered to Quanta Services, Inc. to assist the Company in
determining the discount to be applied to the Common Stock issued in
connection with the Acquisitions and the Limited Vote Common Stock, and to the
use of our name as experts regarding that valuation study in the "Experts"
section of the Registration Statement.
/s/ Willamette Management Associates, Inc.
Willamette Management Associates, Inc.
December 19, 1997
Portland, Oregon Chicago, Illinois McLean, Virginia Atlanta, Georgia
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 34
<SECURITIES> 0
<RECEIVABLES> 10,776
<ALLOWANCES> 100
<INVENTORY> 0
<CURRENT-ASSETS> 13,206
<PP&E> 28,826
<DEPRECIATION> 14,834
<TOTAL-ASSETS> 27,438
<CURRENT-LIABILITIES> 13,755
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 9,401
<TOTAL-LIABILITY-AND-EQUITY> 27,438
<SALES> 36,439
<TOTAL-REVENUES> 36,439
<CGS> 27,944
<TOTAL-COSTS> 32,957
<OTHER-EXPENSES> 97
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 470
<INCOME-PRETAX> 2,915
<INCOME-TAX> 1,172
<INCOME-CONTINUING> 1,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,172
<EPS-PRIMARY> 0
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</TABLE>
