AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LANDCARE USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 0780 76-0562801
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
WILLIAM F. MURDY
CHIEF EXECUTIVE OFFICER
THREE RIVERWAY
SUITE 630
HOUSTON, TEXAS 77056
(800) 492-1101
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------------
COPIES TO:
WILLIAM D. GUTERMUTH RICHARD C. TILGHMAN, JR.
BRACEWELL & PATTERSON, L.L.P. PIPER & MARBURY L.L.P.
SOUTH TOWER PENNZOIL PLACE 36 SOUTH CHARLES STREET
711 LOUISIANA STREET, SUITE 2900 BALTIMORE, MARYLAND 21201
HOUSTON, TEXAS 77002-2781 (410) 539-2530
(713) 221-1316
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
<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, $0.01 par value per share............ $69,000,000 $20,355
==================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<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
MARCH 18, 1998
5,000,000 SHARES
(LOGO)
LANDCARE USA, INC.
COMMON STOCK
------------------------
All of the 5,000,000 shares of Common Stock offered hereby are being
offered by LandCARE USA, Inc. (the "Company"). The Company was founded in 1997
and has conducted no operations to date. Prior to this offering, there has been
no public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price for the Common Stock will be between
$10.00 and $12.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company will apply for listing of the Common Stock on The New York Stock
Exchange under the symbol "GRW".
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
- --------------------------------------------------------------------------------
Per Share...... $ $ $
- --------------------------------------------------------------------------------
Total(2)....... $ $ $
================================================================================
(1) Before deducting expenses of the offering payable by the Company, estimated
at $4,000,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
750,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public as shown above. If such
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, subject
to prior sale, when, and if delivered to and accepted by them, subject to the
right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about
, 1998.
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
SANDERS MORRIS MUNDY
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[MAP/GRAPHICS]
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
------------------------
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
SIMULTANEOUSLY WITH AND AS A CONDITION TO THE CONSUMMATION OF THE OFFERING
MADE BY THIS PROSPECTUS (THE "OFFERING"), LANDCARE USA, INC. WILL ACQUIRE, IN
SEPARATE MERGER TRANSACTIONS (THE "MERGERS") IN EXCHANGE FOR CASH AND SHARES
OF ITS COMMON STOCK, SEVEN COMPANIES (EACH A "FOUNDING COMPANY" AND,
COLLECTIVELY, THE "FOUNDING COMPANIES") ENGAGED IN COMPREHENSIVE LANDSCAPE AND
TREE SERVICES. UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE "COMPANY"
HEREIN INCLUDE THE FOUNDING COMPANIES, AND REFERENCES HEREIN TO "LANDCARE"
MEAN LANDCARE USA, INC. PRIOR TO THE CONSUMMATION OF THE MERGERS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA COMBINED
AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, (i) ALL
SHARE, PER SHARE AND FINANCIAL INFORMATION SET FORTH HEREIN (a) HAVE BEEN
ADJUSTED TO GIVE EFFECT TO THE MERGERS; (b) ASSUME AN INITIAL PUBLIC OFFERING
PRICE OF $11.00 PER SHARE, AND (c) ASSUME NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION; AND (ii) ALL REFERENCES TO COMMON STOCK INCLUDE BOTH
COMMON STOCK, $0.01 PAR VALUE, AND RESTRICTED VOTING COMMON STOCK, $0.01 PAR
VALUE (THE "RESTRICTED COMMON STOCK"), OF THE COMPANY.
THE COMPANY
LandCARE was founded in 1997 to become a leading national provider of
comprehensive landscape and tree services to the commercial and institutional
markets. The Company offers a full range of landscape maintenance, landscape
installation and tree services capabilities, including trimming trees and other
plant growth away from power lines, generally known as "line clearing." The
Company serves a diverse set of customers, including regional and national
property owners and managers, real estate developers, corporations, utilities,
universities and governmental entities. Properties served by the Company include
office buildings, multi-family residential complexes, shopping centers,
corporate and university campuses, parks, hotels, resorts and governmental
facilities. Approximately 75% of the Company's pro forma combined revenues in
1997 were attributable to maintenance services, which include line clearing for
utility customers, and 25% were attributable to installation services. Upon
consummation of this Offering, LandCARE will acquire the seven Founding
Companies, which have been in business an average of 25 years. Pro forma
combined revenues of the Founding Companies were $118.8 million in 1997, and
historical combined revenues increased at a compound annual growth rate of
approximately 10% from 1995 through 1997. In addition to emphasizing internal
growth, the Company intends to implement an aggressive acquisition program.
According to data published by LAWN AND LANDSCAPE magazine, the commercial
and institutional segment of the landscape and tree services industry generated
approximately $20 billion in revenues in 1996. The Company estimates that
approximately $15 billion of this amount represented landscape maintenance and
installation and $5 billion represented tree services. Most of the more than
10,000 participants in this industry are small, owner-operated companies
operating in a limited geographic area. During recent years, this industry has
experienced significant growth due to the consolidation of the commercial real
estate market, the trend towards outsourcing of landscape and tree services and
a growing recognition of the economic and aesthetic benefits of landscaping.
In recent years, ownership of commercial real estate throughout the United
States has become increasingly consolidated. Commercial property owners and
managers, as well as governmental entities and institutions such as universities
and hospitals, are increasingly outsourcing their landscape and tree services
needs. As a result, regional and national property owners and management
companies are seeking providers with the capacity to service all of their
properties in a particular region. The Company believes, therefore, that a
landscape and tree services provider with a multi-regional or national presence
and greater scale will have a significant advantage over its competitors.
Moreover, the Company believes that its combination of landscape and tree
services capabilities will prove attractive to property owners and managers as
they seek
3
<PAGE>
to reduce the number of vendors with which they do business. The Company
performs services for properties owned or managed by a number of leading
property owners and managers, including Trammell Crow, Marriott, Summit
Properties, Equity Residential Properties Trust, Camden Property Trust, Gables
Residential Trust, CB Commercial and Insignia Financial Group. The Company also
provides landscape maintenance and installation services at various corporate
properties, including those owned by Exxon, Holiday Inn, Wells Fargo and First
Union. Trees, Inc., one of the Founding Companies, has line clearing contracts
with large utilities, including PacifiCorp, Houston Lighting & Power, Texas
Utilities and Pacific Gas & Electric.
The Company's landscape maintenance services consist primarily of general
upkeep and minor upgrades of a customer's property, including grass cutting,
weeding, pruning, leaf removal, trimming and edging, mulching, grass reseeding,
fertilization and replacement of plants providing seasonal color. Landscape
installation consists of installing ornamental and shade trees, plants,
shrubbery and grasses, as well as installing walkways, exterior lighting,
fountains and drainage and irrigation systems. The Company's tree services
consist primarily of line clearing for utilities, as well as commercial and
residential tree maintenance services. The Company plans to offer periodic tree
maintenance to many of its commercial customers as part of an overall landscape
maintenance agreement, thereby reducing the number of required vendors and
reducing its customers' need for emergency tree services.
OPERATING STRATEGY. The Company believes that there are significant
opportunities to increase the profitability of the Founding Companies and any
subsequently acquired businesses. The key elements of the Company's operating
strategy are:
FOCUS ON COMMERCIAL AND INSTITUTIONAL MARKETS. The Company believes
that the commercial and institutional markets are attractive because of (i)
the potential for preferred relationships with regional and national
property owners and managers, real estate developers, corporations, general
contractors and landscape architects, (ii) the diverse types of properties
served, such as office buildings, multi-family residential complexes,
shopping centers, corporate and university campuses, parks, hotels, resorts
and governmental facilities, (iii) the opportunity to generate recurring
revenue through maintenance contracts, and (iv) the recognition by building
owners and managers of the importance of landscaping in enhancing the value
and marketability of their properties.
OPERATE ON DECENTRALIZED BASIS. The Company intends to manage the
Founding Companies and subsequently acquired companies on a decentralized
basis with local management retaining responsibility for the day-to-day
operations, profitability and internal growth of the business. Although the
Company intends to maintain strong central operating and financial
controls, its decentralized operating structure will allow it to capitalize
on the considerable local and regional market knowledge and customer
relationships possessed by local management.
ACHIEVE OPERATING EFFICIENCIES. The Company believes there are
significant opportunities to achieve operating efficiencies and cost
savings through purchasing economics and the adoption of "best practices"
operating programs. The Company intends to use its increased purchasing
power to gain volume discounts in areas such as materials, equipment, spare
parts and vehicle purchases and workers' compensation and other insurance
coverage. The Company believes that its operating efficiency also can be
enhanced by implementing best practices, such as expanding branch networks
to increase route density and improve labor utilization.
ATTRACT AND RETAIN QUALITY LABOR AND SUPERVISORY PERSONNEL. Most
companies in the landscape and tree services industry experience high labor
turnover and difficulty in attracting sufficient numbers of supervisory
personnel. The Company believes it can better attract and retain
supervisory and management level employees because it will offer (i) an
enhanced career path from working for a multi-branch, public company,
including the opportunity to gain increased responsibility at a branch
office, (ii) the opportunity to realize a more stable income and (iii)
improved health insurance, retirement, profit sharing and other benefits.
4
<PAGE>
INTERNAL GROWTH. A principal component of the Company's strategy is to
continue its internal growth. The key elements of the Company's internal growth
strategy are:
BUILD MARKET DENSITY. The Company intends to develop its branch
network in each of the markets it serves to enable it to serve more
commercial and institutional properties efficiently, to improve labor and
equipment utilization and to attract employees who live near
newly-established branches.
ESTABLISH REGIONAL AND NATIONAL MARKET COVERAGE. The Company intends
to provide comprehensive landscaping and tree services on a multi-regional
and ultimately a national basis. This will enable the Company to capitalize
on existing and future relationships with major regional and national
property owners and managers. The Company believes it can establish
preferred provider relationships with these regional and national property
owners and managers to service all or a significant number of their
properties.
BECOME SINGLE SOURCE PROVIDER. The Company intends to provide its
customers with both landscape and tree services in order to become the
single source for all of its customers' installation and maintenance
requirements. The Company believes that becoming a single source provider
will allow it to take advantage of the trend toward vendor consolidation in
the commercial real estate market and the developing trend toward
outsourcing by institutions and state and local governments.
DEVELOP ENHANCED SALES AND MARKETING PROGRAM. The Company intends to
establish a national account sales and marketing program, which will
emphasize the Company's full service capabilities. This program will target
large regional and national property owners as well as large corporations.
The Company also intends to establish a sales and marketing program
targeted toward institutions and governmental entities beginning to
outsource their landscape and tree services requirements.
ACQUISITION PROGRAM. In addition to emphasizing internal growth, the
Company intends to implement an aggressive acquisition program and believes
that it will be viewed as an attractive acquiror by other landscape and
tree services companies due to its: (i) strategy for creating a national
company, (ii) increased financial strength and visibility as a public
company, (iii) increased opportunities to cross-market to regional and
national property owners and managers, (iv) decentralized operations, which
leverage the strengths of local management and (v) ability to achieve
operating efficiencies. The Company's acquisition program will focus both
on entering new markets through significant acquisitions, as well as
expanding within existing markets through acquisitions of smaller
companies.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company.............................. 5,000,000 shares
Common Stock to be outstanding after
the Offering....................... 12,722,043 shares(1)(2)
Use of proceeds...................... To pay the cash portion of the purchase price for the Founding
Companies, to repay expenses incurred in connection with the
organization of LandCARE and the Offering, to repay the
existing debt of the Founding Companies and for working capital
and future acquisitions. See "Use of Proceeds."
NYSE symbol.......................... GRW
</TABLE>
- ------------
(1) Includes (i) 5,162,645 shares of Common Stock to be issued in connection
with the Mergers, (ii) 5,000,000 shares of Common Stock offered hereby, and
(iii) 985,240 shares of Common Stock issued to management and directors of,
and consultants to, the Company, but excludes 100,000 shares of Common Stock
subject to options granted at an exercise price of $6.00 per share and
1,337,819 shares of Common Stock subject to options to be granted in
connection with this Offering at an exercise price equal to the initial
public offering price. See "Management -- 1998 Long-Term Incentive Plan"
and "-- 1998 Non-Employee Directors' Stock Plan."
(2) Includes 268,750 shares of Common Stock and 1,305,408 shares of Restricted
Common Stock held by Notre Capital Ventures II, L.L.C. ("Notre"). Each
share of Restricted Common Stock is entitled to 0.3 of one vote on all
matters submitted to stockholders. Restricted Common Stock is convertible
into Common Stock under certain circumstances. See "Description of Capital
Stock -- Common Stock and Restricted Common Stock."
RECENT DEVELOPMENTS
During 1997 and 1998, members of the management team and certain
consultants were assembled by Notre to pursue the consolidation of the Founding
Companies. Notre, a consolidator of highly-fragmented industries, provided the
Company with expertise regarding the consolidation process and advanced the
Company the funds needed to pay organizational and Offering expenses. In
connection therewith, during the fourth quarter of 1997 and the first quarter of
1998, LandCARE sold an aggregate of 985,240 shares of Common Stock to management
and directors of, and consultants to, the Company for $0.01 per share. LandCARE
also issued options to purchase 100,000 shares of Common Stock at an exercise
price of $6.00 per share to its Chief Operating Officer. As a result, LandCARE
has recorded non-recurring, non-cash compensation charges of $6.6 million in the
fourth quarter of 1997 and $1.8 million in the first quarter of 1998,
representing the difference between the amount paid for the shares (or the
exercise price of the options granted) and the estimated fair value of the
shares on the date of sale or grant, as if the Founding Companies had then been
combined (collectively, the "Compensation Charge").
The aggregate consideration to be paid by LandCARE in the Mergers consists
of approximately $27.2 million in cash and 5,162,645 shares of Common Stock. The
consideration to be paid by LandCARE for each Founding Company was determined by
negotiations between LandCARE and representatives of each Founding Company and
was based primarily on the pro forma adjusted net income of each Founding
Company. Prior to the Mergers, two of the Founding Companies, both S
Corporations, will distribute a total of $1.4 million to their stockholders,
representing substantially all of their previously taxed undistributed earnings
and tax payments on current earnings (the "S Corporation Distributions"). In
order to fund the S Corporation Distributions, these two Founding Companies will
borrow a total of $1.2 million from existing sources, which borrowings will be
included in the debt to be repaid by LandCARE from the net proceeds of the
Offering. For a more detailed description of these transactions, see "Certain
Transactions -- Organization of the Company."
6
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
LandCARE will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, however, Trees, Inc. ("Trees"), one of the Founding
Companies, has been identified as the "accounting acquiror." The following
table presents summary pro forma combined financial data for the Company, as
adjusted for (i) the effects of the Mergers, (ii) the effects of certain pro
forma adjustments to the historical financial statements described below and
(iii) the consummation of this Offering and the application of the net proceeds
therefrom. See "Selected Financial Data," the Unaudited Pro Forma Combined
Financial Statements and the Notes thereto and the historical Financial
Statements of the Founding Companies and the Notes thereto included elsewhere in
this Prospectus.
PRO FORMA COMBINED
-------------------
YEAR ENDED
DECEMBER 31, 1997
-------------------
STATEMENT OF OPERATIONS DATA(1):
Revenues(2)..................... $ 118,804
Cost of services................ 93,252
-------------------
Gross profit.................... 25,552
Selling, general and
administrative expenses(3)..... 14,290
Goodwill amortization(4)........ 1,421
-------------------
Operating income................ 9,841
Interest and other income
(expense), net(5).............. 876
-------------------
Income before income taxes...... 10,717
Income tax provision(6)......... 4,865
-------------------
Net income...................... $ 5,852
===================
Net income per share............ $ 0.48
===================
Shares used in computing pro
forma net income per
share(7)....................... 12,222,592
DECEMBER 31, 1997
--------------------------------
PRO FORMA
COMBINED AS ADJUSTED(8)
---------- ---------------
BALANCE SHEET DATA(9)
Working capital (deficit)(11)... $(22,414)(10) $ 17,228
Total assets.................... 103,328 108,879
Long-term debt, including
current maturities(11)........ 11,638 --
Stockholders' equity(11)........ 44,373 91,508
- ------------
(1) Assumes that the Mergers and the Offering were closed on January 1, 1997
and is not necessarily indicative of the results the Company would have
obtained had these events actually then occurred or of the Company's future
results.
(2) Reflects pro forma increases in revenues of approximately $2.6 million
associated with the acquisition by Arteka of two landscape services
companies in December 1997 and a pro forma reduction in revenues of $0.2
million associated with the nursery operations of Church, which will not be
acquired in the Mergers.
(3) Reflects an aggregate of approximately $2.6 million in pro forma reductions
in salary, bonuses and benefits to the owners of the Founding Companies to
which they have agreed prospectively (the "Compensation Differential")
and $0.1 million in reductions in lease expense as a result of
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
7
<PAGE>
renegotiation of certain leases (the "Rent Differential"). These data do
not include the non-cash Compensation Charge of $6.6 million.
(4) Consists of the amortization of goodwill to be recorded as a result of the
Mergers, computed on the basis described in Notes to the Unaudited Pro
Forma Combined Financial Statements.
(5) Reflects $1.3 million in pro forma reductions in interest expense as the
result of the planned repayment of the Founding Companies' existing debt
(the "Interest Differential").
(6) Assumes all income is subject to an effective corporation tax rate of 40%,
and the non-deductibility of goodwill amortization.
(7) Includes (i) 5,162,645 shares to be issued to owners of the Founding
Companies, (ii) 985,240 shares issued to the management, consultants and
directors of LandCARE, (iii) 1,574,158 shares issued to Notre, (iv) 25,000
shares (determined to be common stock equivalents for purposes of computing
earnings per share) of the 100,000 shares issuable upon the exercise of
outstanding options, and (v) 4,475,549 of the 5,000,000 shares to be sold
in the Offering necessary to pay the cash portion of the Merger
consideration, pay expenses of this Offering and to repay the Founding
Companies' existing debt. Excludes options to purchase 1,337,819 shares of
Common Stock to be granted upon consummation of this Offering at the
initial public offering price.
(8) Adjusted for the sale of the 5,000,000 shares of Common Stock offered
hereby and the application of the net proceeds therefrom. See "Use of
Proceeds."
(9) The Pro Forma Combined Balance Sheet Data assumes that the Mergers were
consummated on December 31, 1997.
(10) Includes a $27.2 million payable, representing the cash portion of the
Merger consideration and borrowings related to the S Corporation
Distributions of $1.2 million, to be paid from a portion of the net
proceeds of this Offering.
(11) Certain of the Founding Companies are S Corporations. Prior to the Mergers,
these Founding Companies will make the S Corporation Distributions to their
stockholders totaling $1.4 million. In order to fund the S Corporation
Distributions, the two Founding Companies will borrow a total of $1.2
million from existing sources, all of which will be repaid from the net
proceeds of this Offering. Additionally, prior to the Mergers, certain of
the Founding Companies will distribute to their stockholders certain real
estate and other non-operating assets and associated liabilities having a
net book value of $0.7 million (the "Other Assets"). Accordingly, pro
forma working capital has been decreased by $0.2 million, pro forma
long-term debt has been decreased by $0.3 million, pro forma stockholders'
equity has been reduced by $2.1 million, and pro forma net income has been
increased by $0.2 million.
8
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents summary financial data for each of the
individual Founding Companies for each of their three most recent fiscal years.
Operating income has not been adjusted for the anticipated increase in income
attributable to the Compensation Differential and Rent Differential, or to take
into account increased costs associated with the Company's new corporate
management and with being a public company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Introduction."
YEAR ENDED DECEMBER 31,(1)
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
TREES:
Revenues........................ $ 47,142 $ 44,847 $ 50,085
Gross profit.................... 6,088 5,801 6,517
Operating income(2)............. 2,864 1,537 2,829
FOUR SEASONS:
Revenues........................ 12,000 13,367 16,066
Gross profit.................... 2,745 3,261 4,999
Operating income (loss)(2)...... (84) (58) 1,245
SOUTHERN TREE:
Revenues........................ 12,639 13,263 14,176
Gross profit.................... 2,320 1,809 2,559
Operating income(2)............. 708 263 793
CHURCH:
Revenues........................ 9,141 10,951 13,257
Gross profit.................... 3,020 3,327 4,351
Operating income (loss)(2)...... 884 (264) 1,487
GROUND CONTROL:
Revenues........................ 5,574 8,409 8,979
Gross profit.................... 1,371 1,827 2,316
Operating income (loss)(2)...... (122) 225 806
ARTEKA:
Revenues........................ 6,117 7,052 7,366
Gross profit.................... 2,049 1,997 2,139
Operating income(2)............. 188 275 3
DESERT CARE:
Revenues........................ 4,350 5,598 6,481
Gross profit.................... 817 1,201 1,362
Operating income(2)............. 266 334 690
- ------------
(1) The financial data presented for Trees is for the fiscal years ended March
31, 1996 and 1997 and the year ended December 31, 1997.
(2) Operating income has not been adjusted for the Compensation Differential and
Rent Differential. For 1997, the Compensation Differential was $2.6 million
and the Rent Differential was $0.1 million.
9
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF
FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATING FOUNDING
COMPANIES. LandCARE was founded in 1997 but has conducted no operations and
generated no revenues to date. LandCARE has entered into definitive agreements
to acquire the Founding Companies simultaneously with, and as a condition to,
the closing of this Offering. The Founding Companies have been operating 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 the operations of the combined entities on a
timely basis. The Company's management team has been assembled only recently,
and there can be no assurance that the management team will be able to manage
the combined entity or to implement effectively the Company's acquisition and
internal growth strategies as its operating strategy. The pro forma combined
historical financial results of the Founding Companies cover periods when the
Founding Companies and LandCARE were not under common control or management and
may not be indicative of the Company's future financial or operating results.
The inability of the Company to integrate the Founding Companies successfully
would have a material adverse effect on the Company's business, financial
condition and results of operations and would make it unlikely that the
Company's acquisition strategy will be successful. See "Business -- Strategy"
and "Management."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company intends
to grow significantly through the acquisition of additional commercial landscape
and tree service companies. Because most participants in the commercial
landscape and tree services industry are small, owner-operated companies, the
Company expects that its acquisition strategy will primarily involve the
acquisition of numerous, relatively small companies. The Company expects to face
competition for these acquisition candidates, particularly from a few relatively
large public or private companies that have begun or may begin to pursue the
acquisition of landscape and tree service companies. Some of these companies
have greater financial resources and name recognition in the industry than the
Company. This competition may limit the number of acquisitions that the Company
is able to consummate and may lead to higher acquisition prices. There can be no
assurance that the Company will be able to identify, acquire or manage
profitably additional businesses or to integrate successfully any acquired
businesses into the Company without substantial costs, delays or other
operational or financial problems. Furthermore, 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. 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 requirements cannot
be readily predicted. The Company currently intends to finance future
acquisitions by using shares of its Common Stock, which may comprise a
significant portion of the acquisition consideration. If the Common Stock does
not maintain a sufficient market value, if potential acquisition candidates are
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses or if the Company's competitors offer acquisition candidates
substantially more cash than equity or debt securities, the Company may be
required to utilize more of its cash resources, if available, in order to
initiate and maintain its acquisition strategy. Upon completion of this
Offering, the Company will have $5.8 million of net proceeds from the offering
($13.4 million if the Underwriters' over-
10
<PAGE>
allotment option is exercised in full) remaining for future acquisitions and
working capital after payment of Merger and Offering expenses, the cash portion
of the purchase price for the Founding Companies and repayment of Founding
Company debt. If the Company's cash resources after the Offering are
insufficient to effect its acquisition strategy, its growth will be limited
unless it is able to obtain additional capital through debt or equity
financings. Upon completion of this Offering, the Company intends to obtain a
bank line of credit of at least $50 million for working capital and
acquisitions. However, there can be no assurance that the Company will be able
to obtain this line of credit or additional financing it will need for its
acquisition strategy on terms that the Company deems acceptable. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RISKS RELATED TO OPERATING AND INTERNAL GROWTH STRATEGY. Key components of
the Company's strategy are to increase the profitability and continue the
internal growth of the Founding Companies and subsequently acquired businesses.
The Company intends to operate on a decentralized basis and attract and retain
quality labor and supervisory personnel. Without proper overall business
controls, the Company's decentralized operating strategy could result in
inconsistent operating and financial practices at the Founding Companies and
subsequently acquired businesses. This, in turn, could adversely affect the
Company's business, financial condition and results of operations, as could the
Company's failure to attract and retain a sufficient number of hourly and
supervisory personnel to meet its staffing needs. The continued internal growth
of the Founding Companies and subsequently acquired businesses will be affected
by various factors, including the demand for landscaping and tree services and
the Company's ability to establish relationships with regional and national
property owners and managers, expand the range of services offered to meet its
customers' exterior maintenance requirements and establish regional and national
account sales and marketing programs. Customer dissatisfaction or performance
problems at a single acquired company could have an adverse effect on the
reputation of the Company and hinder the Company's sales and marketing
initiatives. Some of these factors are beyond the Company's control, and there
can be no assurance that the Company's operating and internal growth strategies
will be successful or that the Company will be able to generate sufficient cash
flow to support both its operations and its continued internal growth. See
"Business -- Strategy."
MANAGEMENT OF GROWTH. The Company expects to expand its business
principally through the acquisition of other companies. Management expects to
expend significant time and effort in evaluating, completing and integrating
acquisitions and opening new branches. To manage its expansion, promptly after
this Offering the Company must establish accounting, financial reporting,
financial control and other operating systems and procedures. Thereafter,
management must continually evaluate the adequacy of those systems, procedures
and controls and its management structure. There can be no assurance that the
Company's systems, procedures and controls or its management structure will be
adequate to support the Company's operations as they expand. Failure to manage
its growth efficiently and effectively would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business --Strategy."
SIGNIFICANT REVENUES FROM TREES, INC. In calendar year 1997, Trees, one of
the Founding Companies, had revenues of $50.1 million and operating income of
$2.8 million, accounting for 42.2% and 28.7% of the Company's 1997 pro forma
combined revenues and operating income, respectively. The Company will be
dependent on Trees for a significant portion of its revenues and operating
income. During calendar year 1997, Trees derived approximately 96% of its
revenues from 20 utility customers, three of which accounted for approximately
54% of its total revenues. As a result, the loss of any one of Trees' large
customers could have a material adverse effect on the overall profitability of
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Trees -- Results of Operations."
DEPENDENCE ON LABOR FORCE. The landscape and tree services industry is
labor intensive, and industry participants, including the Founding Companies,
experience high turnover rates among hourly workers and intense competition for
qualified supervisory personnel. In addition, several of the Founding Companies,
like many landscape service providers in colder climates, employ all or most of
their labor force for only part of the year, which decreases their ability to
maintain a stable, experienced work force. To
11
<PAGE>
the extent that the Company is unable to re-employ seasonal employees during
annual peak employment periods, it will encounter increased recruiting, training
and other employment costs. If the Company were unable to recruit a sufficient
number of hourly workers and qualified supervisory personnel, it would be forced
to limit growth or reduce the scope of its operations. See "Business --
Employees."
RELIANCE ON IMMIGRANT EMPLOYEES. Immigrants comprise a significant portion
of the workforce in the landscape and tree services industry. Any change to
existing U.S. immigration policy that restricts the ability of foreign workers
to obtain employment in the United States is likely to contribute to a shortage
of available labor. Immigration laws require the Company to confirm the legal
status of its immigrant labor force. From time to time, the Company may
unknowingly employ illegal immigrants. The Company, as a significant employer of
immigrant laborers, is subject to periodic, random searches by the Immigration
and Naturalization Service ("INS"). If the INS finds illegally employed
immigrants, the Company would suffer the loss of a portion of its labor force
and possibly fines, which could be substantial in amount. Any violation of
immigration laws by the Company could have a material adverse affect on the
Company. See "Business -- Regulation."
COMPETITION. The landscape and tree services markets are highly
competitive and are served by numerous small, owner-operated companies operating
in limited geographic areas. The Company also competes with a few large, private
landscape service companies operating in multiple markets which, to date, have
acquired a small number of landscape companies. TruGreen-ChemLawn, a division of
ServiceMaster Co., recently acquired several commercial landscape service
companies, although it continues to focus primarily on residential lawn
spraying. Because a significant portion of the Company's landscape and tree
service business is competitively bid, price is an important competitive factor.
Some of the Company's competitors may have lower overhead cost structures and
could outbid the Company for landscape and tree service contracts by offering
their services at a lower price than is profitable for the Company. Competition
in the line clearing market is characterized by a small number of large
companies, led by Asplundh Tree Expert Company ("Asplundh"), that have the
financial resources necessary to meet the significant capital requirements of
this industry segment. The Company may face competition for acquisition targets
from the small number of large companies in both the landscape and tree services
segments. These companies may have greater name recognition and greater
financial resources than the Company with which to finance acquisition and
development opportunities and the ability to pay higher prices, which could
limit the Company's acquisition program. See "Business -- Competition."
SEASONALITY OF THE LANDSCAPE SERVICES INDUSTRY. Landscape maintenance and
installation services are subject to weather-related seasonal variations. In
markets served by the Founding Companies that do not have a year-round growing
season, the demand for landscape services decreases significantly during winter
months. Although those Founding Companies operating in colder climates offer
snow removal services during the winter, these services do not compensate for
the decrease in landscape maintenance revenues during winter months. In
addition, extended periods of inclement weather can have an adverse effect on
the Company's ability to complete landscape installation projects. Accordingly,
the Company may have lower revenues and operating results in the first and
fourth quarters of each year. See "Management's Discussion and
Analysis -- Seasonality and Cyclicality."
CYCLICAL NATURE OF LANDSCAPE INSTALLATION. The landscape installation
business is highly cyclical and reflects the trends of the commercial real
estate construction industry. Factors influencing the level of commercial real
estate construction include interest rates and the availability of financing,
inflation, local occupancy rates, demand for commercial space and general
economic conditions. As a result, the installation segment of the Company's
business will be adversely affected by a decline in commercial real estate
construction activity in the markets it serves. In addition, on installation
projects for which there is inadequate project financing or cost overruns, the
Company may have difficulty in obtaining payment for all or a portion of its
services. See "Management's Discussion and Analysis -- Seasonality and
Cyclically."
RISKS ASSOCIATED WITH MAINTENANCE CONTRACTS. A significant portion of the
Company's landscape maintenance and line clearing contracts are terminable at
will by either party on 30 to 90 days' notice, with
12
<PAGE>
terms generally ranging from one to two years for landscape maintenance
contracts and three to five years for line clearing contracts. Termination or
non-renewal of a landscape maintenance contract occurs primarily because of
turnover of property ownership or management or because of a competitor's
bidding the job at a lower price than the Company. Because of the relatively
large size of the Company's line clearing contracts with utilities, the
termination or non-renewal of a large contract could have a material adverse
effect on the Company's results of operations. There can be no assurance that
the Company's customers will not terminate their contracts or renew their
contracts upon expiration. Termination or non-renewal of contracts by a
significant number of the Company's customers would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Operations."
CLAIMS EXPOSURE; INSURANCE. Many of the services provided by the Company
pose the risk of serious personal injury to the Company's site employees. The
Company's employees regularly use dangerous equipment, such as lawn mowers,
edgers, tractors and chain saws, and work in hazardous areas, such as in trees
or near power lines. As a result, there is a significant risk of work-related
injury and workers' compensation claims. Workers' compensation insurance has
been a significant operating expense at each Founding Company. The Founding
Companies currently maintain workers' compensation insurance with deductibles of
as much as $350,000 per claim. The Founding Companies also operate large numbers
of vehicles on public roads and, therefore, are subject to claims for personal
injury or property damage. The Founding Companies also maintain liability
insurance for bodily injury and property damage with deductibles of as much as
$350,000 per claim. The Company could become subject to one or more as yet
unasserted claims which, if decided adversely to the Company, could have a
material adverse effect on the Company's operating results. To the extent that
the Company experiences a material increase in the frequency or severity of
accidents or workers' compensation claims, or unfavorable developments on
existing claims, the Company's operating results and financial condition could
be materially adversely affected. Significant increases in the Company's claim
and insurance costs, to the extent not offset by revenue increases, would reduce
the Company's profitability. See "Business -- Risk Management, Insurance and
Litigation."
REGULATION. The Company is subject to various federal, state and local
laws and regulations relating to the employment of immigrants, workplace health
and safety in the landscape and tree services industry, the application of
fertilizers, herbicides, pesticides and other chemicals, noise and air pollution
from power equipment and local zoning regulations requiring improved water
management techniques. Although the Company believes it is in substantial
compliance with applicable laws and regulations and has all licenses required to
operate its business, there can be no assurance that the regulatory environment
in which the Company operates will not change significantly in the future. The
Company's failure to comply with applicable laws and regulations could subject
it to the temporary loss of a portion of its labor force, substantial fines or
the loss of its licenses and/or some of its employees which, in turn, would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Regulation."
RISK OF UNIONIZATION. Most of the Company's operations are non-union.
There can be no assurance, however, that some or all of the Company's labor
force will not unionize in the future. Because of its size and increased
visibility as a public company, the Company believes that the risk of
unionization may increase upon consummation of the Offering. Due to the highly
labor intensive and price competitive nature of the landscape and tree services
industry, the cost to the Company of unionization of its labor force could be
substantial. Unionization would likely increase the Company's wage scale, which
in turn could adversely affect the Company's profitability and ability to bid
jobs competitivity with smaller, non-unionized companies. Union activity or a
union workforce could increase the risk to the Company of a strike, which would
adversely affect the Company's results of operations and relationships with its
customers. Furthermore, if the Company's workforce were to unionize, it could
adversely affect the Company's acquisition strategy for a variety of reasons,
including a reluctance of non-union acquisition targets to become affiliated
with a unionized company. See "Business -- Employees."
13
<PAGE>
RELIANCE ON KEY PERSONNEL. The Company will be highly dependent on the
continuing efforts of its executive officers and the senior management of the
Founding Companies, and the Company likely will depend on the senior management
of any significant business it acquires in the future. The business or prospects
of the Company could be adversely affected if any of these persons does not
continue in his or her management role until the Company is able to attract and
retain qualified replacements. See "Management."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Following the completion
of the Mergers and this Offering, the Company's executive officers and
directors, former stockholders of the Founding Companies and entities affiliated
with them will beneficially own approximately 58.8% of the outstanding shares of
Common Stock (55.5% if the Underwriters' over-allotment option is exercised in
full). These persons, if acting in concert, will be able to exercise control
over the Company's affairs, to elect the entire Board of Directors and to
control the outcome of any matter submitted to a vote of stockholders. See
"Principal Stockholders."
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO STOCKHOLDERS OF FOUNDING
COMPANIES. Of the net proceeds of this Offering, $27.2 million, or 57.7%, will
be paid as the cash portion of the purchase price for the Founding Companies.
Some of the recipients of these funds will become directors of the Company or
holders of more than 5% of the Common Stock. Additionally, Notre has advanced to
LandCARE funds to cover certain organization expenses and Offering costs and
will be reimbursed up to $3.0 million from the proceeds of this Offering. See
"Use of Proceeds" and "Certain Transactions."
NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE. Prior to this
Offering, there has been no public market for the Common Stock. Therefore, the
initial public offering price for the Common Stock will be determined by
negotiation between the Company and the Representatives of the Underwriters and
may bear no relationship to the price at which the Common Stock will trade after
the Offering. See "Underwriting" for the factors to be considered in
determining the initial public offering price. The Company will apply for
listing of the Common Stock on The New York Stock Exchange ("NYSE") under the
symbol "GRW." However, there can be no assurance that an active trading market
will develop subsequent to this Offering or, if developed, that it will be
sustained. After this Offering, the market price of the Common Stock may be
subject to significant fluctuations in response to numerous factors, including
the timing of any acquisitions by the Company, variations in the Company's
annual or quarterly financial results or those of its competitors, changes by
financial research analysts in their estimates of the future earnings of the
Company, conditions in the economy in general or in the Company's industry in
particular, unfavorable publicity or changes in applicable laws and regulations
(or judicial or administrative interpretations thereof) affecting the Company or
the landscape and tree services industry generally. From time to time, the stock
market experiences significant price and volume volatility, which may affect the
market price of the Common Stock for reasons unrelated to the Company's
performance.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. Upon consummation of the Mergers and this Offering, 12,722,043 shares of
Common Stock will be outstanding. The 5,000,000 shares sold in this Offering
(other than shares that may be purchased by affiliates of the Company) will be
freely tradable. The remaining outstanding shares may be resold publicly only
following their registration under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an available exemption from registration
(such as provided by Rule 144 following a one year holding period for previously
unregistered shares). The holders of these remaining shares have certain rights
to have their shares registered in the future under the Securities Act, but may
not exercise such registration rights, and have agreed with the Company that
they will not sell, transfer or otherwise dispose of any of their shares, for
two years following the consummation of this Offering. See "Shares Eligible for
Future Sale." Upon consummation of this Offering, the Company also will have
outstanding options to purchase up to a total of 1,437,819 shares of Common
Stock. The Company intends to register all the shares subject to these options
under the Securities Act for public resale. The Company intends to register
5,000,000 additional shares of Common Stock under the Securities Act within 90
days after completion of its offering for issuance in
14
<PAGE>
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.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. LandCARE'S
Certificate of Incorporation (the "Certificate of Incorporation"), authorizes
the Board of Directors to issue, without stockholder approval, one or more
series of preferred stock having such preferences, powers and relative,
participating, optional and other rights (including preferences over the Common
Stock respecting dividends and distributions and voting rights) as the Board of
Directors may determine. The existence of this "blank-check" preferred stock
could render more difficult or discourage an attempt to obtain control of the
Company by means of a tender offer, merger, proxy contest or otherwise. In
addition, the Certificate of Incorporation provides for a classified Board of
Directors, which may also have the effect of inhibiting or delaying a change in
control of the Company. Certain provisions of the Delaware General Corporation
Law may also discourage takeover attempts that have not been approved by the
Board of Directors. See "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock in this
Offering will experience immediate, substantial dilution in the pro forma net
tangible book value of their stock of $8.28 per share and may experience further
dilution in that value from issuances of Common Stock in connection with future
acquisitions. See "Dilution."
15
<PAGE>
THE COMPANY
LandCARE was founded in 1997 to become a leading national provider of
comprehensive landscape and tree services to the commercial and institutional
markets, by offering clients a full range of landscape maintenance, landscape
installation and line clearing services. The Company serves a diverse set of
customers including regional and national property owners and managers, real
estate developers, corporations, utilities, universities and governmental
entities. Properties served by the Company include office buildings,
multi-family residential complexes, shopping centers, corporate and university
campuses, parks, hotels and resorts. The Company is also a leading provider of
line clearing services to utilities. Approximately 75% of the Company's pro
forma combined revenues in 1997 were attributable to maintenance services, which
include line clearing for utility customers, and 25% were attributable to
installation services. Upon consummation of this Offering, LandCARE will acquire
seven Founding Companies, which have been in business an average of 25 years.
Pro forma combined revenues of the Founding Companies were $118.8 million in
1997 and historical combined revenues increased at a compound annual growth rate
of approximately 10% from 1995 through 1997. For a description of the
transactions pursuant to which these businesses will be acquired, see "Certain
Transactions -- Organization of the Company." The following is a description of
the Founding Companies:
TREES, INC. -- Trees, headquartered in Houston, Texas, was founded in 1953
and serves customers in 12 states. Trees provides line clearing services
primarily to utility customers and provides commercial and residential tree
services to customers in Houston. Trees had calendar year 1997 revenues of $50.1
million and currently has approximately 1,325 year-round employees. In calendar
year 1997, line clearing services accounted for approximately 96% of Trees'
revenues. Linda T. Benge, the President and Chief Executive Officer of Trees,
has been employed by Trees for over 17 years. Following the consummation of this
Offering, she will sign a five-year employment agreement with Trees to continue
her present position and will become a director of the Company.
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC. -- Four Seasons Landscape and
Maintenance, Inc. ("Four Seasons"), headquartered in Foster City, California,
was founded in 1973 and operates in northern California, with six branches in
the Bay Area and two branches in Sacramento. Four Seasons provides commercial
landscape maintenance and commercial tree services but does not provide
landscape installation services. Four Seasons had revenues of $16.1 million in
1997 and had approximately 440 employees at peak season. James R. Marcus, the
founder and Chairman of Four Seasons, has been employed by Four Seasons for over
25 years. Harold D. Cranston has been employed by Four Seasons for 10 years.
Following the consummation of this Offering, Mr. Marcus will sign a five-year
employment agreement with Four Seasons to continue his present position and will
become a Director of Corporate Development of the Company; Mr. Cranston will
sign a five-year employment agreement with the Company to serve as its Chief
Operating Officer and will become a director the Company.
SOUTHERN TREE & LANDSCAPE CO., INC. -- Southern Tree & Landscape Co., Inc.
("Southern Tree"), headquartered in Charlotte, North Carolina, was founded in
1977 and operates in North Carolina and South Carolina with four branches in
North Carolina and one branch in South Carolina. Southern Tree provides
commercial landscape installation and maintenance services, as well as
commercial tree services. Southern Tree had revenues of $14.2 million in 1997
and had over 300 employees at peak season. In 1997, landscape maintenance and
installation each accounted for 44% of Southern Tree's revenues, with the
remaining 12% attributable to tree sales. Roger S. Braswell, the founder of
Southern Tree, has been employed by Southern Tree for over 20 years and has
approximately 30 years of industry experience. Following consummation of this
Offering, Mr. Braswell will sign a five-year employment agreement with Southern
Tree to serve as a Vice President and will become a Director of Corporate
Development and a director of the Company.
D.R. CHURCH LANDSCAPE CO., INC. -- D.R. Church Landscape Co., Inc.
("Church"), headquartered in Chicago, Illinois, was founded in 1963 and
operates in the greater Chicago and Milwaukee areas, with branches in Lombard
and Wadsworth, Illinois and Milwaukee, Wisconsin. Church provides commercial
landscape installation and maintenance services, as well as snow removal. Church
had revenues of $13.3 million in 1997 and had approximately 250 employees at
peak season. In 1997, landscape maintenance and
16
<PAGE>
installation services accounted for 49% and 51% of Church revenues,
respectively. Bruce A. Church, the President of Church, has been employed by
Church for over 20 years and has over 24 years of industry experience. Following
the consummation of this Offering, he will sign a five-year employment agreement
with Church to continue his present position and will become a director of the
Company.
GROUND CONTROL LANDSCAPING, INC. -- Ground Control Landscaping, Inc.
("Ground Control"), headquartered in Orlando, Florida, was founded in 1978 and
operates branches in Tampa and Orlando. Ground Control provides commercial
landscape installation and maintenance services. Ground Control had revenues of
$9.0 million in 1997 and had approximately 175 employees at peak season. In
1997, landscape maintenance and installation services accounted for 43% and 57%
of Ground Control's revenues, respectively. Mark S. Yahn, the founder and Chief
Executive Officer of Ground Control, has been employed by Ground Control for
over 20 years. Following the consummation of this Offering, he will sign a
five-year employment agreement with Ground Control to continue his present
position and will become a director of the Company.
ARTEKA CORPORATION -- Arteka Corporation, Arteka Natural Green Corporation
and Arteka Nurseries, Inc. (collectively, "Arteka"), headquartered in Eden
Prairie, Minnesota, were founded beginning in 1973 and operate in four locations
in the Twin Cities area. Arteka provides commercial landscape installation and
maintenance services, operates a tree nursery which primarily provides trees for
its own operations and provides snow removal. Arteka had revenues of $7.4
million in 1997 and had approximately 115 employees at peak season. Arteka
purchased two landscape maintenance service companies on December 31, 1997, with
combined 1997 revenues of $2.6 million. On a pro forma combined basis for these
two acquisitions made in December 1997, landscape maintenance and installation
services accounted for 41% and 59% of Arteka's revenues, respectively. David K.
Luse, the founder of Arteka, has been employed by Arteka for 25 years. Following
the consummation of this Offering, Mr. Luse will sign a five-year employment
agreement with Arteka to continue as Chief Executive Officer, and will become a
Director of Corporate Development and a director of the Company.
DESERT CARE LANDSCAPING, INC. -- Desert Care Landscaping, Inc. ("Desert
Care"), was founded in 1992 and operates two branches in Phoenix. Desert Care
provides commercial landscape installation and maintenance services. Desert Care
also provides native plant reclamation, which consists of temporarily removing
native plants, maintaining them during a construction period and replacing them
following construction. Desert Care had revenues of $6.5 million in 1997 and had
approximately 165 employees at peak season. In 1997, landscape maintenance and
installation services accounted for 41% and 59% of Desert Care's revenues,
respectively. Jeff A. Meyer, the founder, President and Chief Executive Officer
of Desert Care, has been employed by Desert Care for over five years and has
over 17 years of industry experience. Following the consummation of this
Offering, he will sign a five-year employment agreement with Desert Care to
continue his present position and will become a director of the Company.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,000,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated Offering and Merger expenses, are estimated to be
$47.2 million ($54.8 million if the Underwriters' over-allotment option is
exercised in full).
Of the net proceeds, $27.2 million will be used to pay the cash portion of
the purchase price for the Founding Companies, some of which will be paid to
persons who will become directors of the Company or will become holders of 5% or
more of the Common Stock.
A portion of the remaining net proceeds from this Offering will be used to
repay all of the $14.2 million of indebtedness of the Founding Companies. The
indebtedness to be repaid includes revolving credit facilities and equipment and
vehicle loans, which mature at various dates through 2013. The revolving credit
facilities bore interest at rates ranging from 9.25% to 9.75% as of December 31,
1997. The equipment and vehicle loans bore interest at rates from 4.9% to 21.0%
as of December 31, 1997. Borrowings under these revolving credit facilities were
used for working capital requirements. The Company will use the remaining net
proceeds of the Offering and borrowings under the credit facility described
below to fund the cash requirements of its acquisition program, for working
capital and for general corporate purposes.
The Company is seeking a commitment for a credit facility of at least $50
million, which is expected to be available upon the consummation of this
Offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Combined Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company intends to retain all of its future earnings, if any, to
finance the expansion of its business and for general corporate purposes,
including future acquisitions and, therefore, does not anticipate paying any
cash dividends on its Common Stock for the foreseeable future. In addition, the
Company expects that its credit facility will include restrictions on the
ability of the Company to pay cash dividends without the consent of the lender.
Prior to the Mergers, certain of the Founding Companies will make S
Corporation Distributions aggregating $1.4 million and certain Founding
Companies will make distributions of the Other Assets having a net book value of
approximately $0.7 million to their former stockholders. To fund the S
Corporation Distributions, the Founding Companies will borrow approximately $1.2
million from existing sources, which will be repaid from the net proceeds of the
Offering.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization at December 31, 1997, (i)
on a pro forma combined basis to give effect to the Mergers, the S Corporation
Distributions and the distribution of the Other Assets, and (ii) pro forma
combined, as adjusted, to give effect to the Mergers, the S Corporation
Distributions, the distribution of the Other Assets, this Offering and the
application of a portion of the estimated net proceeds therefrom. This table
should be read in conjunction with the Company's Unaudited Pro Forma Combined
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
DECEMBER 31, 1997
-------------------------
PRO FORMA
COMBINED AS ADJUSTED
---------- -----------
(IN THOUSANDS)
Long-term obligations, including
current maturities(1)................ $ 11,638 $ --
Stockholders' equity:
Preferred Stock: $0.01 par
value, 5,000,000 shares
authorized;
none issued................... -- --
Common Stock: $0.01 par value,
100,000,000 shares authorized;
7,532,043 issued and
outstanding pro forma
combined; and 12,532,043
shares issued and outstanding,
pro forma
as adjusted(2)................ 75 125
Additional paid-in capital........... 35,075 82,160
Retained earnings.................... 9,223 9,223
---------- -----------
Total stockholders' equity...... 44,373 91,508
---------- -----------
Total capitalization....... $ 56,011 $91,508
========== ===========
- ------------
(1) Does not include amounts outstanding under the Founding Companies' short
term lines of credit which totaled $2.5 million at December 31, 1997. These
short term lines of credit will be repaid with the net proceeds of this
Offering. For a description of the Company's long-term obligations, see
Notes to the Founding Companies' Financial Statements.
(2) Excludes (i) 190,000 shares of Common Stock issued to management and
directors of the Company in the first quarter of 1998 and (ii) 100,000
shares of Common Stock subject to options with an exercise price of $6.00
per share granted to the Company's Chief Operating Officer in February 1998
and 1,337,819 shares of Common Stock subject to options to be granted upon
consummation of this Offering with an exercise price equal to the initial
public offering price. See "Management -- 1998 Long-Term Incentive Plan"
and "-- 1998 Non-Employee Directors' Stock Plan."
19
<PAGE>
DILUTION
The deficit in pro forma net tangible book value of the Company at December
31, 1997 was approximately $12.5 million, or $1.62 per share of Common Stock.
The deficit in net tangible book value per share represents the amount of the
Company's stockholders' equity, less intangible assets, divided by the number of
shares of Common Stock issued and outstanding after giving effect to the
Mergers. Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
Offering and the pro forma net tangible book value per share of Common Stock
immediately after completion of the Offering. After giving effect to the sale of
5,000,000 shares of Common Stock by the Company in the Offering and the
application of the estimated net proceeds therefrom, the pro forma net tangible
book value of the Company as of December 31, 1997 would have been $34.7 million,
or $2.72 per share. This represents an immediate increase in pro forma net
tangible book value of $4.34 per share to stockholders as of December 31, 1997,
and an immediate dilution in pro forma net tangible book value of $8.28 per
share to purchasers of Common Stock in the Offering. The following table
illustrates the dilution per share:
Assumed initial public offering price
per share............................ $ 11.00
Pro forma deficit in net
tangible book value per share
before the Offering............ $ (1.62)
Increase in pro forma net
tangible book value per share
attributable to new
investors...................... 4.34
---------
Pro forma net tangible book value per
share after the Offering............ 2.72
---------
Dilution per share to new
investors........................... $ 8.28
=========
The following table sets forth, on a pro forma basis to give effect to the
Mergers as of December 31, 1997, the number of shares of Common Stock purchased
from the Company, the aggregate cash consideration paid and the average price
per share paid to the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED AVERAGE
------------------------- TOTAL PRICE
NUMBER PERCENT CONSIDERATION(1) PER SHARE
-------------- -------- ----------------- ----------
<S> <C> <C> <C> <C>
Existing stockholders................ 7,722,043 60.7% $ (12,481,000) $(1.62)
New investors........................ 5,000,000 39.3 55,000,000 $11.00
-------------- -------- -----------------
Total...................... 12,722,043 100.0% $ 42,519,000
============== ======== =================
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the pro forma
net tangible book value of the Company, after giving effect to the Mergers.
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
LandCARE will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, Trees has been identified as the "accounting acquiror."
The following selected financial data for Trees as of March 31, 1997 and
December 31, 1997 and for the years ended March 31, 1996 and 1997 and the nine
months ended December 31, 1997 have been derived from audited financial
statements of Trees included elsewhere in this Prospectus. The selected
historical financial data for Trees as of March 31, 1994, 1995 and 1996 and for
the years ended March 31, 1994 and 1995 have been derived from audited financial
statements not included in this Prospectus. The selected Unaudited Pro Forma
Combined Financial Data present data for the Company, adjusted for (i) the
effects of the Mergers, (ii) the effects of certain pro forma adjustments to the
historical financial statements described below and (iii) the consummation of
this Offering and the application of the net proceeds therefrom. See the
Unaudited Pro Forma Combined Financial Statements and the Notes thereto and the
historical Financial Statements of LandCARE and certain of the Founding
Companies and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------ -------------
1994 1995 1996 1997 1997
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
TREES
Revenues........................ $ 43,753 $ 42,024 $ 47,142 $ 44,847 $38,764
Cost of services................ 39,873 38,775 41,054 39,046 33,667
--------- --------- --------- --------- -------------
Gross profit.................... 3,880 3,249 6,088 5,801 5,097
Selling, general and
administrative expenses....... 3,502 2,791 3,224 4,264 2,523
--------- --------- --------- --------- -------------
Operating income................ 378 458 2,864 1,537 2,574
Interest and other income
(expense), net................ (678) (476) (448) (101) 493
--------- --------- --------- --------- -------------
Income before income taxes...... (300) (18) 2,416 1,436 3,067
Income tax provision
(benefit)..................... (137) (31) 896 553 1,177
--------- --------- --------- --------- -------------
Net income...................... $ (163) $ 13 $ 1,520 $ 883 $ 1,890
========= ========= ========= ========= =============
</TABLE>
YEAR ENDED
DECEMBER 31,
1997
------------
PRO FORMA COMBINED(1)
Revenues(2)..................... $118,804
Cost of services................ 93,252
------------
Gross profit.................... 25,552
Selling, general and
administrative expenses(3)..... 14,290
Goodwill amortization(4)........ 1,421
------------
Operating income................ 9,841
Interest and other income
(expense), net(5).............. 876
------------
Income before income taxes...... 10,717
Income tax provision(6)......... 4,865
------------
Net income...................... $ 5,852
============
Net income per share............ $ 0.48
============
Shares used in computing pro
forma net income per
share(7)....................... 12,222,592
(FOOTNOTES ON FOLLOWING PAGE)
21
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------------------------ ------------
1994 1995 1996 1997 1997
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
TREES
Working capital................. $ 2,200 $ 1,122 $ 3,191 $ 3,480 $ 4,430
Total assets.................... 19,875 18,491 18,700 17,586 20,359
Long-term debt, net of current
maturities.................... 2,077 1,384 750 3,160 2,908
Stockholders' equity............ 8,184 7,963 9,305 7,178 9,068
</TABLE>
- ------------
(1) Assumes that the Mergers and the Offering were consummated on January 1,
1997 and is not necessarily indicative of the results the Company would have
obtained had these events actually then occurred or of the Company's future
results.
(2) Reflects pro forma increases in revenues of approximately $2.6 million
associated with the acquisition by Arteka of two landscape service companies
in December 1997 and a pro forma reduction in revenues of $0.2 million
associated with the nursery operations of Church, which will not be acquired
in the Mergers.
(3) Reflects the Compensation Differential of approximately $2.6 million and the
Rent Differential of approximately $0.1 million. These data do not include
the non-cash Compensation Charge of $6.6 million.
(4) Consists of the amortization of goodwill to be recorded as a result of the
Mergers, computed on the basis described in Notes to the Unaudited Pro Forma
Combined Financial Statements.
(5) Reflects $1.3 million in pro forma reductions in interest expense of the
Founding Companies as the result of the planned repayment of the Founding
Companies' existing debt (the "Interest Differential").
(6) Assumes all income is subject to an effective corporation tax rate of 40%,
and the non-deductibility of goodwill amortization.
(7) Includes (i) 5,162,645 shares to be issued to owners of the Founding
Companies, (ii) 985,240 shares issued to the management and directors of and
consultants to LandCARE, (iii) 1,574,158 shares issued to Notre, (iv) 25,000
shares (determined to be Common Stock equivalents for purposes of computing
earnings per share) of the 100,000 shares issuable upon the exercise of
outstanding options, and (v) 4,475,549 of the 5,000,000 shares to be sold in
the Offering necessary to pay the cash portion of the Merger consideration
expenses of this Offering and to repay the Founding Companies' existing
debt. Excludes options to purchase 1,337,819 shares of Common Stock to be
granted upon consummation of this Offering at the initial public offering
price.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Founding Companies' Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's revenues are derived from providing landscape and tree
services to the commercial and institutional markets. The Company offers a full
range of landscape maintenance, landscape installation and tree services
capabilities, including trimming trees and other plant growth away from power
lines, generally known as "line clearing." The Company serves a diverse set of
customers, including regional and national property owners and managers, real
estate developers, corporations, utilities, universities and governmental
entities. Properties served by the Company include office buildings,
multi-family residential complexes, shopping centers, corporate and university
campuses, parks, hotels, resorts and governmental facilities. Approximately 75%
of the Company's pro forma combined revenues in 1997 were attributable to
maintenance services, which include line clearing for utility customers, and 25%
were attributable to installation services. Upon consummation of this Offering,
LandCARE will acquire the seven Founding Companies, which have been in business
an average of 25 years. Pro forma combined revenues of the Founding Companies
were $118.8 million in 1997 and historical combined revenues increased at a
compound annual growth rate of approximately 10% from 1995 through 1997. In
addition to emphasizing internal growth, the Company intends to implement an
aggressive acquisition program.
The Founding Companies operated throughout the periods presented as
independent, privately-owned entities, and their results of operations reflect
this and their varying tax structures (S Corporations or C Corporations) which
have influenced the historical level of owners' compensation. Selling, general
and administrative expenses as a percentage of revenue may not be comparable
among the individual Founding Companies because the levels of owners'
compensation may differ among them. The owners of the Founding Companies have
contractually agreed to certain reductions in both their compensation and
benefits. The Compensation Differential for 1997 of $2.6 million has been
reflected as a pro forma adjustment in the accompanying Unaudited Pro Forma
Combined Statement of Operations presented elsewhere in this Prospectus.
The Company is seeking to obtain a credit facility of at least $50 million,
which would be available upon the consummation of this Offering. This credit
facility would be used for working capital and acquisitions. In addition, the
Company intends to repay, from the net proceeds of the Offering, $14.2 million
of the Founding Companies' debt, representing all of their outstanding debt.
Accordingly, the Interest Differential for 1997 of $1.3 million has been
reflected as a pro forma adjustment in the Unaudited Pro Forma Combined
Statements of Operations presented elsewhere in this Prospectus. The Company
also believes that following the Mergers, opportunities will exist to increase
its profitability through implementation of the Company's operating strategy, as
well as internal growth and expansion through acquisitions. It is the Company's
objective that the potential increase in profitability associated with the
Company's operating strategy will at least offset the costs related to the
Company's new corporate management and by the costs attributable to being a
public company. However, because these costs cannot be accurately quantified at
this time, they have not been considered in the pro forma financial information
included herein.
From November 1997 through March 1998, the Company sold an aggregate of
985,240 shares of Common Stock to management, directors and certain consultants
of the Company for $0.01 per share and issued options to purchase 100,000 shares
of Common Stock at an exercise price of $6.00 per share to its Chief Operating
Officer. As a result, LandCARE has recorded non-recurring, non-cash compensation
charges of $6.6 million and $1.8 million during 1997 and the first quarter of
1998, respectively, representing the difference between the amount paid for the
shares and the estimated fair value of the shares on the date of
23
<PAGE>
the sale, offset by a charge for the recurring portion of management salaries as
if the Founding Companies had then been combined.
The Mergers will be accounted for using the purchase method of accounting.
Trees has been designated as the "accounting acquiror" in the Mergers.
Accordingly, the Company will record goodwill of $56.9 million, representing the
excess of the fair value of the Merger consideration paid over the fair value of
the net assets acquired from the other Founding Companies, plus the fair value
of shares issued to Notre and consultants and a portion of the shares issued to
management. The goodwill 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 $1.4 million per year. The amount of goodwill to be recorded
and the related amortization expense will depend on the actual Offering price.
See "Certain Transactions -- Organization of the Company."
A brief description of the accounting classifications used to present the
results of operations of the Founding Companies is as follows.
REVENUES. The Founding Companies' revenues consist of maintenance revenues
and installation revenues. Generally, the Company's landscape maintenance
contracts are for terms of one to two years and payments to the Company are
remitted monthly over the term of the contract. In colder climates, most
landscape maintenance contracts cover seven to nine months of the year. Revenues
from maintenance contracts are recognized as monthly bills are rendered.
Generally, the Company's line clearing contracts are for terms of three to five
years, and payments to the Company are remitted monthly based on work performed
during the month. Revenues from the Company's landscape installation projects
are recognized when the services are performed and billable under the terms of
the applicable contract. Revenues include only the net profit realized by the
Company from the use of subcontractors. This net profit has historically been
approximately 1.0% of the Company's revenues.
COST OF SERVICES. Cost of services represents direct labor and associated
costs (such as benefits and workers' compensation expense), materials,
supervisory personnel, operating facilities' rent and equipment and vehicle
costs, such as fuel, insurance and depreciation. The Company's landscape and
tree services businesses are labor intensive, and accordingly, a substantial
portion of the costs incurred to complete a project are labor related. As a
result, fluctuations in the cost of labor will have a significant effect on the
Founding Companies' profitability.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include owners' compensation, selling and other
administrative costs. In addition, the costs of training and safety programs are
included in this category.
SEASONALITY AND CYCLICALITY
The Company has experienced and expects to continue to experience
variability in revenue and net income as a result of the seasonal nature of the
Company's business. Generally, the Company's revenues from installation projects
are concentrated during the warmer months of April to October. Revenues from
maintenance contracts remain relatively constant throughout the year, except in
colder climates, where landscape maintenance contracts typically do not generate
revenues in the winter unless snow removal is contracted for by the customer. As
a result, the gross margin from landscape maintenance contracts can vary
seasonally because the amount of work performed tends to be lower, even in
warmer climates, during winter months. Most line clearing contracts are not
affected by seasonality. Historically, the Founding Companies' maintenance
services have not been cyclical and have not been significantly affected by
changes in economic conditions. However, the Founding Companies' installation
operations have experienced significant fluctuations based on economic
conditions, the commercial real estate market and other factors beyond the
control of the Company. The Founding Companies collectively have a
geographically broad customer mix which may tend to mitigate regional seasonal
and cyclical trends. There can be no assurance, however, that period-to-period
differences will not occur in the future or that pronounced cyclical or seasonal
patterns will not emerge.
24
<PAGE>
RESULTS OF OPERATIONS -- COMBINED
The historical combined results of operations of the Founding Companies for
the periods presented do not represent historical combined results of operations
presented in accordance with generally accepted accounting principles, but are
only a summation of the revenue, cost of services, selling, general and
administrative expenses, other income and expense and net income of the
individual Founding Companies. The historical combined results also exclude the
effect of pro forma adjustments and, therefore, may not be indicative of the
Company's post-combination results of operations for a number of reasons,
including the following: (i) the Founding Companies were not under common
control or management during the periods presented, (ii) the Founding Companies
used different tax structures (S Corporations or C Corporations) during the
periods presented, (iii) the Company will incur incremental costs related to its
new corporate management and the costs of being a publicly-traded company, (iv)
the Company will use the purchase method of accounting to record the Mergers,
resulting in the recording and amortization of goodwill and (v) the historical
combined data do not reflect the Compensation Differential or the potential
benefits and cost savings the Company expects to realize once LandCARE and the
Founding Companies begin operating as a combined entity.
The following table sets forth selected combined statement of operations
data of the Founding Companies on a historical basis and as a percentage of
total revenue for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1995(1) 1996(1) 1997(1)
-------------------- --------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 96,963 100.0% $ 103,487 100.0% $ 116,410 100.0%
Cost of services..................... 78,553 81.0 84,264 81.4 92,167 79.2
--------- --------- ---------- --------- ---------- ---------
Gross profit......................... 18,410 19.0 19,223 18.6 24,243 20.8
Selling, general and administrative
expenses........................... 13,706 14.1 16,911 16.4 16,390 14.1
--------- --------- ---------- --------- ---------- ---------
Income from operations............... 4,704 4.9 2,312 2.2 7,853 6.7
Interest and other income (expense),
net................................ (977) (1.1) (670) (0.6) (361) (0.3)
--------- --------- ---------- --------- ---------- ---------
Income before income taxes........... $ 3,727 3.8% $ 1,642 1.6% $ 7,492 6.4%
========= ========= ========== ========= ========== =========
</TABLE>
- ------------
(1) The financial data included for Trees is for the fiscal years ended March
31, 1996 and 1997 and the year ended December 31, 1997.
COMBINED RESULTS FOR 1997 COMPARED TO 1996
REVENUES. Combined revenues increased $12.9 million, or 12.5%, from $103.5
million in 1996 to $116.4 million in 1997, primarily due to an increase in
maintenance revenues of $11.3 million. This increase in maintenance revenues was
primarily attributable to a $5.2 million increase at Trees resulting from the
addition of a new contract with a major utility during 1997 and expansion of
several other contracts by utility customers. Landscape maintenance revenues
also increased by $6.1 million due to the addition of new maintenance contracts
at the other Founding Companies. Landscape installation revenues increased by
$1.2 million primarily at Desert Care, Church and Arteka.
GROSS PROFIT. Combined gross profit increased $5.0 million, or 26.1%, from
$19.2 million in 1996 to $24.2 million in 1997. Approximately $4.2 million of
the increase in combined gross profit was related to increased revenues at
Trees, Four Seasons, Church and Southern Tree. As a percentage of revenues,
gross profit increased from 18.6% in 1996 to 20.8% in 1997. This margin increase
was primarily due to improved operating efficiencies at Four Seasons resulting
from increased revenues at two new branches opened in 1996 and, to a lesser
extent, margin improvement programs including (i) elimination of less profitable
maintenance contracts, (ii) institution of cost saving programs, including the
bulk purchasing of fertilizer
25
<PAGE>
and irrigation parts and (iii) initiation of higher margin commercial tree
maintenance services. The gross margin was also positively affected by higher
margins on larger installation projects at Church and Ground Control.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses decreased $0.5 million, or 3.1%, from $16.9 million
in 1996 to $16.4 million in 1997. As a percentage of revenues, selling, general
and administrative expenses decreased from 16.4% in 1996 to 14.1% in 1997 due
partially to a non-recurring 1996 accrual by Church to fully reserve for a
potentially uncollectable account receivable from one installation job totaling
approximately $0.9 million. Excluding this charge, selling, general and
administrative expenses decreased from 15.5% of revenues in 1996 to 14.1% in
1997, due to lower owners' compensation during 1997 at Trees and Church.
INTEREST AND OTHER INCOME (EXPENSE), NET. Combined interest and other
expense, net, decreased $0.3 million, or 46.1%, from a net expense of $0.7
million in 1996 to a net expense of $0.4 million in 1997. This decrease was
primarily due to the receipt of a $0.5 million insurance settlement at Trees
during 1997.
COMBINED RESULTS FOR 1996 COMPARED TO 1995
REVENUES. Combined revenues increased $6.5 million, or 6.7%, from $97.0
million in 1995 to $103.5 million in 1996. This increase in combined revenues
was principally due to an increase of $5.2 million in landscape maintenance
revenues at the Founding Companies. Landscape installation revenues increased by
$3.6 million, primarily at Desert Care, Church and Ground Control. These
increases were partially offset by a $3.4 million reduction in revenues at Trees
resulting from the loss of two line clearing contracts in a competitive bidding
process, the reduction in scope of another contract and a $1.2 million decrease
from a one-time project completed in 1995. These declines at Trees were
partially offset by budget increases by utility customers on several other
contracts.
GROSS PROFIT. Combined gross profit increased $0.8 million, or 4.4%, from
$18.4 million in 1995 to $19.2 million in 1996. As a percentage of revenues,
gross profit was 19.0% in 1995 compared to 18.6% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $3.2 million, or 23.4%, from $13.7 million
in 1995 to $16.9 million in 1996. As a percentage of revenues, selling, general
and administrative expense increased from 14.1% in 1995 to 16.4% in 1996. This
percentage increase was partially due to a non-recurring accrual recorded by
Church in 1996 to fully reserve for a potentially uncollectable receivable from
one installation job totaling $0.9 million. Excluding this one-time charge,
selling, general and administrative expenses increased from 14.1% in 1995 to
15.5% in 1996, due to increased owners' compensation at Trees and Church.
INTEREST AND OTHER INCOME (EXPENSE), NET. Combined interest and other
expense, net, decreased $0.3 million, or 31.4%, from a net expense of $1.0
million in 1995 to a net expense of $0.7 million in 1996. This decrease was
primarily due to a reduction in interest expense at Trees as a result of lower
average outstanding debt in 1996.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
On a combined basis, the Founding Companies generated $6.0 million of net
cash from operating activities during 1997. Combined net cash used in investing
activities totaled $5.9 million due primarily to the purchase of vehicles and
equipment totaling $5.9 million. Combined net cash provided by financing
activities totaled $0.5 million, due primarily to borrowings totaling $6.9
million used to fund equipment purchases and working capital by several of the
Founding Companies. These borrowings were partially offset by repayments on
long-term debt totaling $6.4 million by the Founding Companies. As of December
31, 1997, the Founding Companies had combined working capital of $4.7 million
and combined long-term debt of $7.8 million.
The Company intends to pursue an aggressive acquisition program. The
Company expects to fund future acquisitions through the issuance of additional
Common Stock, borrowings under the proposed credit facility discussed below and
with cash flows from operations.
26
<PAGE>
The Company is seeking to obtain a credit facility of at least $50 million,
which would be available upon consummation of the Offering. The credit facility
will be used to fund acquisitions and working capital requirements. It is
anticipated that the credit facility will be subject to various loan covenants
including (i) maintenance of certain financial ratios, (ii) restrictions on
additional indebtedness, and (iii) restrictions on liens, guarantees, advances
and dividends, and will be subject to customary drawing conditions and the
consummation of the Offering.
TREES -- RESULTS OF OPERATIONS
Trees, headquartered in Houston, Texas, was founded in 1953 and serves
customers in 12 states. Trees provides line clearing services primarily to
utility customers and commercial and residential tree services to customers in
Houston.
The following table sets forth the selected statement of operations data
and such results as a percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31 DECEMBER 31,
------------------------------------------ ------------------------------------------
1996 1997 1996 1997
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 47,142 100.0% $ 44,847 100.0% $ 33,525 100.0% $ 38,764 100.0%
Cost of services..................... 41,054 87.1 39,046 87.1 29,144 87.0 33,667 86.9
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 6,088 12.9 5,801 12.9 4,381 13.0 5,097 13.1
Selling, general and administrative
expenses........................... 3,224 6.8 4,264 9.5 3,099 9.2 2,523 6.5
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... 2,864 6.1 1,537 3.4 1,282 3.8 2,574 6.6
Interest and other income (expense),
net................................ (448) (1.0) (101) (0.2) 92 0.3 493 1.3
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income
taxes.............................. $ 2,416 5.1% $ 1,436 3.2% $ 1,374 4.1% $ 3,067 7.9%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
TREES' RESULTS FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE NINE
MONTHS ENDED DECEMBER 31, 1996
REVENUES. Revenues increased by $5.2 million, or 15.6%, from $33.5 million
for the nine months ended December 31, 1996 to $38.8 million for the
corresponding period of 1997. The increase in revenues was primarily
attributable to the addition of a major new contract during 1997 and budget
increases by utility customers on several other contracts.
GROSS PROFIT. Gross profit increased by $0.7 million, or 16.3%, from $4.4
million for the nine months ended December 31, 1996 to $5.1 million for the nine
months ended December 31, 1997. As a percentage of revenues, gross profit
remained constant during both periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $0.6 million, or 18.6%, from $3.1 million
for the nine months ended December 31, 1996 to $2.5 million for the
corresponding period of 1997 due to a decrease in owners' compensation. As a
percentage of revenues, selling, general and administrative expenses decreased
from 9.2% for the nine months ended December 31, 1996 to 6.5% for the nine
months ended December 31, 1997 because of the decrease in owners' compensation.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income, net
increased by $0.4 million, from $0.1 million of income, net for the nine months
ended December 31, 1996 to $0.5 million of income, net for the corresponding
period of 1997 due primarily to the receipt of a $0.5 million insurance
settlement.
TREES' RESULTS FOR THE YEAR ENDED MARCH 31, 1997 COMPARED TO THE YEAR ENDED
MARCH 31, 1996
REVENUES. Revenues decreased by $2.3 million, or 4.9%, from $47.1 million
for the year ended March 31, 1996 to $44.8 million for the year ended March 31,
1997. The decrease in revenues was
27
<PAGE>
primarily due to a $3.4 million reduction resulting from the loss of two line
clearing contracts in a competitive bidding process, the reduction in scope on
another contract and a $1.2 million reduction from a one-time project completed
in 1995. These declines were partially offset by budget increases from utility
customers on several other contracts.
GROSS PROFIT. Gross profit decreased $0.3 million, or 4.7%, from $6.1
million in March 31, 1996 to $5.8 million in March 31, 1997 due to the decrease
in revenues. As a percentage of revenues, gross profit remained constant at
12.9% during both periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.1 million, or 32.3%, from $3.2 million for
the year ended March 31, 1996 to $4.3 million for the corresponding period of
1997, due to a $1.0 million increase in owners' compensation. As a percentage of
revenues, selling, general and administrative expenses increased from 6.8% in
1996 to 9.5% in 1997.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other expense, net
decreased by $0.3 million, from $0.4 million of expense, net for the year ended
March 31, 1996 to $0.1 million of expense, net for the corresponding period of
1997. The primary reason for the decrease was a reduction in interest expense
resulting from lower average outstanding debt during the year ended March 31,
1997.
TREES' LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, Trees' working capital was $4.4 million, compared
to $3.5 million at March 31, 1997. This increase in working capital was
primarily due to an increase in accounts receivable related to equipment
financing. Trees' principal capital requirements are to fund its working capital
and the purchase of vehicles and equipment. Historically, these requirements
have been met by cash flow from operations and, to a lesser extent, borrowings
under the Company's credit facility and notes payable to equipment manufacturers
and distributors.
Net cash provided by operating activities totaled $3.7 million and $3.0
million for the years ended March 31, 1996 and 1997, respectively, and $2.3
million for the nine months ended December 31, 1997. The change between 1996 and
1997 was due to decreased earnings and increased working capital related to
equipment financing.
Net cash used in investing activities totaled $0.3 million, $0.9 million
and $2.2 million for the years ended March 31, 1996 and 1997 and the nine months
ended December 31, 1997, respectively. Capital expenditures for these periods
consisted primarily of vehicle and equipment purchases. During 1997, Trees
invested more heavily in vehicles and equipment than in prior periods to support
its new contracts.
Net cash used in financing activities for the years ended March 31, 1996
and 1997 and the nine months ended December 31, 1997 totaled $1.7 million, $2.0
million and $0.2 million, respectively. The primary component of cash used in
financing activities related to the repayment of long-term debt. During the
years ended March 31, 1996 and 1997 and the nine months ended December 31, 1997,
Trees repaid $2.6 million, $2.0 million and $0.2 million, respectively, of
outstanding borrowings.
Trees has a revolving credit facility which provides for borrowings up to
the lesser of $0.5 million or the loan limit defined by the credit agreement.
Accounts receivable and equipment secure borrowings under the credit facility.
As of March 31, 1997 and December 31, 1997, there were no borrowings outstanding
under the credit facility.
28
<PAGE>
FOUR SEASONS -- RESULTS OF OPERATIONS
Four Seasons, headquartered in Foster City, California, was founded in 1973
and operates in northern California, with six branches in the Bay Area and two
branches in Sacramento. Four Seasons provides commercial landscape maintenance
and commercial tree maintenance services but does not provide landscape
installation services.
The following table sets forth the selected statement of operations data
and such results as a percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1995 1996 1997
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 12,000 100.0% $ 13,367 100.0% $ 16,066 100.0%
Cost of services..................... 9,255 77.1 10,106 75.6 11,067 68.9
--------- --------- --------- --------- --------- ---------
Gross profit......................... 2,745 22.9 3,261 24.4 4,999 31.1
Selling, general and administrative
expenses........................... 2,829 23.6 3,319 24.8 3,754 23.4
--------- --------- --------- --------- --------- ---------
Income from operations............... (84) (0.7) (58) (0.4) 1,245 7.7
Interest and other income (expense),
net................................ (46) (0.4) (31) (0.2) (46) (0.2)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes.... $ (130) (1.1)% $ (89) (0.6)% $ 1,199 7.5%
========= ========= ========= ========= ========= =========
</TABLE>
FOUR SEASONS' RESULTS FOR 1997 COMPARED TO 1996
REVENUES. Revenues increased by $2.7 million, or 20.2%, from $13.4 million
for the year in 1996 to $16.1 million in 1997. This increase was attributable to
the addition of new maintenance contracts, the addition of two branches during
1996, and, to a lesser extent, the initiation of commercial tree maintenance
services in late 1996.
GROSS PROFIT. Gross profit increased by $1.7 million, or 53.3%, from $3.3
million for 1996 to $5.0 million for 1997. As a percentage of revenues, gross
profit increased from 24.4% in 1996 to 31.1% in 1997. Four Seasons improved its
gross margin due to higher revenues at the two new branches opened during 1996
and, to a lesser extent, margin improvement programs including (i) the
elimination of less profitable maintenance contracts, (ii) the institution of
cost savings programs, including the bulk purchase of fertilizer and irrigation
parts and (iii) the initiation of a higher margin commercial tree maintenance
service.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $0.5 million, or 13.1%, from $3.3 million
for 1996 to $3.8 million for 1997, primarily due to the addition of
administrative personnel associated with the opening of the two new branch
locations during 1996 and the expansion of Four Seasons' corporate headquarters
in 1996. As a percentage of revenues, selling, general and administrative
expenses decreased from 24.8% for 1996 to 23.4% for 1997 due to the increase in
revenues at the two new branches.
FOUR SEASONS' RESULTS FOR 1996 COMPARED TO 1995
REVENUES. Revenues increased by $1.4 million, or 11.4%, from $12.0 million
for 1995 to $13.4 million for 1996. This increase in revenues resulted from the
addition of new maintenance contracts at existing branches and, to a lesser
extent, the addition of two new branches during 1996.
GROSS PROFIT. Gross profit increased by $0.6 million, or 18.8%, from $2.7
million for 1995 to $3.3 million for 1996. As a percentage of revenues, gross
profit increased from 22.9% in 1995 to 24.4% in 1996 due to implementation of
the cost savings programs, which began in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $0.5 million, or 17.3%, from $2.8 million
for 1995 to $3.3 million for 1996. As a percentage of revenues, selling, general
and administrative expenses increased from 23.6% for 1995 to 24.8% for 1996,
primarily due to an increase in payroll and related benefits in connection with
the addition of administrative personnel
29
<PAGE>
associated with the opening of the two new branches during 1996 and the
relocation and expansion of the Company's headquarters during 1996.
FOUR SEASONS' LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, Four Seasons' working capital was $0.5 million,
compared to a working capital deficit of $0.2 million at December 31, 1996. Four
Seasons' principal capital requirements are to fund its working capital and the
purchase and improvement of facilities, vehicles and equipment. Four Seasons has
historically satisfied these requirements with cash flow from operations and, to
a lesser extent, with borrowings under its credit facility and notes payable to
a financial institution.
Net cash provided by operating activities for 1995, 1996 and 1997 was $0.2
million, $0.5 million and $1.0 million, respectively. Net cash used in investing
activities was $0.3 million, $0.6 million and $0.4 million for 1995, 1996 and
1997, respectively. Cash used in investing activities was primarily related to
the purchase of vehicles and equipment. Net cash provided by (used in) financing
activities was $0.1 million, $0.1 million and $(0.3) million for 1995, 1996 and
1997, respectively. In 1995, 1996 and 1997, Four Seasons repaid outstanding
long-term borrowings of $0.1 million, $0.1 million and $0.3 million,
respectively. In 1995 and 1996, Four Seasons incurred additional borrowings of
$0.2 million related to the purchase of equipment, vehicles and commercial tree
services equipment and the establishment of new branches.
Four Seasons has a line of credit which provides for borrowings up to $0.6
million. Borrowings under the line of credit are secured by accounts receivable,
inventory and equipment. The line of credit is guaranteed by the shareholders of
the company. Borrowings outstanding on the line of credit as of December 31,
1996 were $0.2 million. There were no borrowings outstanding on the line of
credit as of December 31, 1997.
SOUTHERN TREE -- RESULTS OF OPERATIONS
Southern Tree, headquartered in Charlotte, North Carolina, was founded in
1977 and operates in North Carolina and South Carolina, with four branches in
North Carolina and one branch in South Carolina. Southern Tree provides
commercial landscape installation and maintenance and also offers commercial
tree services.
SOUTHERN TREE'S LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, Southern Tree had a working capital deficit of
$1.1 million. Southern Tree's principal capital requirements are to fund its
working capital and the purchase and improvements of facilities, vehicles and
equipment. Historically, these requirements have been met with cash flow from
operating activities and with borrowings under bank lines of credit and notes
payable to equipment manufacturers and distributors.
Net cash provided by operating activities totaled $0.5 million for 1997.
Net cash used in investing activities totaled $1.1 million and was primarily
attributable to vehicle and equipment purchases. During 1997, net cash provided
by financing activities totaled $0.7 million, due primarily to the purchase of
vehicles and equipment. In addition, Southern Tree repaid $0.2 million of
outstanding borrowings during 1997.
Southern Tree has lines of credit, which provide for borrowings of up to
$1.9 million. Borrowings under the lines of credit are secured by accounts
receivable, inventory, equipment and other intangibles. In addition, borrowings
under the lines of credit are guaranteed by Southern Tree's shareholders. The
lines of credit expire on November 30, 1998 and were fully drawn as of December
31, 1997.
30
<PAGE>
CHURCH -- RESULTS OF OPERATIONS
Church, headquartered in Chicago, Illinois, was founded in 1963 and
operates in the greater Chicago and Milwaukee areas, with branches in Lombard
and Wadsworth, Illinois and Milwaukee, Wisconsin. Church provides commercial
landscape installation and maintenance and also provides snow removal services.
The following table sets forth the selected statement of operations data
and such results as a percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1995 1996 1997
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 9,141 100.0% $ 10,951 100.0% $ 13,257 100.0%
Cost of services........................ 6,121 67.0 7,624 69.6 8,906 67.2
--------- --------- --------- --------- --------- ---------
Gross profit............................ 3,020 33.0 3,327 30.4 4,351 32.8
Selling, general and administrative
expenses.............................. 2,136 23.3 3,591 32.8 2,864 21.6
--------- --------- --------- --------- --------- ---------
Income from operations.................. 884 9.7 (264) (2.4) 1,487 11.2
Interest and other income (expense),
net................................... (57) (0.6) (39) (0.4) (87) (0.6)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes....... $ 827 9.1% $ (303) (2.8)% $ 1,400 10.6%
========= ========= ========= ========= ========= =========
</TABLE>
CHURCH'S RESULTS FOR 1997 COMPARED TO 1996
REVENUES. Revenues increased by $2.3 million, or 21.1%, from $11.0 million
for 1996 to $13.3 million for 1997. Maintenance revenues increased $1.6 million
primarily due to the addition of new maintenance contracts totaling $1.5 million
and an increase of $0.1 million in snow removal revenue. Installation revenues
increased by $0.7 million as a result of Church's obtaining larger installation
projects.
GROSS PROFIT. Gross profit increased by $1.1 million, or 30.8%, from $3.3
million for 1996 to $4.4 million for 1997. As a percentage of revenues, gross
profit increased from 30.4% for 1996 to 32.8% for 1997 primarily due to higher
margins experienced on larger installation jobs during 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $0.7 million, or 20.2%, from $3.6 million
for 1996 to $2.9 million for 1997. As a percentage of revenues, selling, general
and administrative expenses decreased from 32.8% for 1996 to 21.6% for 1997.
This decrease was partially due to a non-recurring 1996 accrual recorded by
Church to fully reserve for a potentially uncollectible receivable from one
installation job totaling approximately $0.9 million. Excluding this one-time
charge, selling, general and administrative expenses as a percentage of revenue
decreased from 24.6% in 1996 to 21.6% in 1997, due to lower owners' compensation
and ESOP plan contributions paid during 1997.
CHURCH'S RESULTS FOR 1996 COMPARED TO 1995
REVENUES. Revenues increased by $1.9 million, or 19.8%, from $9.1 million
for 1995 to $11.0 million for 1996. Landscape installation revenues increased
$0.9 million in 1996 and new maintenance contracts were added totaling $1.1
million of revenues. These increases were partially offset by a decrease in snow
removal revenue of $0.2 million in 1996.
GROSS PROFIT. Gross profit increased by $0.3 million, or 10.2%, from $3.0
million for 1995 to $3.3 million for 1996. As a percentage of revenues, gross
profit decreased from 33.0% for 1995 to 30.4% for 1996, principally due to an
increase in equipment costs and the cost of green goods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.5 million, or 68.1%, from $2.1 million
for 1995 to $3.6 million for 1996. As a percent of revenues, selling, general
and administrative expenses increased from 23.3% for 1995 to 32.8% for the
corresponding period of 1996. This increase was due to a non-recurring 1996
accrual recorded by Church to fully reserve
31
<PAGE>
for one installation job totaling approximately $0.9 million. Excluding this
one-time charge, selling, general and administrative expenses as a percentage of
revenue increased from 23.3% in 1995 to 24.6% in 1996, due to an increase in
owners' compensation and contributions to Church's ESOP plan of approximately
$0.5 million.
CHURCH'S LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, Church's working capital was $1.2 million, compared
to $0.7 million at December 31, 1996. Church's principal capital requirements
are to fund its working capital and the purchase and improvement of facilities,
vehicles and equipment. Historically, these requirements have been met by cash
flow from operations and, to a lesser extent, with borrowings under Church's
credit facility and notes payable to financial institutions.
Net cash provided by (used in) operating activities for 1995, 1996 and 1997
was $0.9 million, $(0.1) million and $1.0 million, respectively. In 1996, the
Company's earnings were more than offset by working capital changes related to
an increase in accounts receivable. Net cash used in investing activities was
primarily attributable to vehicle and equipment purchases and totaled $0.8
million, $0.7 million and $0.9 million for 1995, 1996 and 1997, respectively.
Net cash provided by financing activities totaled $0.1 million, $0.7 million and
$0.1 million for 1995, 1996 and 1997, respectively. Cash provided by financing
activities related primarily to increased borrowings to purchase vehicles and
equipment. In addition, Church repaid $0.2 million, $0.3 million and $2.5
million of outstanding borrowings during 1995, 1996 and 1997, respectively.
Church has a line of credit which provides for borrowings of up to $1.4
million. Borrowings under the line of credit are secured by accounts receivable.
As of December 31, 1996 and 1997, there was a total of $0.6 million and $0.1
million outstanding under the line of credit.
GROUND CONTROL -- RESULTS OF OPERATIONS
Ground Control, headquartered in Orlando, Florida, was founded in 1973 and
operates branches in Tampa and Orlando. Ground Control provides commercial
landscape installation and maintenance services.
GROUND CONTROL'S LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, Ground Control had a working capital deficit of
$0.3 million. Ground Control's principal capital requirements are to fund its
working capital and the purchase and improvement of facilities, vehicles and
equipment. Historically, these requirements have been met with cash generated
from operating activities and borrowings under a bank line of credit and notes
payable to equipment manufacturers and distributors. The working capital deficit
was due to an increase in accounts payable and accrued expenses.
Net cash provided by operating activities totaled $0.5 million for 1997.
Net cash used in investing activities totaled $0.6 million and was comprised
primarily of vehicle and equipment purchases. Net cash provided by financing
activities totaled $0.1 million for 1997. Ground Control entered into various
notes payable to fund the purchase of vehicles and equipment.
Ground Control has a line of credit which provides for borrowings of up to
$0.5 million. Accounts receivable and equipment and a life insurance policy
insuring the company's primary shareholder secure borrowings under the line of
credit. As of December 31, 1997, there was a total of $0.4 million of borrowings
outstanding under the line of credit.
32
<PAGE>
ARTEKA -- RESULTS OF OPERATIONS
Arteka, headquartered in Eden Prairie, Minnesota, was founded in 1975 and
operates in four locations in the Twin Cities area. Arteka provides commercial
landscape installation and maintenance services, operates a tree nursery which
provides trees primarily for its own operations and provides snow removal
services. Arteka purchased two landscape maintenance service companies on
December 31, 1997 with combined 1997 revenues of $2.6 million.
The following table sets forth the selected statement of operations data
and such results as a percentage of total revenue for the periods indicated:
YEAR ENDED DECEMBER 31
---------------------------------------
1996 1997
------------------- ------------------
(DOLLARS IN THOUSANDS)
Revenues............................. $ 7,052 100.0% $ 7,366 100.0%
Cost of services..................... 5,055 71.7 5,227 71.0
-------- --------- --------- -------
Gross profit......................... 1,997 28.3 2,139 29.0
Selling, general and administrative
expenses........................... 1,722 24.4 2,136 29.0
-------- --------- --------- -------
Income from operations............... 275 3.9 3 0.0
Interest and other income (expense),
net................................ (97) (1.4) (79) (1.0)
-------- --------- --------- -------
Income (loss) before income taxes.... $ 178 2.5% $ (76) (1.0)%
======== ========= ========= =======
ARTEKA'S RESULTS FOR 1997 COMPARED TO THE YEAR 1996
REVENUES. Revenues increased $0.3 million, or 4.5%, from $7.1 million in
1996 to $7.4 million in 1997 due to an increase in landscape installation
revenues of $0.4 million, partially offset by a $0.1 million decrease in
revenues from landscape maintenance and snow removal.
GROSS PROFIT. Gross profit increased $0.1 million, or 7.1%, from $2.0
million in 1996 to $2.1 million in 1997. As a percentage of revenues, gross
profit increased from 28.3% in 1996 to 29.0% in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.4 million, or 24.0%, from $1.7 million in
1996 to $2.1 million in 1997. This increase was attributable to a $0.4 million
increase in owner's compensation paid during 1997. As a percentage of revenue,
selling, general and administrative expenses increased from 24.4% in 1996 to
29.0% in 1997 due to the increase in owners' compensation.
ARTEKA'S LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, Arteka had a working capital deficit of $0.8
million, compared to working capital of $0.5 million as of December 31, 1996.
The primary reason for the decline in working capital between 1996 and 1997 was
the issuance by Arteka of notes payable totaling $2.3 million issued in
connection with the acquisition of two landscape maintenance services companies
effective December 31, 1997. Arteka's principal capital requirements are to fund
its working capital and the purchase and improvement of facilities, vehicles and
equipment. Arteka has historically satisfied these requirements with cash flow
generated from operations, and to a lesser extent, with borrowings under its
credit facility and notes payable to equipment manufactures and distributors.
Net cash provided by operating activities for 1996 and 1997 was $0.4
million and $0.0 million, respectively. Net cash used in investing activities
totaled $0.3 million and $0.3 million for each of 1996 and 1997, respectively.
Cash used in investing activities was used for the purchase of property and
equipment. Net cash provided by (used in) financing activities totaled $(0.1)
million and $0.5 million for 1996 and 1997, respectively. Cash provided by
financing activities for 1997 included a note payable of $1.0 million from its
sole shareholder, which was used for working capital. In 1996 and 1997, Arteka
repaid outstanding long-term borrowings of $0.7 million and $0.6 million,
respectively.
33
<PAGE>
Arteka has lines of credit which provide for borrowings up to $1.3 million.
Borrowings under the line of credit are secured by accounts receivable. As of
December 31, 1996 and 1997, there was a total of $0.4 million and $0.1 million
of borrowings outstanding under the lines of credit, respectively.
DESERT CARE -- RESULTS OF OPERATIONS
Desert Care was founded in 1992 and operates two branches in Phoenix.
Desert Care provides commercial landscape installation and maintenance services.
Desert Care also provides native plant reclamation, which consists of
temporarily removing native plants, maintaining them during a construction
period and replacing them following construction.
DESERT CARE'S LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, Desert Care's working capital was $0.7 million.
Desert Care's principal capital requirements are to fund its working capital and
the purchase and improvement of facilities, vehicles and equipment.
Historically, these requirements have been met by cash flow from operations and,
to a lesser extent, with borrowings under its lines of credit and notes payable
to equipment and vehicle manufacturers, distributors and finance companies.
Net cash provided by operating activities totaled $0.7 million for 1997.
Net cash used in investing activities was primarily attributable to vehicle and
equipment purchases and totaled $0.3 million for 1997. Net cash used in
financing activities totaled $0.3 million for 1997. During 1997, Desert Care
repaid $1.2 million of outstanding borrowings, borrowed $1.0 million to fund
vehicle and equipment purchases and working capital requirements and made an S
Corporation shareholder distribution of $0.1 million.
Desert Care has lines of credit which provide for borrowings up to $0.5
million. Borrowings under the lines of credit are secured by accounts receivable
and equipment and are guaranteed by Desert Care's shareholders. As of December
31, 1997, there were no borrowings outstanding under the lines of credit. During
January and February 1998, Desert Care borrowed $0.2 million under one of the
lines of credit to fund S Corporation shareholder distributions.
34
<PAGE>
BUSINESS
LandCARE was founded in 1997 to become a leading national provider of
comprehensive landscape and tree services to the commercial and institutional
markets. The Company offers a full range of landscape maintenance, landscape
installation and tree services capabilities, including trimming trees and other
plant growth away from power lines, generally known as "line clearing". The
Company serves a diverse set of customers, including regional and national
property owners and managers, real estate developers, corporations, utilities,
universities and governmental entities. Properties served by the Company include
office buildings, multi-family residential complexes, shopping centers,
corporate and university campuses, parks, hotels, resorts and governmental
facilities. Approximately 75% of the Company's pro forma combined revenues in
1997 were attributable to maintenance services, which include line clearing for
utility customers, and 25% were attributable to installation services. Upon
consummation of this Offering, LandCARE will acquire the seven Founding
Companies, which have been in business an average of 25 years. Pro forma
combined revenues of the Founding Companies were $118.8 million in 1997 and
historical combined revenues increased at a compound annual growth rate of
approximately 10% from 1995 through 1997. In addition to emphasizing internal
growth, the Company intends to implement an aggressive acquisition program.
INDUSTRY OVERVIEW
The commercial and institutional segment of the landscape and tree services
industry is comprised of companies that install and maintain exterior landscapes
and companies that perform tree services on behalf of property owners and
managers. According to data published by LAWN AND LANDSCAPE magazine, the
commercial and institutional segment of this industry generated approximately
$20 billion in revenues in 1996. The Company estimates that approximately $15
billion of this amount represented landscape installation and maintenance and $5
billion represented tree services, including line clearing for utilities. Most
of the more than 10,000 participants in this industry are small companies
operating in a limited geographic area. During recent years, the industry has
experienced significant growth due to the consolidation of the commercial real
estate market, the trend towards outsourcing of landscape and tree services and
a growing recognition of the economic and aesthetic benefits of landscaping.
These industry data do not include revenues attributable to chemical lawn
spraying because few landscape service firms provide this service.
REAL ESTATE OWNERSHIP CONSOLIDATION. In recent years, ownership of
commercial real estate throughout the United States has become increasingly
consolidated. Real estate investment trusts ("REITs") and other national
property owners are driving this consolidation by purchasing office buildings,
multi-family residential complexes, shopping centers, hotels and resorts. These
national property owners and management companies seek landscape and tree
service firms with the capacity to service all of their properties in a
particular region. The Company believes, therefore, that a national or
multi-regional presence and greater scale will be a significant competitive
advantage in the commercial and institutional landscape segment. The Company
believes that a service provider with both landscape and tree services
capabilities will have a competitive advantage as national property owners and
managers seek to reduce the number of vendors with which they do business.
INCREASED OUTSOURCING. Commercial property owners and managers are
increasingly outsourcing their landscape and tree service needs to third party
providers in order to focus on their core competencies, reduce costs and obtain
higher-quality service. Landscape service contractors typically have greater
purchasing power, higher labor efficiency and greater expertise than in-house
service crews. In addition, by outsourcing these functions, commercial property
owners and managers shift to outside vendors the recruiting and training burdens
associated with these labor-intensive tasks. Governmental entities and
institutions such as universities and hospitals are beginning to outsource their
landscape and tree services needs. Most municipal and county governments own
significant numbers of properties which require ongoing landscape and tree
services. Examples include office buildings, schools, parks and golf courses.
LINE CLEARING SERVICES. Electric and gas utilities, railroads, pipeline
companies and governmental entities own extensive rights-of-way or road systems.
Regular trimming of overhanging trees and clearing electric lines of limbs and
branches damaged by storms is an important element in keeping these rights-of-
way functioning. Management expects deregulation to increase competition in the
utility sector, which should lead utilities to seek to lower their costs by
outsourcing non-core functions. Consolidation among
35
<PAGE>
utilities or other right-of-way owners should lead to more multi-regional
contracts for right-of-way maintenance. Due to the magnitude of most
right-of-way and road systems (often in the thousands of miles), only line
clearing companies with substantial capacity can meet the needs of right-of-way
owners.
LANDSCAPING TRENDS. Attractive landscaping enhances the value of a
property and has a strong correlation to higher occupancy and rental rates in
commercial and residential rental properties. To remain appealing, landscaping
requires ongoing maintenance and proper irrigation. Landscaping also provides
important environmental benefits. Plants and trees reduce noise levels, moderate
temperatures of buildings and enhance work environments. Increasingly, local
zoning regulations require minimum amounts of landscaping and open space in all
new developments, and municipalities in drier climates are mandating improved
water management techniques for landscaping of new properties. Fulfilling these
mandates requires landscaping companies to have greater expertise in installing
and maintaining sophisticated irrigation systems and in modern horticultural
techniques, such as xeriscaping, which is the planting of native plants that do
not require significant amounts of water for survival.
SERVICES PROVIDED
The Company provides maintenance and installation services to the
commercial and institutional market. Maintenance services include landscape
maintenance and tree maintenance services. The Company's services are described
below:
LANDSCAPE MAINTENANCE. Landscape maintenance services accounted for
approximately 35% of the Company's 1997 pro forma combined revenues. The
Company's landscape maintenance services consist of general upkeep and minor
upgrades of a property's grounds, including grass cutting, weeding, pruning,
leaf removal, trimming and edging, mulching, grass reseeding, fertilizing,
replacing dead plants and inspecting plants for insects and disease. Upgrade
projects may include periodic replacement of annual plants to provide seasonally
appropriate color and adding plants, lawn or ground cover to improve the
property's appearance. The Company also provides irrigation system maintenance
and repair. Irrigation systems are becoming more sophisticated and may have
remote monitoring capability, which permits the Company to determine remotely
whether the system is operating properly and expedite problem diagnosis and
correction. The Company also applies dry fertilizers, herbicides and
insecticides on lawns, trees and shrubs but generally does not spray these in
liquid form on lawns. Maintenance services also include snow removal in colder
climates. Most landscape maintenance services are provided under one or two year
contracts, with fixed monthly fees to cover basic upkeep service and a schedule
of additional fees for upgrade projects.
TREE MAINTENANCE. Tree maintenance services accounted for approximately
40% of the Company's 1997 pro forma combined revenues. Most landscape
maintenance companies do not provide tree service because it requires different
skills and an investment in specialized equipment, although two of the Founding
Companies provides both landscape and tree services to its commercial and
institutional customers. The Company intends to provide both landscape and tree
services in more markets. The Company's tree services can be broadly divided
into two categories as described below:
LINE CLEARING. Line clearing services consist primarily of trimming
trees away from power lines, pipelines, roads and other rights-of-way.
These services also include deploying crews on an emergency basis to remove
tree branches obstructing power lines and vegetation management (primarily
application of herbicides) to maintain access along a right-of-way. Line
clearing contracts typically are awarded for three to five year terms
through a bidding process and cover the entire right-of-way in a relatively
large geographic area, such as one or more counties.
COMMERCIAL TREE MAINTENANCE. Most trees require regular pruning to
maintain health and appearance through improved air circulation, light
penetration and the removal of dead or diseased branches. Pruning large
trees requires the service provider either to climb the tree or use a
bucket truck to reach the tree's upper limbs and a chipper to grind the
debris. Some of the Founding Companies employ certified arborists skilled
in trimming trees properly and diagnosing and treating diseases.
Increasingly, commercial property owners are realizing the benefit of
annual or multi-year contracts to provide regular inspection and
maintenance of their trees.
36
<PAGE>
LANDSCAPE INSTALLATION. Landscape installation accounted for approximately
25% of the Company's 1997 pro forma combined revenues. The Company's landscape
installation services include softscape, hardscape and irrigation systems at
newly-constructed facilities or in connection with the renovation of any
existing property. Softscape typically includes planting ornamental and shade
trees, plants, shrubbery and grasses compatible with soil and climate
conditions. Hardscape projects may include installing walkways, exterior
lighting, patios, decks, fences and driveways, as well as fountains, waterfalls
and ponds. In larger or more complex projects, the Company subcontracts
hardscape work. Most modern landscaping designs require both drainage and
irrigation systems to ensure that standing water does not occur after rain and
that sufficient water is available to maintain the health of plants, grasses and
trees. In drier regions or where water is a limited resource, the Company often
uses xeriscaping. On larger installation projects, the landscape design is
usually performed by an independent landscape architect hired by the property
owner or the owner's architect. On smaller projects, the Company's in-house
landscape architects may provide the design. The Company performs most
installation projects under time and materials contracts and is paid on a staged
basis as the work is performed.
STRATEGY
The Company plans to achieve its goal of becoming a leading national
provider of comprehensive landscape and tree services to the commercial and
institutional markets by implementing its operating strategy, emphasizing
continued internal growth and expanding through acquisitions.
OPERATING STRATEGY. The Company believes that there are significant
opportunities to increase its profitability. The key elements of the Company's
operating strategy are:
FOCUS ON COMMERCIAL AND INSTITUTIONAL MARKETS. The Company believes
that the commercial and institutional markets are attractive because of (i)
the potential for preferred relationships with national and regional
property owners and managers, real estate developers, corporations, general
contractors and landscape architects, (ii) the diverse types of properties
served, such as office buildings, multi-family residential complexes,
shopping centers, corporate and university campuses, parks, hotels and
resorts, (iii) the opportunity to generate recurring revenue through
ongoing maintenance contracts, and (iv) the recognition by building owners
and managers of the importance of landscaping in enhancing the value and
marketability of their properties. The Company also believes that the
commercial and institutional landscape services market is more attractive
than the residential landscape services market because installation and
maintenance projects are larger and industry participants are larger and
more sophisticated.
OPERATE ON DECENTRALIZED BASIS. The Company intends to manage the
Founding Companies and subsequently acquired companies on a decentralized
basis, with local management retaining responsibility for the day-to-day
operations, profitability and internal growth of the business. Although the
Company intends to maintain strong central operating and financial
controls, its decentralized operating structure will allow it to capitalize
on the considerable local and regional market knowledge and customer
relationships possessed by local management. The Company's corporate
management will have responsibility for corporate strategy and
acquisitions, centralized vendor relationships to take advantage of volume
discounts, banking arrangements, insurance, shareholder relations and
employee benefit plans and also will provide support to local management in
marketing, recruiting, training and risk management.
ACHIEVE OPERATING EFFICIENCIES. The Company believes there are
significant opportunities to achieve operating efficiencies and cost
savings through purchasing economies and the adoption of "best practices"
operating programs. The Company intends to use its increased purchasing
power to gain volume discounts in areas such as materials, equipment, spare
parts and vehicle purchases, workers' compensation and other insurance
coverage. The Company believes that it can purchase green goods at a
discount by making opportunistic cash purchases. In 1997, the Company spent
approximately $5.9 million on a combined basis on new equipment, vehicles
and spare parts. In 1997, the Company's combined expense for workers'
compensation, personal injury and property damage
37
<PAGE>
insurance was approximately $5.0 million. The Company believes that its
operating efficiency also can be enhanced by implementing "best
practices," such as expanding its branch network to increase route density
and improve labor utilization.
ATTRACT AND RETAIN QUALITY LABOR AND SUPERVISORY PERSONNEL. Most
companies in the landscape and tree services industry experience high labor
turnover and difficulty in attracting sufficient numbers of supervisory
personnel. The Company believes that its substantial training programs and
commitment to workplace safety provide a competitive advantage in
attracting and retaining a qualified labor force. The Company believes it
can better attract and retain supervisory and management level employees
because it will offer (i) an enhanced career path from working for a
multi-branch, public company, including the opportunity to gain increased
responsibility at a branch office, (ii) the opportunity to realize a more
stable income and (iii) improved health insurance, retirement, incentive
compensation and other benefits.
INTERNAL GROWTH. A principal component of the Company's strategy is to
continue its internal growth. The key elements of the Company's internal growth
strategy are:
BUILD MARKET DENSITY. The Company intends to develop its branch
network in each of the markets it serves. This will enable the Company to
serve more commercial and institutional properties efficiently, improve
labor utilization and attract employees who live near newly-established
branches. The Company also intends to make tuck-in acquisitions of smaller
companies to increase local route density and expand within markets served.
ESTABLISH REGIONAL AND NATIONAL MARKET COVERAGE. The Company intends
to provide comprehensive landscaping and tree services on a multi-regional
and ultimately a national basis. This will enable the Company to capitalize
on relationships with major regional and national property owners and
managers, such as real estate developers and REITs, as well as
corporations, utilities, universities and governmental entities. Many large
property owners and managers would prefer to deal with fewer vendors for
their landscape and tree service needs. The Company believes it can
establish preferred provider relationships with these regional and national
property owners and managers to serve all or a significant number of their
properties. The Company believes it will be well positioned to obtain
additional line clearing contracts as it extends its geographic coverage.
BECOME SINGLE SOURCE PROVIDER. The Company intends to provide its
customers with both landscape and tree services in order to become the
single source for its customers' landscape maintenance requirements. The
Company believes that becoming a single source provider will allow it to
take advantage of the trend toward vendor consolidation in the commercial
real estate market and the developing trend toward outsourcing by
institutions and state and local governments. Since most of the Founding
Companies have not historically provided both landscape and tree services,
the Company believes it will have a significant opportunity to capture
incremental revenue by marketing its full service capabilities to existing
customers. Where necessary, the Company will also provide or subcontract
for other exterior maintenance functions in order to become the single
source provider for its customers' overall landscape requirements.
DEVELOP ENHANCED SALES AND MARKETING PROGRAM. The Company intends to
establish a national account sales and marketing program, which will
emphasize the Company's full service capabilities. This program will target
large regional and national property owners and managers as well as large
corporations. The Company also intends to establish a regional and national
sales and marketing program targeted toward customers beginning to
outsource their landscape and tree service requirements, such as
institutions and state and local governments that operate properties such
as university campuses, hospitals, parks, municipal office buildings,
schools and golf courses.
ACQUISITIONS. The Company estimates that more than 1,000 companies, each
with annual revenues in excess of $2 million, provide landscape installation or
maintenance services to the commercial, institutional and municipal markets.
Most of these companies are small, owner-operated businesses that operate in a
limited geographic area. The Company believes that more than 100 companies, each
with revenues in
38
<PAGE>
excess of $2 million, provide tree services, a number of which are regional or
national companies with revenues in excess of $10 million, primarily in the line
clearing market. 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
acquiring one or more leading local or regional companies that provide
landscaping and/or tree services. Acquisition targets will have the scale,
customer base, expertise and management necessary to be a core business
into which the Company can consolidate other acquisitions in that
geographic area. Special emphasis will be placed on diversifying the
Company's operations geographically to serve the needs of large regional
and national property owners and managers and to minimize the effect of
seasonality in the colder regions served by the Company. The Company will
also consider acquiring companies that service high-end residential
communities.
EXPAND WITHIN EXISTING MARKETS. Once the Company has entered a market
and established management in that market, it will seek to acquire other
well-established landscape and/or tree services businesses to expand its
market penetration and client list. The Company will also pursue
"tuck-in" acquisitions of smaller companies whose operations can be
integrated into existing Company operations to leverage the existing
infrastructure.
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 landscape and tree services
provider that emphasizes the development of long-term customer relationships at
the local, regional and national levels and uses sophisticated marketing
programs; (ii) the Company's decentralized operating philosophy; (iii) the
potential for owners of the acquired businesses to participate in the Company's
planned growth while realizing liquidity; (iv) the Company's increased name
recognition and its access to financial resources as a public company; and (v)
the potential for increased profitability of the acquired company due to
purchasing economies, the adoption of "best practices" and centralization of
various administrative functions. To date, consolidation in the landscape and
tree services industry has been limited. The Company believes that the few
acquisitions that have been made have typically resulted in the elimination of
the acquired company's separate identity. The Company believes that the sale of
well-established businesses to these acquirors is not an attractive alternative
for many owners, particularly those who do not wish to retire from the business.
Important criteria for choosing an acquisition candidate include: (i) the
quality of its management and supervisory personnel, (ii) revenues,
profitability and historical growth, (iii) the market area served and the
candidate's reputation, (iv) the composition and size of the customer base, and
(v) the types of landscape and/or tree services provided. The principals of the
Founding Companies have substantial experience in the industry, are active in
industry trade associations and are personally acquainted with the owners of
numerous acquisition targets. Within the past several months, the Company has
contacted the owners of a number of acquisition candidates, several of whom have
expressed interest in having their businesses acquired by the Company. The
Company currently has no agreements to effect any acquisitions other than the
acquisition of the Founding Companies.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors in establishing the purchase price being historical operating results,
future prospects of the target and the ability of the target to complement the
services offered by the Company. The Company is seeking a commitment for a
credit line of least $50 million to be used for working capital and
acquisitions. Following completion of this Offering, the Company intends to
register up to 5,000,000 additional shares of Common Stock under the Securities
Act for its use in connection with future acquisitions. The Company believes
that it can structure some larger acquisitions as tax-free reorganizations
39
<PAGE>
by using its Common Stock as consideration, which will be attractive to those
business owners with a low tax basis in their businesses.
OPERATIONS
LANDSCAPE MAINTENANCE. The Company's maintenance contracts provide for
regular visits to the property by a maintenance crew. These crews, which
typically consist of two to six workers and a crew supervisor, may spend several
hours to several days a week at a particular site, depending on its size,
although most crews typically visit a site once a week. For some large
properties, the Company provides one or more workers who work full time on-site.
The Company's maintenance crews perform basic upkeep services as detailed in the
maintenance contract, such as grass cutting, weeding, edging, mulching, raking,
pruning and checking irrigation systems. In addition to the basic services
outlined in the contract, maintenance crews also undertake various upgrade
projects on a separately charged basis, such as planting annual flowers,
ornamental trees and shrubs and adding ground cover. Some of the Founding
Companies have specially trained maintenance technicians responsible for
maintaining and repairing irrigation systems. In regions with cold winters, the
Company provides ice and snow removal during winter months. The Company performs
other exterior maintenance tasks for the convenience of customers, such as
parking lot sweeping. Equipment involved in landscape maintenance includes lawn
mowers, small power equipment such as edgers, trimmers and leaf blowers, as well
as hand-held tools and pick-up trucks and trailers to transport crews and
equipment.
New maintenance contracts often result from existing relationships with
customers who own or manage multiple properties, as well as the Company's
marketing efforts. Once the Company completes a landscape installation project,
it is often selected to perform regular, ongoing maintenance of the site. The
Company performs substantially all maintenance work under contracts. The
Company's current maintenance contracts range from $300 to $30,000 per month for
basic upkeep service and usually have initial terms of one or two years, with
automatic month-to-month extensions thereafter. Most contracts specify
additional fees for upgrade projects such as periodic replacement of annual
flowers.
LANDSCAPE INSTALLATION. Installation crews generally range from two to 15
people. A supervisor manages the project in the field and coordinates the work
of any subcontractors. In installing softscape portions of a landscape project,
the Company's work crew performs fine grading and flower and plant bed
preparation, followed by plantings specified by the design. In most instances,
the Company subcontracts the sodding work. The Company's work crew may also
install the hardscape portion of a landscape project such as walkways, decks,
patios, exterior lighting, fences and driveways. On larger or more complicated
projects, the Company may subcontract the hardscape work. The Company typically
deploys separate crews for irrigation system installation. Equipment used in
installation projects includes small front end loaders, graders, augers and
trenching machines to install irrigation system piping. Equipment and plant
materials are transported to the site by trailer.
A significant portion of the Company's installation business results from
existing relationships with real estate developers, general contractors and
independent landscape architects. Most contracts resulting from these
relationships are time and materials contracts, with a dollar limit. The Company
also obtains installation contracts in response to invitations to bid issued to
a select number of landscape contractors chosen because of their reputation,
resources and expertise. Most contracts resulting from bids are fixed price
contracts, and final design, terms, price and timing of the project may be
negotiated prior to awarding the contract.
On larger projects, the landscape design work is usually performed by an
independent landscape architect hired by the property owner or the owner's
architect. On smaller projects, the Company can provide in-house design
capability, including registered landscape architects. The Company uses CAD
software to assist in preparing design drawings and computer software to
estimate the amount of time, labor, materials and equipment needed to complete a
project and its cost to enable it to price potential projects, whether
negotiated or bid upon.
40
<PAGE>
TREE SERVICE.
LINE CLEARING. The Company conducts its line clearing operations through
Trees, one of the Founding Companies. Trees employs approximately 450 work
crews, ranging from two to five people per crew and organizes workers into
bucket crews or climbing crews. Bucket crews work with specialized trucks
equipped with mounted, hydraulic aerial lifts for tree trimming. Climbing crews
are utilized in less accessible areas where the use of aerial lifts is not
practical. In these cases, crew members use special climbing gear to manually
climb the trees. Trees has approximately 710 trucks, approximately half of which
are equipped with aerial lifts and half pull chippers which shred wood debris.
Crew members use a variety of equipment, including chainsaws, trimming tools and
safety gear, and may also utilize hydraulic power saws and pruners, cable and
bracing equipment. In its vegetation management activities, the Company employs
a variety of specialized mowing, trimming and herbicide spraying equipment to
control vegetation along rights-of-way.
Line clearing services comprised approximately 40% of the Company's 1997
pro forma combined revenues. The Company currently has contracts with 16 public
utilities in 12 states, under which the Company keeps power lines free of
obstructions from overhanging trees, vegetation and limbs and branches damaged
by storms. The Company usually completes service of the utility customer's
entire system in two to four years, at which time the trees and other vegetation
must again be cut back to keep the power lines clear. Work is planned for the
entire system based on power outage reports (known as "reliability reports"),
previous trimming history and field surveys. With the aid of circuit maps, the
Company prepares work schedules which designate the areas to be serviced, routes
to be used and the number and size of the work crews.
Line clearing contracts, which typically have terms of three to five years,
are awarded through a bidding process by which the customer solicits bids from a
limited number of pre-qualified companies. To pre-qualify for a bid list, the
Company must meet criteria established by the customer, such as having
appropriate machinery and equipment, satisfactory insurance coverage and
acceptable safety procedures. Once the customer has established its bid list, it
awards contracts primarily on the basis of price, but productivity and
reputation are also important factors.
COMMERCIAL TREE SERVICE. The Company provides periodic pruning of trees,
typically annually, and field evaluations by the Company's tree specialists for
commercial and institutional customers. Based on these inspections, the Company
recommends, to the extent necessary, deadwood removal, deep root fertilization,
pruning to improve air circulation and light penetration and disease treatments.
Much of this work results from service calls from customers not under contract,
typically as a result of storm damage or disease. The Company intends to offer
regularly scheduled tree care as part of its standard maintenance contract.
CUSTOMERS
The Company has a diverse customer base, with more than 2,500 customers,
none of whom accounted for more than 10% of 1997 combined revenues. The Company
performs landscape maintenance and installation services for a number of leading
regional and national property owners and managers, including Trammell Crow,
Marriott, Summit Properties, Equity Residential Properties Trust, Camden
Property Trust, Bay Apartment Communities, Gables Residential Trust, CB
Commercial and Insignia Financial Group. The Company also performs landscape
maintenance and installation services at various companies' properties,
including Exxon, Holiday Inn, Wells Fargo and First Union. Trees has line
clearing contracts with several large utilities, including PacifiCorp, Houston
Lighting & Power and Texas Utilities, which together accounted for 54% of Trees'
total revenues in 1997. Management at the Founding Companies has developed and
maintained relationships with key customers by emphasizing customer satisfaction
and high quality service.
41
<PAGE>
SALES AND MARKETING
The Company's principal marketing strategy is to continue its emphasis on
developing and maintaining relationships with the senior management of large
national and regional property owners and managers, as well as large
corporations. The Company will seek to become a preferred vendor to these
property owners and managers and corporate customers. To facilitate this
strategy, the Company intends to hire experienced sales and marketing personnel
for the Company's national account sales and marketing program. The Company will
also attend national and regional conventions, including those sponsored by
trade associations such as the Building Owners and Managers Association
("BOMA") and the Institute of Real Estate Managers ("IREM"). Members of
these associations include large and small property owners and managers. The
Company also intends to advertise in selected trade journals to increase the
Company's name recognition with potential customers.
The Company will also focus on establishing and maintaining relationships
with utilities in order to be named to their pre-qualified bidder lists. Trees
has established relationships with a number of major utility companies, and the
Company intends to build upon those relationships. To pre-qualify for bid lists,
the Company's large account managers will market the Company's capacity to serve
the utility customer's line clearing and vegetation management needs as well as
its reputation for quality service.
The Company also intends to capitalize on the developing trend toward
outsourcing by institutions and state and local governments by marketing its
services to these entities. The Company intends to extend the current marketing
efforts of the Founding Companies to these potential customers through the
involvement of senior management and, in the future, experienced sales people
focused on this effort.
SOURCES OF SUPPLY
The Company purchases its green goods primarily from local or regional
wholesale nurseries on an as-needed basis. From time to time, however, the
Company will purchase green goods in advance of its anticipated needs when it
can take advantage of favorable pricing by paying in cash, often at the end of
the nurseries' season when inventories are being liquidated. In most instances,
alternative sources of supply for the green goods used by the Company exist,
although there are occasional shortages of plants in a particular region. In
this event, the Company has been able to substitute similar plants acceptable to
the customer. Arteka maintains its own tree nursery for use primarily in its own
operations. The Company also believes that, as it builds regional density, it
will be able to purchase green goods in sufficient quantities to permit it to
realize purchasing economies through discounts from suppliers.
The equipment used by the Company in its landscape maintenance business
primarily consists of pick-up trucks, walk-behind and riding mowers, as well as
hand-held equipment such as edgers, weed trimmers and blowers. The equipment
used in the Company's installation business includes a variety of hand-held
equipment, as well as stake-bed and pick-up trucks, front end loaders, graders,
augers, trenching machines and small tractors. The major components of
irrigation systems installed by the Company include sprinkler heads, clocks,
valves, control systems and PVC pipe. For its tree services business, the
Company purchases small and large trucks, including bucket trucks, as well as
chippers and chainsaws. Most of the equipment and vehicles used by the Company
are generally available from a number of manufacturers. The Company expects to
establish relationships with a number of manufacturers and to take advantage of
volume discounts and manufacturers' fleet purchase programs. The Company
believes that it is not materially dependent on any one of its suppliers and
that its relationships with its suppliers are good.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 2,400 persons.
Of this number, 190 were sales, administrative and management personnel and the
remainder were hourly and salaried site workers and supervisory personnel.
Approximately 200 of Trees' employees are covered by collective bargaining
agreements, and one other Founding Company contracts with union labor for
certain installation projects. The Company experiences high turnover rates among
its hourly workers, a significant portion of
42
<PAGE>
which are immigrants, and intense competition for qualified supervisory
personnel. The Company has not experienced any strikes or work stoppages and
believes its relationship with its employees is satisfactory.
RECRUITING, TRAINING AND SAFETY
The Company recruits its supervisory and mid-level management personnel
either from within the industry or from local colleges and technical schools,
where it targets students in horticultural or landscape management programs.
Recruiting is also conducted by means of advertisements locally and in trade
magazines. The Company provides its existing hourly employees with opportunities
for internal advancement by promoting capable site workers to positions of
increasing supervisory responsibility, such as job foreman, workcrew supervisor
or branch manager. The Company recruits its seasonal labor force through
word-of-mouth, as well as through employment agencies and local help wanted
advertisements.
The Company is committed to continuing the Founding Companies' focus and
emphasis on continual training and safety in the workplace. To ensure quality
service and workplace safety, the Company has established training programs for
its employees at all levels of its operations, including orientation programs
for new employees, on-the-job training, employee bonuses and incentive programs
for exceptional safety records and periodic training and safety seminars. For
example, Trees maintains a certification program in aerial tree cutting, which
generally takes employees three to six months to complete. Several of the
Founding Companies also provide training programs in chemical application. The
Company intends to implement a "best practices" safety program throughout its
operations to ensure that employees comply with safety standards established by
the Company, its insurance carriers and federal, state and local laws and
regulations.
FACILITIES; VEHICLES AND MAINTENANCE
In addition to the Founding Companies corporate offices, the Company
operates 24 branch offices. Branch offices are typically located on
approximately one or two acres and are comprised of a small office for
administrative personnel, shop space for servicing equipment and an area for
parking Company vehicles and larger equipment. The Company also maintains
auxillary facilities for vehicle maintenance and storage of materials and
equipment. Some of the facilities operated by the Company are leased from
related parties. See "Certain Transactions -- Leases of Real Property by
Founding Companies." The Company believes that its facilities are adequate for
its current needs.
As of December 31, 1997, the Company operated a fleet of approximately
1,300 vehicles, ranging from pick-up and stake-bed trucks to bucket trucks and
dump trucks. It believes that these vehicles generally are well-maintained and
adequate for the Company's current operations. The Company performs regular
maintenance of its own vehicles. The Company believes that it should be able to
purchase vehicles at lower prices due to its increased purchasing volume.
After the consummation of this Offering, the Company will lease its
principal executive and administrative offices in Houston, Texas and is
currently in the process of obtaining permanent office space for this purpose.
RISK MANAGEMENT, INSURANCE AND LITIGATION
The primary risks in the Company's operations are injured workers'
compensation, third-party property damage and bodily injury. Upon completion of
the Offering, the Company intends to obtain and maintain liability insurance for
workers' compensation, third-party property damage and bodily injury coverage
which it considers sufficient to insure against these risks, subject to
self-insured amounts. The Founding Companies currently maintain workers'
compensation insurance, with deductibles in states where allowed, up to $350,000
per claim. The Founding Companies also operate large numbers of vehicles on
public roads and, therefore, are subject to claims for personnal injury or
property damage. The Founding Companies also maintain liability insurance for
bodily injury and property damage with deductibles up to $350,000 per claim. The
Company is considering reducing the deductible limits on its workers'
compensation and liability coverage.
43
<PAGE>
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its operations. The Company is
not currently involved in any litigation, nor is the Company aware of any
threatened litigation, that it believes is likely to have a material adverse
effect on its financial condition or results of operations.
The Company generally offers one-year warranties on the landscape
installation work it performs, which includes warranties on the green goods that
it provides to customers. The Company has established reserves for warranty
claims which it considers adequate. Historically, warranty claims have been
insignificant, and the Company does not expect warranty claims will have a
material effect on its future business, results of operations or financial
condition.
COMPETITION
The landscape and tree services industry is highly competitive. The Company
believes that the principal competitive factors in the commercial and
institutional segment are (i) customer relationships; (ii) price; (iii) quality,
timeliness and reliability of services provided; and (iv) geographic scope of
operations.
Most of the Company's landscape services competitors are small,
owner-operated companies operating in a limited geographic area. However, there
are a few large, private landscape service companies which operate in multiple
markets and have periodically acquired some small landscape companies. TruGreen-
ChemLawn, a division of ServiceMaster, recently acquired several commercial
landscape services companies, although it continues to focus primarily on
residential lawn spraying.
Competition in the line clearing market is characterized by a small number
of large companies, led by Asplundh. The Company believes Asplundh's share of
the line clearing market is significant. The Company believes that the services
currently offered by Trees are competitive with those of Asplundh although more
restricted geographically. Utility customers are increasingly seeking to shorten
the number of vendors with whom they do business, and the Company believes that
its status as a publicly-traded company will provide a competitive advantage.
The commercial tree services market is characterized by a large group of
small competitors, most of which are owner-operated businesses operating in
limited geographic areas and a few larger companies that operate in one or more
regions. The Company believes that its ability to offer tree services as part of
its maintenance contracts will provide a competitive advantage.
Some of the Company's private and public competitors and potential
competitors have greater name recognition and greater financial resources than
the Company with which to finance acquisition and development opportunities. The
Company cannot predict whether other large companies will enter the landscape
and tree services industry.
REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local laws and
regulations relating to the employment of immigrants, workplace health and
safety in the landscape and tree services industry, the application of
fertilizers, herbicides, pesticides and other chemicals, noise and air pollution
from power equipment and local zoning regulations improved water management
techniques. Immigration laws require the Company to confirm the legal status of
its immigrant labor force. The INS periodically conducts random inspections of
the Company's compliance with U.S. immigration laws. The Occupational Safety and
Health Administration ("OSHA") requires companies that offer line clearance
services to provide their workers with a comprehensive program of electrical
hazard recognition training. OSHA mandates that all workers not come within ten
feet of an electrical conductor unless they are trained to recognize electrical
hazards. Each state also has its own electrical hazard recognition training and
certification regulations. In addition, California regulates the distance trees
and other vegetation must be cut back from power lines, currently requiring a
minimum distance of 18 inches between plant growth and electrical conductors.
Many states require licensing for the commercial application of chemical sprays,
a service which the Company performs
44
<PAGE>
primarily in connection with its line clearing operations. Such licenses are
usually conditioned upon a showing of technical competence and adequate bonding
and insurance. The United States Department of Agriculture ("USDA") also
regulates the storage and use of pesticides and fertilizers. The Federal
Insecticide, Fungicide and Rodenticide Act and the Environmental Pesticide
Control Act of 1972 also apply to the use of certain pesticides, herbicides and
other chemicals. Pursuant to its authority under the 1990 Clean Air Act, the
Environmental Protection Agency ("EPA") has recently implemented regulations
that limit the use of some types of gasoline powered engines that emit high
levels of hydrocarbons and other airborne pollutants, such as those found in
many lawnmowers. Across the country, a number of local governments have also
passed noise pollution ordinances that prohibit or otherwise restrict the use of
leaf blowers. In addition, several states in which the Company operates require
the Company to have a landscape contractor's license. Drivers of larger trucks
are required by the U.S. Department of Transportation or state regulations to
have commercial drivers' licenses. To the extent the Company stores its own
supply of fuel for its equipment and fleet of vehicles, it is subject to federal
and state laws that regulate bulk fuel storage tanks. The Company's management
believes that the Company has all required licenses to conduct its operations
and its in substantial compliance with applicable regulatory requirements. The
Company's operations are also affected by local zoning regulations, which
increasingly require minimum amounts of landscaping in new developments, and in
drier climates, improved water management techniques. There can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. The Company's failure to comply with these laws and
regulations could subject it to substantial fines and the loss of its licenses.
Prior to the consummation of the Mergers, the Company will have completed
evaluations of the properties owned or leased by the Founding Companies and
engaged an independent environmental consulting firm to conduct or review
assessments of environmental conditions at these properties.
45
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors, executive officers and key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- ----- ------------------------------------------------------------
<S> <C>
William F. Murdy..................... 56 Chairman of the Board, Chief Executive Officer
and President
Peter C. Forbes...................... 52 Senior Vice President, Chief Financial Officer and Director
Harold D. Cranston................... 50 Senior Vice President, Chief Operating Officer
and Director*+
William L. Fiedler................... 39 Senior Vice President, General Counsel and Secretary
Kenneth V. Garcia.................... 28 Senior Vice President and Chief Development Officer+
Steven G. Ives....................... 35 Vice President and Controller
Linda T. Benge....................... 48 President of Trees, Director*
Roger S. Braswell.................... 46 Vice President of Southern Tree, Director of Corporate
Development, Director*
Bruce A. Church...................... 37 President of Church, Director*
David K. Luse........................ 42 Chief Executive Officer of Arteka, Director of Corporate
Development, Director*
Mark S. Yahn......................... 41 President of Ground Control, Director*
Jeff A. Meyer........................ 37 President of Desert Care, Director*
Ronald L. Stanfa..................... 50 Director
Fred M. Ferreira..................... 56 Director*
Clark A. Johnson..................... 66 Director*
Patrick J. Norton.................... 47 Director*
N. David Blakeley.................... 40 President of Southern Tree
Stewart K. Hanson.................... 43 President of Arteka
James R. Marcus...................... 53 Chairman of Four Seasons, Director of Corporate Development
</TABLE>
- ------------
* Election as a director of the Company effective as of the consummation of
this Offering.
+ Election as an officer effective as of the consummation of this Offering.
William F. Murdy has served as President, Chief Executive Officer and
Chairman of the Board of the Company since January 1998. From 1989 through
December 1997, Mr. Murdy was President and Chief Executive Officer of General
Investment and Development Company, a privately-held real estate operating
company. From 1981 to 1989, Mr. Murdy served as the Managing General Partner of
the Morgan Stanley Venture Capital Fund. From 1974 to 1981, Mr. Murdy served as
the Senior Vice President and Chief Operating Officer, among other positions, of
Pacific Resources, Inc., a publicly-traded company involved primarily in
petroleum refining and marketing. From 1964 to 1974, Mr. Murdy served in the
United States Army, achieving the rank of Major. Mr. Murdy holds an M.B.A. from
Harvard University and a B.S. from the United States Military Academy.
Peter C. Forbes has served as Chief Financial Officer and a director of the
Company since March 1998. From July 1996 to March 1998, Mr. Forbes was President
and Chief Executive Officer of SOCO Offshore, Inc. ("SOCO"), the Gulf coast
subsidiary of Snyder Oil Corporation, a publicly-traded oil and gas exploration
company, and from July 1995 to July 1996 was Executive Vice President of SOCO.
From 1994 to 1995, he was President and Chief Executive Officer of SD Resources,
Inc., the general partner of Sand Dollar Resources L.P., a limited partnership
with Enron Gas Services Corp., a subsidiary of Enron Corp. From 1992 to 1993,
Mr. Forbes was Vice President in charge of the oil and gas property acquisition
unit of
46
<PAGE>
Enron Gas Services Corp. Mr. Forbes is a member of the Institute of Chartered
Accountants of Scotland and holds a B.A. from Edinburgh University, Scotland.
Harold D. Cranston will become Senior Vice President, Chief Operating
Officer and a director of the Company upon consummation of this Offering. Mr.
Cranston has been President of Four Seasons and a shareholder of that company
since 1987. Prior to that, he was Vice President and General Manager of the
Consumer Products Business Division of Crown Zellerbach, a forest products
company. Mr. Cranston holds an M.B.A. and B.S. from Stanford University.
William L. Fiedler has served as Senior Vice President, General Counsel and
Secretary of the Company since November 1997. From February 1994 through October
1997, Mr. Fiedler was Vice President, General Counsel and Secretary of Allwaste,
Inc., a publicly-traded industrial services company ("Allwaste"), and from
February 1990 to January 1994, was Senior Counsel of Allwaste. Prior to that,
Mr. Fiedler held the position of Chief Legal and Compliance Officer of Sentra
Securities Corporation, an NASD registered broker-dealer. Mr. Fiedler holds a
J.D. and B.B.A. from the University of San Diego.
Kenneth V. Garcia will become Senior Vice President and Chief Development
Officer of the Company upon consummation of this Offering. In June 1997, Mr.
Garcia became a Vice President of Notre and has been involved in planning and
structuring the Company since its inception. Prior to that, Mr. Garcia was an
attorney at Bracewell & Patterson, L.L.P., where he focused primarily on the
consolidation of highly-fragmented industries. Mr. Garcia holds a J.D. from the
University of Texas School of Law and a B.S. from Cornell University.
Steven G. Ives has served as Vice President and Controller of the Company
since January 1998. From January 1997 through its sale in October 1997, Mr. Ives
was Vice President, Finance for Convest Energy Corporation, an independent oil
and gas exploration company ("Convest"), and Vice President, Controller and
Chief Accounting Officer for Edisto Resources Corporation, the majority owner of
Convest. From June 1996 to January 1997, Mr. Ives was Vice President of EnCap
Investments L.C., a Houston-based investment banking firm. From June 1990 to May
1996, Mr. Ives served in various accounting capacities with Convest, including
Assistant Controller. Mr. Ives is a C.P.A. and holds a B.B.A. from Southwest
Texas State.
Linda T. Benge will become a director of the Company upon consummation of
this Offering. She has been employed by Trees since 1981, has served as its
President and Chief Executive Officer since 1989 and will continue in that
capacity after consummation of this Offering.
Roger S. Braswell will become a director of the Company upon consummation
of this Offering. Mr. Braswell founded Southern Tree in 1977. He has served as
President of Southern Tree since that time and will serve as a Director of
Corporate Development of the Company and Vice President of Southern Tree after
consummation of this Offering. Mr. Braswell previously served as President of
the North Carolina Landscape Contractors Association and currently serves on the
Board of the Green Industry Exposition.
Bruce A. Church will become a director of the Company upon consummation of
this Offering. He has been employed by Church since 1977, has served as its
President since 1987 and will continue in that capacity after consummation of
this Offering. Mr. Church is a past member of the Board of Directors of the
Associated Landscape Contractors of America ("ALCA").
David K. Luse will become a director of the Company upon consummation of
this Offering. Mr. Luse founded Arteka in 1974, has served as Chief Executive
Officer of Arteka since that time and will continue in that capacity, as well as
serve as a Director of Corporate Development of the Company after consummation
of this Offering. Mr. Luse currently serves on the Board of Directors of ALCA
and as the Chair of the Exterior Landscape Council of ALCA and serves on the
Board of the Green Industry Exposition.
Jeff A. Meyer will become a director of the Company upon consummation of
this Offering. Mr. Meyer founded Desert Care in 1992. He has served as President
and Chief Executive Officer of Desert Care since 1992 and will continue in that
capacity after consummation of this Offering.
47
<PAGE>
Mark S. Yahn will become a director of the Company upon consummation of
this Offering. He founded Ground Control in 1978, has served as Chief Executive
Officer of Ground Control since 1978 and will continue in that capacity after
consummation of this Offering.
Ronald L. Stanfa has been a director of the Company since February 1998,
serving as the director elected by the holders of the Restricted Common Stock.
Mr. Stanfa has served as a Managing Director of Notre since July 1995. From June
1993 to July 1995, Mr. Stanfa was an independent business consultant. Mr. Stanfa
was a founder and served as a director of Allwaste from 1986 through 1995. From
October 1988 to June 1993, Mr. Stanfa was Vice President -- Corporate
Development of Allwaste.
Fred M. Ferreira will become a director of the Company upon consummation of
this Offering. Since January 1997, Mr. Ferreira has served as Chairman of the
Board, Chief Executive Officer and President of Comfort Systems USA, Inc., a
publicly-traded company that is a consolidator of commercial HVAC companies.
From 1995 through 1996, Mr. Ferreira was a private investor. He served as Chief
Operating Officer and a director of Allwaste, from 1994 to 1995, and was
President of Allwaste Environmental Services, Inc., the largest division of
Allwaste, from 1991 to 1994.
Clark A. Johnson will become a director of the Company upon consummation of
this Offering. Since 1988, Mr. Johnson has served as Chairman of the Board and
Chief Executive Officer of Pier 1 Imports, Inc. ("Pier 1") and a member of the
Executive Committee of the Board of Pier 1. He has been a director of Pier 1
since 1983. Mr. Johnson is also a director of Albertson's, Inc., InterTAN, Inc.,
Metro Media International Group, Anacomp, Inc. and Heritage Media Corporation.
Patrick J. Norton will become a director of the Company upon consummation
of this Offering. Mr. Norton served as President and Chief Executive Officer of
Barefoot, Inc. ("Barefoot"), a publicly-traded company, until it merged with
ServiceMaster Co. in February 1997. At the time of the merger, Barefoot was the
second largest lawn care service company in the United States. Mr. Norton was a
senior officer of Barefoot beginning in 1979, becoming President and Chief
Executive Officer in 1983. From 1972 to 1979, he served as an accountant with
Arthur Andersen LLP in Cleveland, Ohio.
N. David Blakeley has been employed by Southern Tree since 1984, has served
as Chief Operating Officer since 1989 and will serve as President of Southern
Tree upon consummation of this Offering.
Stewart K. Hanson has been employed by Arteka since 1973, serving as Vice
President from 1984 to 1995, President since 1995 and will continue in that
capacity upon consummation of this Offering.
James R. Marcus founded Four Seasons in 1973. He has served as Chairman
since its inception and will continue in that capacity and as a Director of
Corporate Development of the Company upon consummation of this Offering.
Effective upon consummation of this Offering, the Board of Directors will
be divided into three classes of four, four and five directors, respectively,
with directors serving staggered three-year terms, expiring at the annual
meetings of stockholders in 1999, 2000 and 2001, respectively. At each annual
meeting of stockholders, one class of directors will be elected for a full term
of three years to succeed that class of directors whose terms are expiring. The
Company's Certificate of Incorporation permits the holders of the Restricted
Common Stock to elect one director. Mr. Stanfa is the director elected by the
holders of the Restricted Common Stock. All officers serve at the discretion of
the Board of Directors.
The Board of Directors has established an Audit Committee, a Compensation
Committee, a Nominating Committee and an Executive Committee. Effective upon
consummation of this Offering, the members of the Audit Committee will be
Messrs. Norton, Stanfa and Ferreira, and the members of the Compensation
Committee will be Messrs. Ferreira, Johnson and Stanfa. The members of the
Executive Committee, the Acquisition Committee and the Nominating Committee will
be selected following the consummation of this Offering. The Executive Committee
will include at least one outside director, and the Nominating Committee will
include three members, two of whom will be directors from the Founding
Companies.
48
<PAGE>
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $2,000 for attendance at each Board of Directors' meeting and $1,000 for
each committee meeting (unless held on the same day as a Board of Directors'
meeting). In addition, under the Company's 1998 Non-Employee Directors' Stock
Plan, each non-employee director will automatically be granted an option to
acquire 10,000 shares of Common Stock upon such person's initial election as a
director, and an annual option to acquire 5,000 shares at each annual meeting of
the Company's stockholders thereafter at which such director is re-elected or
remains as a director, unless such annual meeting is held within three months of
such person's initial election as a director. Each non-employee director also
may elect to receive shares of Common Stock or credits representing "deferred
shares" in lieu of cash directors' fees. See "-- 1998 Non-Employee Directors'
Stock Plan." Directors are also reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof.
EXECUTIVE COMPENSATION, EMPLOYMENT AGREEMENTS, COVENANTS NOT-TO-COMPETE
The Company was incorporated in 1997, has conducted no operations, other
than those associated with this Offering, has generated no revenue to date and
will not pay any of its executive officers any compensation prior to the
consummation of this Offering. The Company anticipates that during 1998 its five
most highly compensated executive officers (other than those employed by a
Founding Company) will be Messrs. Murdy, Forbes, Cranston, Fiedler and Garcia.
Each of Messrs. Murdy, Forbes, Cranston, Fiedler and Garcia will enter into
an employment agreement with the Company upon consummation of this Offering
providing for an annual base salary of $150,000. Each employment agreement will
be for a term of three years (the "Initial Term"), and, unless terminated or
not renewed, the term will continue thereafter on a year-to-year basis on the
same terms and conditions existing at the time of renewal. Each employment
agreement will provide that, in the event of termination of employment by the
Company without cause during the Initial Term, the employee will be entitled to
receive from the Company an amount equal to his then-current salary for the
remainder of the Initial Term or for one year, whichever is greater. In the
event of termination of employment by the Company without cause subsequent to
the Initial Term, the employee will be entitled to receive from the Company an
amount equal to his then-current salary for one year. In either case, payment is
due in a lump sum on the effective date of termination. In the event of a change
in control of the Company (as defined), if the employee is not given notice at
least five business days prior to such change in control from the successor to
all or a substantial portion of the Company's business and/or assets that such
successor is willing to assume and perform the Company's obligations under the
employment agreement, then the employee may elect to terminate his employment
and receive in a lump sum the amount equal to three times his annual base salary
then in effect. The noncompetition provisions of the employment agreement would
apply for one year from the effective date of termination without such notice.
For a defined period following an event constituting change in control, the
employee may elect to terminate his employment for Good Reason (as defined) and
receive in a lump sum the amount equal to three times his annual base salary
then in effect. In such event, the noncompetition provisions of the employment
agreement would apply for one year from the effective date of termination. Each
employment agreement contains a covenant not to compete with the Company for a
period of two years immediately following termination of employment or, in the
case of termination by the Company without cause for a period of one year
immediately following termination of employment.
Each of Messrs. Church, Meyer, Yahn and Ms. Benge will enter into an
employment agreement with his or her Founding Company upon consummation of this
Offering providing for an annual base salary of $150,000. Each employment
agreement will be for a term of five years, and, unless terminated or not
renewed, the term will continue thereafter on a year-to-year basis on the same
terms and conditions existing at the time of renewal. Each employment agreement
will provide that, in the event of termination of employment by the Founding
Company without cause during the first three years of the employment term (the
"Initial Term"), the employee will be entitled to receive from the Founding
Company an amount equal to his or her then-current salary for the remainder of
the Initial Term or for one year, whichever is greater.
49
<PAGE>
In the event of termination of employment by the Founding Company without cause
subsequent to the Initial Term, the employee will be entitled to receive from
the Founding Company an amount equal to his or her then-current salary for one
year. In either case, payment is due in a lump sum on the effective date of
termination. In the event of a change in control of the Company (as defined)
during the Initial Term, if the employee is not given notice at least five
business days prior to such change in control from the successor to all or a
substantial portion of the Company's business and/or assets that such successor
is willing to assume and perform the Founding Company's obligations under the
employment agreement, then the employee may elect to terminate his or her
employment and receive in a lump sum the amount equal to three times his or her
annual base salary then in effect. The noncompetition provisions of the
employment agreement would apply for one year from the effective date of
termination without such notice. For a defined period following an event
constituting a change in control, the employee may elect to terminate his or her
employment for Good Reason (as defined) and receive in a lump sum the amount
equal to three times his or her annual base salary then in effect. In such
event, the noncompetition provisions of the employment agreement would apply for
one year from the effective date of termination. Each employment agreement
contains a covenant not to compete with the Company for a period of two years
immediately following termination of employment or, in the case of termination
by the Founding Company without cause or by the employee for Good Reason for a
period of one year immediately following termination of employment.
At least one principal executive officer of each of the other Founding
Companies will enter into an employment agreement with his or her respective
Founding Company containing substantially the same provisions, including a
covenant not to compete, as those for Messrs. Church, Meyer, Yahn and Ms. Benge.
1998 LONG-TERM INCENTIVE PLAN
No stock options were granted to, exercised by or held by any executive
officer in 1997. In February 1998, the Board of Directors and the Company's
stockholders approved the Company's 1998 Long-Term Incentive Plan (the
"Plan"). The purpose of the Plan is to provide directors, officers, key
employees, consultants and other service providers with additional incentives by
increasing their ownership interests in the Company. Individual awards under the
Plan may take the form of one or more of: (i) either incentive stock options or
non-qualified stock options ("NQSOs"), (ii) stock appreciation rights; (iii)
restricted or deferred stock, (iv) dividend equivalents and (v) other awards not
otherwise provided for, the value of which is based in whole or in part upon the
value of the Common Stock.
The Compensation Committee will administer the Plan and select the
individuals who will receive awards and establish the terms and conditions of
those awards. The maximum number of shares of Common Stock that may be subject
to outstanding awards, determined immediately after the grant of any award, may
not exceed the greater of 2,000,000 shares or 15% of the aggregate number of
shares of Common Stock outstanding. Shares of Common Stock which are
attributable to awards which have expired, terminated or been canceled or
forfeited are available for issuance or use in connection with future awards.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
Effective February 15, 1998, NQSOs to purchase 100,000 shares of Common
Stock at a price of $6.00 per share were granted to Mr. Cranston. At the closing
of this Offering, NQSOs to purchase a total of 570,000 shares of Common Stock
will be granted as follows: 200,000 shares to Mr. Murdy, 100,000 shares to Mr.
Forbes, 100,000 shares to Mr. Fiedler, 100,000 shares to Mr. Garcia, 50,000
shares to Mr. Ives and 20,000 shares to other employees. In addition, at the
consummation of this Offering, options to purchase 767,819 shares will be
granted to certain employees of the Founding Companies. Each of the options
granted at the closing of the Offering will have an exercise price equal to the
initial public offering price per share. All of the foregoing options will vest
at the rate of 20% per year, commencing on the first
50
<PAGE>
anniversary of this Offering, and will expire at the earlier of ten years from
the date of grant or 90 days following termination of employment.
1998 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1998 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in February 1998, provides for (i) the automatic grant to
each non-employee director serving at the consummation of this Offering of an
option to purchase 10,000 shares, (ii) the automatic grant to each other
non-employee director of an option to purchase 10,000 shares upon such person's
initial election as a director, and (iii) an automatic annual grant to each
non-employee director of an option to purchase 5,000 shares at each annual
meeting of stockholders thereafter at which such director is re-elected or
remains as a director, unless such annual meeting is held within three months of
such person's initial election as a director. All options will have an exercise
price per share equal to the fair market value of the Common Stock on the date
of grant and are immediately vested and expire on the earlier of ten years from
the date of grant or one year after termination of service as a director. The
Directors' Plan also permits non-employee directors to elect to receive, in lieu
of cash, directors' fees, shares or credits representing "deferred shares" at
future settlement dates, as selected by the director. The number of shares or
deferred shares received will equal the number of shares of Common Stock which,
at the date the fees would otherwise be payable, will have an aggregate fair
market value equal to the amount of such fees.
51
<PAGE>
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of the Company, LandCARE issued to Notre a
total of 1,574,158 shares (as adjusted for a 78.7079-to-one stock dividend) of
Common Stock for an aggregate cash consideration of $16,279. Mr. Stanfa is a
Managing Director of Notre and a director of the Company. In March 1998, Notre
exchanged 1,309,908 shares of Common Stock for 1,309,908 shares of Restricted
Common Stock. See "Description of Capital Stock." Notre has agreed to advance
whatever funds are necessary to effect the Mergers and this Offering, all of
which will be on a non-interest-bearing basis. As of December 31, 1997, Notre
had incurred expenses on behalf of the Company in the aggregate amount of $0.2
million. All of Notre's advances will be repaid from the net proceeds of this
Offering.
From November 1997 through March 1998, the Company issued a total of
670,000 shares of Common Stock (as adjusted for a 78.7079-to-one stock dividend)
at $.01 per share to various members of management, as follows: Mr.
Murdy -- 275,000 shares, Mr. Forbes -- 100,000 shares, Mr. Fiedler -- 110,000
shares, Mr. Garcia -- 110,000 shares, Mr. Ives -- 55,000 shares and 20,000
shares to other members of management. The Company also issued 315,240 shares of
Common Stock at $.01 per share to consultants to the Company, including a total
of 30,000 shares of Common Stock to persons who will become directors of the
Company upon consummation of this Offering. The Company also granted options to
purchase 10,000 shares of Common Stock under the Directors' Plan, effective upon
the consummation of this Offering, to Mr. Stanfa, a director of the Company, and
to Messrs. Ferreira, Johnson and Norton who will become directors of the Company
upon the consummation of this Offering.
Simultaneously with consummation of this Offering, LandCARE will acquire by
merger all of the issued and outstanding stock of the Founding Companies, at
which time each Founding Company will become a wholly-owned subsidiary of the
Company. The aggregate consideration to be paid by LandCARE in the Mergers
consists of $27.2 million in cash and 5,162,645 shares of Common Stock. In
addition, prior to the Mergers, certain of the Founding Companies will make the
S Corporation Distributions of $1.4 million and distribute certain real estate
and Other Assets having a net book value of $0.7 million.
The consummation of each Merger is subject to customary conditions. These
conditions include, among others, the continuing accuracy on the closing date of
the Mergers of the representations and warranties of the Founding Companies and
the principal stockholders thereof and of LandCARE, the performance by each of
them of all covenants included in the agreements relating to the Mergers and the
absence of a material adverse change in the results of operations, financial
condition or business of each Founding Company.
There can be no assurance that the conditions to closing of the Mergers
will be satisfied or waived or that the acquisition agreements will not be
terminated prior to consummation. If any of the Mergers is terminated for any
reason, the Company does not intend to consummate this Offering on the terms
described herein.
52
<PAGE>
The following table sets forth the consideration to be paid by LandCARE for
each of the Founding Companies. These amounts do not include the S Corporation
Distribution or the distribution of other non-operating assets. (Dollars in
thousands.)
SHARES OF
COMPANY CASH COMMON STOCK
- ------------------------------------- --------- -------------
Trees................................ $ 11,036 1,863,137
Four Seasons......................... 4,952 742,581
Southern Tree........................ 1,399 482,863
Church Landscape..................... 2,941 725,451
Ground Control....................... 2,640 360,000
Arteka............................... 2,625 646,684
Desert Care.......................... 1,618 341,929
--------- -------------
Total...................... $ 27,211 5,162,645
========= =============
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain officers, directors and holders of 5% or more of
the outstanding shares of the Company, together with trusts for which they act
as trustees, will receive cash and shares of Common Stock of the Company as
follows. These amounts do not include any S Corporation Distribution or
distributions of other non-operating assets. (Dollars in thousands.)
SHARES OF
NAME CASH COMMON STOCK
- ------------------------------------- --------- -------------
Linda T. Benge....................... $ 2,628 716,591
Harold D. Cranston................... 632 221,242
Roger S. Braswell(1)................. 1,114 405,081
Bruce A. Church...................... 1,013 419,363
Mark S. Yahn......................... 2,640 360,000
David K. Luse........................ 2,625 600,092
Jeff A. Meyer........................ 1,037 228,446
--------- -------------
Total...................... $ 11,689 2,950,815
========= =============
- ------------
(1) Consideration being paid to Southern Shade Tree, Inc., the holding company
of Southern Tree, of which Mr. Braswell is an 80% owner.
Pursuant to the agreements to be entered into in connection with the
Mergers, the stockholders of the Founding Companies have agreed not to compete
with the Company for five years, commencing on the date of consummation of this
Offering.
Certain of the Founding Companies have incurred indebtedness which has been
personally guaranteed by their stockholders or by entities controlled by their
stockholders. At December 31, 1997, the aggregate amount of indebtedness of
these Founding Companies that was subject to personal guarantees was
approximately $2.8 million. The Company intends to use the net proceeds of the
Offering to repay this indebtedness.
LEASES OF REAL PROPERTY BY FOUNDING COMPANIES
Following the Mergers, Arteka will lease the following facilities from
David K. Luse, who will become a Director of Corporate Development and a
director of the Company upon consummation of the Offering: (i) 15195 Martin
Drive, Eden Prairie, Minnesota; (ii) 1160 Engler Boulevard, Chaska, Minnesota;
(iii) 230 Highway 65 North, River Falls, Wisconsin; and (iv) Lot A, Edenvale
Industrial Park, 8th Addition, Eden Prairie, Minnesota. The leases provide for
annual rents of $38,604, $6,000, $24,000 and $15,600, respectively. The rent
will be adjusted each year in accordance with the Consumer Price Index
("CPI"), not to be increased by more than five percent of the rent for the
immediately preceding lease year. Each of the
53
<PAGE>
leases provides for an initial term of five years, with three, five year renewal
options. Arteka will pay for all utilities, taxes and insurance on each leased
property. Arteka will have a right of first refusal to purchase each leased
property. The Company believes that the economic terms of these leases do not
exceed fair market value.
Following the Mergers, Church will lease (i) its facility at 951 North
Ridge Avenue, Lombard, Illinois from a trust of which Bruce A. Church, who will
become a director of the Company upon consummation of the Offering, is a
beneficiary; and (ii) its facility at 17950 West Route 173, Wadsworth, Illinois
from The Hunt Club, L.P., a partnership of which Mr. Church is a limited
partner. The leases provide for annual rents of $105,060 and $75,636,
respectively. The rent for each lease will be adjusted each year in accordance
with the CPI, not to be increased by more than five percent of the rent for the
immediately preceding lease year. Each of the leases provides for an initial
term of five years, with three, five year renewal options. Church will pay for
all utilities, taxes and insurance on each leased property. Church will have a
right of first refusal to purchase each leased property. The Company believes
that the economic terms of these leases do not exceed fair market value.
Following the Mergers, Desert Care will lease its facilities at 6143 South
32nd Street, Phoenix, Arizona and 4237 East Forest Pleasant Place, Phoenix,
Arizona from Sonoram Heights Nurseries, L.C., a limited liability company of
which Jeff A. Meyer, who will become a director of the Company upon consummation
of the Offering, is a member. The leases provide for annual rents of $54,000 and
$36,000, respectively. The rent for each lease will be adjusted each year in
accordance with the CPI, not to be increased by more than five percent of the
rent for the immediately preceding lease year. Each of the leases provides for
an initial term of five years, with three, five year renewal options. Desert
Care will pay for all utilities, taxes and insurance on each leased property.
Desert Care will have a right of first refusal to purchase each leased property.
The Company believes that the economic terms of these leases do not exceed fair
market value.
Following the Mergers, Four Seasons will lease (i) its facilities at 270
Sunol Street, San Jose, California, 4095 Deeble Street, Sacramento, California
and 23144 Clawiter Road, Hayward, California from James R. Marcus, who will
become a Director of Corporate Development of the Company upon consummation of
the Offering; (ii) its facility at 4991 Pacheco Boulevard, Martinez, California
from Harold D. Cranston, who will become Senior Vice President, Chief Operating
Officer and a director of the Company upon consummation of the Offering and
another individual; and (iii) its facility at 1064 Serpentine Lane, Pleasanton,
California from Mr. Cranston. The leases provide for a total annual rent of
$54,000, $48,000, $44,760, $38,400, and $66,060, respectively. The rent for each
lease will be adjusted each year in accordance with the CPI, not to be increased
by more than five percent of the rent for the immediately preceding lease year.
Each of the leases provides for an initial term of ten years, with two, five
year renewal options. Four Seasons will pay for all utilities, taxes and
insurance on each leased property. Four Seasons will have a right of first
refusal to purchase each leased property. The Company believes that the economic
terms of these leases do not exceed fair market value.
Following the Mergers, Ground Control will lease its facility at 2169 North
Forsyth Road, Orlando, Florida from Mark S. Yahn, who will become a director of
the Company upon consummation of the Offering. The lease provides for annual
rent of $217,476, and the rent will be adjusted each year in accordance with the
CPI, not to be increased by more than five percent of the rent for the
immediately preceding lease year. The lease provides for an initial term of ten
years, with two, five year renewal options. Ground Control will pay for all
utilities, taxes and insurance on the leased property. Ground Control will have
a right of first refusal to purchase the leased property. The Company believes
that the economic terms of the lease do not exceed fair market value.
Following the Mergers, Southern Tree will lease its facility at 2808
Highway 64 West, Apex, North Carolina from Blakely-Braswell Land Company,
L.L.C., a limited liability company of which Roger S. Braswell, who will become
a director of the Company upon consummation of the Offering, is a member. The
lease provides for annual rent of $66,000, and the rent will be adjusted each
year in accordance with the CPI, not to be increased by more than five percent
of the rent for the immediately preceding lease year. The
54
<PAGE>
lease provides for an initial term of five years, with three, five year renewal
options. Southern Tree will pay for all utilities, taxes and insurance on the
leased property. Southern Tree will have a right of first refusal to purchase
the leased property. The Company believes that the economic terms of the lease
do not exceed fair market value.
The Company has adopted a policy that, whenever possible, it will not own
any real estate. Accordingly, in connection with future acquisitions, the
Company may require the distribution of real property owned by acquired
companies to its stockholders and the leaseback of such property at fair market
value.
OTHER TRANSACTIONS
Trees leases trucks and heavy equipment from LJS Investments, a company of
which Linda T. Benge, who will become a director of the Company upon
consummation of this Offering, is an owner. Lease payments for 1997 were
approximately $64,000. Trees purchases climbing supplies from Universal
Distributing Company, Inc., a company of which Ms. Benge is an owner. Purchases
for the years ended March 31, 1996 and 1997, and for the nine months ended
December 31, 1997, were approximately $420,000, $289,000 and $458,000,
respectively.
Additionally, in November 1996, Ms. Benge borrowed $165,444 from Trees. The
loan was paid in full in December 1996.
During 1997, Southern Shade Tree Co., of which Roger S. Braswell is a
stockholder, sold assets worth $738,162 to Southern Tree in exchange for 1,900
shares of Southern Tree common stock. Mr. Braswell will become a Director of
Corporate Development and a director of the Company upon consummation of this
Offering.
In December 1997, Arteka borrowed $1,000,000 from David and Julian Luse,
who borrowed the money from First Minnesota City Bank, in order to fund the
purchase by Arteka of the stock of Southwest Lawn Maintenance, Inc. Mr. David
Luse will become a director of the Company and a Director of Corporate
Development upon consummation of this Offering. Arteka also leases facilties
from David Luse (a shareholder) for $84,000 per year, pursuant to leases that
expire on various dates through 2002.
Desert Care buys trees from and sells trees to Sonoran Heights Nurseries,
L.C. a company of which Jeff A. Meyer, who will become a director of the Company
upon consummation of this Offering, is a shareholder. For the year ended
December 31, 1997, Desert Care purchased a total of $73,000 of trees from
Sonoran Heights Nurseries, L.C. and sold a total of $10,000 of trees to Sonoran
Heights Nurseries, L.C.
COMPANY POLICY
Any future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal, and must be approved in advance by
a majority of disinterested members of the Board of Directors.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock, after giving effect to the Mergers and this
Offering, by (i) each person known to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each Company director and person who
has consented to be named as a director ("named directors"); (iii) each
executive officer and person who has consented to be named as an executive
officer ("named executive officers"); and (iv) all executive officers, named
executive officers, directors and named directors as a group. All persons listed
have an address c/o the Company's principal executive offices and have sole
voting and investment power with respect to their shares unless otherwise
indicated.
SHARES BENEFICIALLY
OWNED AFTER OFFERING
----------------------
NUMBER PERCENT
--------- -------
Notre Capital Ventures II, L.L.C........ 1,574,158 12.4%
Ronald L. Stanfa(1)..................... 1,584,158 12.4
Linda T. Benge.......................... 716,591 5.6
David K. Luse........................... 600,092 4.7
Bruce A. Church......................... 419,363 3.3
Roger S. Braswell....................... 405,081 3.2
Mark S. Yahn............................ 360,000 2.8
William F. Murdy(2)..................... 279,545 2.2
Jeff A. Meyer........................... 228,446 1.8
Harold D. Cranston...................... 221,242 1.7
William L. Fiedler...................... 110,000 *
Kenneth V. Garcia....................... 110,000 *
Peter C. Forbes......................... 100,000 *
Steven G. Ives.......................... 55,000 *
Fred M. Ferreira(3)(4).................. 29,090 *
Patrick J. Norton(3)(4)................. 29,090 *
Clark A. Johnson(4)..................... 20,000 *
All executive officers, directors and
named directors as a
group (16 persons).................... 5,267,198 41.4%
- ------------
* Less than 1%.
(1) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan and 1,574,158 shares of Common Stock
issued to Notre. Mr. Stanfa is a Managing Director of Notre.
(2) Includes 4,545 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.
(3) Includes 9,090 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.
(4) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of one hundred seven
million (107,000,000) shares of capital stock, consisting of one hundred million
(100,000,000) shares of Common Stock, two million (2,000,000) shares of
Restricted Common Stock and five million (5,000,000) shares of Preferred Stock
("Preferred Stock"). Upon completion of the Mergers and this Offering, the
Company will have outstanding 12,722,043 shares of Common Stock, including
1,305,408 shares of Restricted Common Stock and no shares of Preferred Stock.
The following discussion is qualified in its entirety by reference to the
Restated Certificate of Incorporation of LandCARE, which is included as an
exhibit to the Registration Statement of which this Prospectus is a part.
COMMON STOCK AND RESTRICTED COMMON STOCK
The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock, voting together as a
single class, are entitled to elect one member of the Company's Board of
Directors and to three-tenths (0.3) of one vote for each share held on all other
matters on which they are entitled to vote. Holders of Restricted Common Stock
are not entitled to vote on the election of any other directors. Upon
consummation of this Offering, the Board of Directors will be classified into
three classes as nearly equal in number as possible, with the term of each class
expiring on a staggered basis. The classification of the Board of Directors may
make it more difficult to change the composition of the Board of Directors and
thereby may discourage or make more difficult an attempt by a person or group to
obtain control of the Company. Cumulative voting for the election of directors
is not permitted. Any director, or the entire Board of Directors, may be removed
at any time, with cause, by a majority of the aggregate number of votes which
may be cast by the holders of outstanding shares of Common Stock and Restricted
Common Stock entitled to vote for the election of directors, provided, however,
that only the holders of the Restricted Common Stock may remove the director
such holders are entitled to elect.
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock and Restricted Common Stock are entitled to participate
pro rata in such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. Holders of Common Stock and
Restricted Common Stock are entitled to share ratably in the net assets of the
Company upon liquidation after payment or provision for all liabilities and any
preferential liquidation rights of any Preferred Stock then outstanding. Holders
of Common Stock and holders of Restricted Common Stock have no preemptive rights
to purchase shares of stock of the Company. Shares of Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. Shares of Restricted Common Stock are not subject to
any redemption provisions but are convertible into Common Stock, on the
occurrence of certain events. All outstanding shares of Common Stock and
Restricted Common Stock are, and the shares of Common Stock to be issued
pursuant to this Offering and the Mergers will be upon payment therefor, fully
paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (a) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986, as amended)), (b) in the event
any person acquires beneficial ownership of 15 percent or more of the total
number of outstanding shares of Common Stock of the Company, (c) in the event
any person offers to acquire 15 percent or more of the total number of
outstanding shares of Common Stock of the Company, (d) in the event the holder
of Restricted Common Stock elects to convert it into Common Stock at any time
after the second anniversary of the consummation of the Company's initial public
offering of its Common Stock (the Public Offering), (e) on the third anniversary
of the date of the consummation of the Company's Public Offering, or (f) in the
event a majority of the aggregate number of votes which may be cast by the
holders of outstanding shares of Common Stock and Restricted Common Stock
entitled to
57
<PAGE>
vote approve such conversion. After June 30, 2000, the Board of Directors may
elect to convert any remaining shares of Restricted Common Stock into shares of
Common Stock in the event 80 percent or more of the originally outstanding
shares of Restricted Common Stock have been previously converted into shares of
Common Stock.
The Company will apply for listing of its Common Stock on the NYSE under
the symbol "GRW". The Restricted Common Stock will not be listed on any
exchange.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock and Restricted Common Stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of Common Stock. Accordingly, the issuance of
shares of Preferred Stock may discourage bids for the Common Stock or may
otherwise adversely affect the market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder 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 for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers and
(b) by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or after such date, the
business combination is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (a)
the owner of 15% or more of the outstanding voting stock of the corporation or
(b) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of
58
<PAGE>
fiduciary duty, except for liability in connection with a breach of duty of
loyalty, for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, for dividend payments or stock
repurchases illegal under Delaware law or any transaction in which a director
has derived an improper personal benefit.
Additionally, the Certificate of Incorporation of the Company provides that
directors and officers of the Company shall be, and at the discretion of the
Board of Directors non-officer employees and agents may be, indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in the future be amended, against all expenses and liabilities actually and
reasonably incurred in connection with service for or on behalf of the Company
and further permits the advancing of expenses incurred in defense of claims.
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at an annual or special
meeting of stockholders must be effected at a duly called meeting and may not be
taken or effected by a written consent of stockholders in lieu thereof. The
Company's Bylaws provide that a special meeting of stockholders may be called
only by the Chief Executive Officer, by a majority of the Board of Directors or
by a majority of the Executive Committee of the Board of Directors. The Bylaws
provide that only those matters set forth in the notice of the special meeting
may be considered or acted upon at that special meeting. To amend or repeal the
Company's Bylaws, an amendment or repeal thereof must first be approved by the
Board of Directors or by the affirmative vote of the holders of at least
two-thirds of the total votes eligible to be cast by holders of voting stock
with respect to such amendment or repeal.
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") and with regard to other matters to be brought by stockholders
before an annual meeting of stockholders of the Company (the "Business
Procedure"). The Nomination Procedure requires that a stockholder give prior
written notice, in proper form, of a planned nomination for the Board of
Directors to the Secretary of the Company. The requirements as to the form and
timing of that notice are specified in the Company's Bylaws. If the Chairman of
the Board of Directors determines that a person was not nominated in accordance
with the Nomination Procedure, such person will not be eligible for election as
a director. Under the Business Procedure, a stockholder seeking to have any
business conducted at an annual meeting must give prior written notice, in
proper form, to the Secretary of the Company. The requirements as to the form
and timing of that notice are specified in the Company's Bylaws. If the Chairman
of the Board of Directors determines that the other business was not properly
brought before such meeting in accordance with the Business Procedure, such
business will not be conducted at such meeting.
Although the Company's Bylaws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's Bylaws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company, 46 Wall Street, New York, New York 10005.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Mergers and completion of this Offering, the
Company will have outstanding 12,722,043 shares of Common Stock. The 5,000,000
shares sold in this Offering (plus any additional shares sold upon exercise of
the Underwriters' over-allotment option) will be freely tradable without
restriction unless acquired by affiliates of the Company. None of the remaining
outstanding shares of Common Stock or Restricted Common Stock have been
registered under the Securities Act, which means that they may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144 thereunder.
In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company or the date on which they were acquired from an affiliate, the
holder of such restricted securities (including an affiliate) is entitled to
sell a number of shares within any three-month period that does not exceed the
greater of (i) one percent of the then outstanding shares of the Common Stock
(approximately 127,200 shares upon completion of this Offering) or (ii) the
average weekly reported volume of trading of the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements pertaining to the manner of such sales, notices of such
sales and the availability of current public information concerning the Company.
Affiliates may sell shares not constituting restricted securities in accordance
with the foregoing volume limitations and other requirements but without regard
to the one year holding period. Under Rule 144(k), if a period of at least two
years has elapsed between the later of the date on which restricted securities
were acquired from the Company and the date on which they were acquired from an
affiliate, a holder of such restricted securities who is not an affiliate at the
time of the sale and who has not been an affiliate for at least three months
prior to the sale is entitled to sell the shares immediately without regard to
the volume limitations and other conditions described above.
The Company and its officers, directors and certain stockholders who
beneficially own 7,722,043 shares in the aggregate have agreed not to sell or
otherwise dispose of any shares of 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 that the Company may issue Common Stock in connection with
acquisitions or in connection with the Plan and the Directors' Plan (the
"Plans") or upon conversion of shares of the Restricted Common Stock. See
"Underwriting." In addition, all of the stockholders of the Founding
Companies, certain other stockholders and the Company's officers and directors
have agreed that they will not sell any of their shares for a period of two
years after the closing of this Offering without the prior written consent of
the Company.
Within 90 days after the consummation of this Offering, the Company intends
to register up to 5,000,000 shares of its Common Stock under the Securities Act
for use by the Company in connection with future acquisitions. Upon such
registration, these shares will generally be freely tradeable after their
issuance. In some instances, however, the Company may contractually restrict the
sale of shares issued in connection with future acquisitions.
Prior to this Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock.
60
<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, NationsBanc Montgomery Securities LLC 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:
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------- ---------
BT Alex. Brown Incorporated..........
NationsBanc Montgomery Securities
LLC................................
Sanders Morris Mundy Inc.............
---------
Total........................... 5,000,000
=========
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 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 of the Common Stock, 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 this 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.
61
<PAGE>
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 Plans,
and (iii) upon conversion of shares of Restricted Common Stock. Further, the
Company's directors, officers and certain stockholders who beneficially own
7,722,043 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 180
days 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 principals of Sanders Morris Mundy Inc., one of the Representatives,
are also investors in Notre. In February 1998, two principals of, and an
investment fund affiliated with Sanders Morris Mundy Inc., each purchased notes
from Notre which are convertible into shares of Common Stock upon consummation
of the Offering. These principals have agreed that they will not sell or offer
any shares of Common Stock received upon conversion of the notes for a period of
two years after the date of conversion. The shares of Common Stock beneficially
owned by these principals and the investment fund represent less than 1% of the
Common Stock to be outstanding after this Offering.
Prior to this 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 of 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 Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas. Certain members of
Bracewell & Patterson, L.L.P. are investors in Notre and own in the aggregate an
approximate 2% interest in Notre. Certain legal matters related to this Offering
will be passed on for the Underwriters by Piper & Marbury L.L.P., Baltimore,
Maryland.
EXPERTS
The financial statements of LandCARE, Four Seasons, Church, Ground Control,
Arteka and Desert Care included in this Prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The financial statements of Trees as of December 31, 1997 and for the nine
months then ended included in this Prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The financial statements of Trees as of March 31, 1997 and 1996,
respectively, and for the years then ended included in this Prospectus and
elsewhere in the registration statement have been audited by Harper & Pearson
Company, PC, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus, which
62
<PAGE>
is part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the SEC. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. For further
information with respect to the Company, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part thereof,
which may be inspected, without charge, at the Public Reference Section of the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC maintains a web
site that contains reports, proxy and information statements regarding
registrants that file electronically with the SEC. The address of this web site
is (http://www.sec.gov). Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the SEC, upon
payment of the prescribed fees.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
Basis of Presentation........... F-3
Unaudited Pro Forma Combined
Balance Sheet as of December
31, 1997....................... F-4
Unaudited Pro Forma Combined
Statement of Operations for the
Year Ended December 31, 1997... F-5
Notes to Unaudited Pro Forma
Combined Financial
Statements..................... F-6
HISTORICAL FINANCIAL STATEMENTS
LANDCARE USA, INC.
Report of Independent Public
Accountants.................... F-11
Balance Sheet................... F-12
Statement of Operations......... F-13
Statement of Stockholders'
Equity......................... F-14
Statement of Cash Flows......... F-15
Notes to Financial Statements... F-16
TREES, INC.
Report of Independent Public
Accountants.................... F-19
Report of Independent Public
Accountants.................... F-20
Consolidated Balance Sheets..... F-21
Consolidated Statements of
Operations..................... F-22
Consolidated Statements of
Shareholders' Equity........... F-23
Consolidated Statements of Cash
Flows.......................... F-24
Notes to Consolidated Financial
Statements..................... F-25
FOUR SEASONS LANDSCAPE AND
MAINTENANCE, INC.
Report of Independent Public
Accountants.................... F-32
Balance Sheets.................. F-33
Statements of Operations........ F-34
Statements of Shareholders'
Equity......................... F-35
Statements of Cash Flows........ F-36
Notes to Financial Statements... F-37
SOUTHERN TREE & LANDSCAPE CO., INC.
Report of Independent Public
Accountants.................... F-43
Balance Sheet................... F-44
Statement of Operations......... F-45
Statement of Shareholders'
Equity......................... F-46
Statement of Cash Flows......... F-47
Notes to Financial Statements... F-48
D.R. CHURCH LANDSCAPE CO., INC.
Report of Independent Public
Accountants.................... F-54
Consolidated Balance Sheets..... F-55
Consolidated Statements of
Operations..................... F-56
Consolidated Statements of
Shareholders' Equity........... F-57
Consolidated Statements of Cash
Flows.......................... F-58
Notes to Consolidated Financial
Statements..................... F-59
F-1
<PAGE>
PAGE
-----
GROUND CONTROL LANDSCAPING, INC.
Report of Independent Public
Accountants.................... F-66
Balance Sheet................... F-67
Statement of Operations......... F-68
Statement of Stockholder's
Equity......................... F-69
Statement of Cash Flows......... F-70
Notes to Financial Statements... F-71
ARTEKA CORPORATION
Report of Independent Public
Accountants.................... F-77
Combined Balance Sheets......... F-78
Combined Statements of
Operations..................... F-79
Combined Statements of
Stockholder's Equity........... F-80
Combined Statements of Cash
Flows.......................... F-81
Notes to Combined Financial
Statements..................... F-82
DESERT CARE LANDSCAPING, INC.
Report of Independent Public
Accountants.................... F-91
Balance Sheet................... F-92
Statement of Operations......... F-93
Statement of Shareholders'
Equity......................... F-94
Statement of Cash Flows......... F-95
Notes to Financial Statements... F-96
F-2
<PAGE>
LANDCARE USA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the mergers by LandCARE USA, Inc. (LandCARE or the Company), of substantially
all of the outstanding capital stock of Trees, Inc. (Trees), Four Seasons
Landscape and Maintenance, Inc. (Four Seasons), Southern Tree and Landscape
Company (Southern Tree), D.R. Church Landscape Co., Inc. (Church), Ground
Control Landscaping, Inc. (Ground Control), Arteka Corporation (Arteka) and
Desert Care Landscaping, Inc. (Desert Care). (together, the Founding Companies).
LandCARE and the Founding Companies are hereinafter referred to as the Company.
These mergers (the Mergers) will occur simultaneously with the closing of
LandCARE'S initial public offering (the Offering) and will be accounted for
using the purchase method of accounting. Trees, one of the Founding Companies,
has been identified as the accounting acquiror in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 97 which states that the
combining company which receives the largest portion of voting rights in the
combined corporation is presumed to be the acquiror for accounting purposes. The
unaudited pro forma combined financial statements also give effect to the
issuance of common stock in connection with the Offering and as partial
consideration for the acquisitions to the sellers of the Founding Companies.
These pro forma statements are based on the historical financial statements of
the Founding Companies included elsewhere in this Prospectus and the estimates
and assumptions set forth below and in the notes to the unaudited pro forma
combined financial statements.
The unaudited pro forma combined balance sheet gives effect to the Mergers
and the Offering as if they had occurred on December 31, 1997. The unaudited pro
forma combined statement of operations give effect to these transactions as if
they had occurred on January 1, 1997.
LandCARE has preliminarily analyzed the benefits that it expects to be
realized from reductions in salaries, bonuses and certain benefits to the
owners. To the extent the owners of the Founding Companies have agreed
prospectively to reductions in salary, bonuses and benefits, these reductions
have been reflected in the unaudited pro forma combined statements of
operations. Additionally, reductions in lease expense pursuant to the
renegotiation of certain leases and reductions in interest expense as the result
of the planned repayment of the Founding Companies' existing lines of credit and
long-term debt have been reflected in the unaudited pro forma combined
statements of operations. With respect to other potential benefits, LandCARE has
not and cannot quantify these benefits until completion of the combination of
the Founding Companies. It is anticipated that these benefits will be offset by
costs related to LandCARE'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 LandCARE.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The unaudited pro forma combined financial data presented herein do
not purport to represent what the Company's financial position or results of
operations would have actually been had such events occurred at the beginning of
the periods presented, as assumed, or to project the Company's financial
position or results of operations for any future period or the future results of
the Founding Companies. The unaudited pro forma combined financial statements
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere in this Prospectus. Also see "Risk Factors"
included elsewhere herein.
F-3
<PAGE>
LANDCARE USA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
LANDCARE
FOUR SOUTHERN GROUND DESERT USA,
TREES SEASONS TREE CHURCH CONTROL ARTEKA CARE INC.
------- ------- -------- ------ ------- ------ ------ --------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents......... $ 2,899 $ 397 $ 49 $ 136 $ 94 $ 268 $ 172 $ 9
Accounts receivable, net.......... 6,893 1,480 1,810 2,971 965 2,105 1,086 --
Related-party receivable.......... -- -- -- -- -- -- 113 --
Inventories....................... -- 36 619 134 34 1,000 -- --
Deferred tax asset................ 743 165 77 136 103 -- -- --
Other current assets.............. 465 50 305 150 207 16 218
------- ------- -------- ------ ------- ------ ------ -------
Total current assets.......... 11,000 2,128 2,860 3,377 1,346 3,580 1,387 227
PROPERTY AND EQUIPMENT, net.......... 9,020 1,240 2,146 1,917 2,855 1,539 1,007 --
DEFERRED TAX ASSET................... -- -- -- 243 -- -- -- --
OTHER ASSETS, net.................... 339 25 -- 75 156 1,554 29 --
GOODWILL............................. -- -- -- -- -- -- -- --
------- ------- -------- ------ ------- ------ ------ -------
Total assets.................. $20,359 $3,393 $ 5,006 $5,612 $4,357 $6,673 $2,423 $ 227
======= ======= ======== ====== ======= ====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $ 6,235 $1,604 $ 1,754 $1,560 $ 988 $1,554 $ 437 $ 203
Lines of credit................... -- -- 1,858 140 434 100 -- --
Current maturities of long-term
debt............................ 115 38 346 366 180 2,510 186 --
Current maturities of long-term
payable to related party........ 220 -- 39 106 -- 87 -- --
Deferred tax liability............ -- -- -- -- -- 38 -- --
Payable to Founding Company
Stockholders.................... -- -- -- -- -- -- -- --
Other current liabilities......... -- 33 -- -- -- 90 53 --
------- ------- -------- ------ ------- ------ ------ --------
Total current liabilities..... 6,570 1,675 3,997 2,172 1,602 4,379 676 203
LONG-TERM DEBT, net of current
maturities.......................... 484 103 820 765 1,588 301 379 --
LONG-TERM PAYABLE TO RELATED PARTY,
net of current maturities........... 2,424 -- -- 15 -- 911 -- --
DEFERRED TAX LIABILITY............... 1,813 286 72 -- 145 179 -- --
------- ------- -------- ------ ------- ------ ------ --------
Total liabilities............. 11,291 2,064 4,889 2,952 3,335 5,770 1,055 203
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock...................... 710 1 3 6 -- 10 -- 24
Additional paid-in capital........ -- 11 -- -- 4 -- 50 6,557
Retained earnings (deficit)....... 8,360 1,317 114 2,677 1,060 893 1,318 (6,557)
Treasury stock, at cost........... (2) -- -- (23) (42) -- -- --
------- ------- -------- ------ ------- ------ ------ --------
Total stockholders' equity.... 9,068 1,329 117 2,660 1,022 903 1,368 24
------- ------- -------- ------ ------- ------ ------ --------
Total liabilities and
stockholders' equity......... $20,359 $3,393 $ 5,006 $5,612 $4,357 $6,673 $2,423 $ 227
======= ======= ======== ====== ======= ====== ====== ========
PRO FORMA POST MERGER
TOTAL ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------- ----------- --------- ------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 4,024 $ (191) $ 3,833 $ 5,769 $ 9,602
Accounts receivable, net.......... 17,310 (43) 17,267 -- 17,267
Related-party receivable.......... 113 -- 113 -- 113
Inventories....................... 1,823 889 2,712 -- 2,712
Deferred tax asset................ 1,224 (29) 1,195 -- 1,195
Other current assets.............. 1,411 -- 1,411 (218) 1,193
------- ----------- --------- ------------ -----------
Total current assets.......... 25,905 626 26,531 5,551 32,082
PROPERTY AND EQUIPMENT, net.......... 19,724 (2,202) 17,522 -- 17,522
DEFERRED TAX ASSET................... 243 -- 243 -- 243
OTHER ASSETS, net.................... 2,178 -- 2,178 -- 2,178
GOODWILL............................. -- 56,854 56,854 -- 56,854
------- ----------- --------- ------------ -----------
Total assets.................. $48,050 $55,278 $103,328 $ 5,551 $ 108,879
======= =========== ========= ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $14,335 $ (3) 14,332 (203) 14,129
Lines of credit................... 2,532 -- 2,532 (2,532) --
Current maturities of long-term
debt............................ 3,741 (48) 3,693 (3,693) --
Current maturities of long-term
payable to related party ....... 452 -- 452 (452) --
Deferred tax liability............ 38 511 549 -- 549
Payable to Founding Company
Stockholders.................... -- 27,211 27,211 (27,211) --
Other current liabilities......... 176 -- 176 -- 176
------- ----------- --------- ------------ -----------
Total current liabilities..... 21,274 27,671 48,945 (34,091) 14,854
LONG-TERM DEBT, net of current
maturities.......................... 4,440 (297) 4,143 (4,143) --
LONG-TERM PAYABLE TO RELATED PARTY,
net of current maturities........... 3,350 -- 3,350 (3,350) --
DEFERRED TAX LIABILITY............... 2,495 22 2,517 -- 2,517
------- ----------- --------- ------------ -----------
Total liabilities............. 31,559 27,396 58,955 (41,584) 17,371
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock...................... 754 (679) 75 50 125
Additional paid-in capital........ 6,622 28,453 35,075 47,085 82,160
Retained earnings (deficit)....... 9,182 41 9,223 -- 9,223
Treasury stock, at cost........... (67) 67 -- -- --
------- ----------- --------- ------------ -----------
Total stockholders' equity.... 16,491 27,882 44,373 47,135 91,508
------- ----------- --------- ------------ -----------
Total liabilities and
stockholders' equity......... $48,050 $55,278 $103,328 $ 5,551 $ 108,879
======= =========== ========= ============ ===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
LANDCARE USA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR SOUTHERN GROUND DESERT
TREES SEASONS TREES CHURCH CONTROL ARTEKA CARE
------- -------- --------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $50,085 $16,066 $14,176 $13,257 $8,979 $7,366 $6,481
COST OF SERVICES..................... 43,568 11,067 11,617 8,906 6,663 5,227 5,119
------- -------- --------- -------- ------- ------- -------
Gross profit........................ 6,517 4,999 2,559 4,351 2,316 2,139 1,362
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 3,688 3,754 1,766 2,864 1,510 2,136 672
------- -------- --------- -------- ------- ------- -------
Income (loss) from operations....... 2,829 1,245 793 1,487 806 3 690
OTHER INCOME (EXPENSE):
Interest expense.................... (272) (37) (429) (184) (151) (95) (64)
Other income (expense), net......... 744 (9) 26 97 (16) 16 13
------- -------- --------- -------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES.... 3,301 1,199 390 1,400 639 (76) 639
INCOME TAX PROVISION (BENEFIT)....... 1,266 476 158 547 248 (251) --
------- -------- --------- -------- ------- ------- -------
NET INCOME (LOSS).................... $ 2,035 $ 723 $ 232 $ 853 $ 391 $ 175 $ 639
======= ======== ========= ======== ======= ======= =======
LANDCARE PRO FORMA
USA, INC. TOTAL ADJUSTMENTS PRO FORMA
--------- --------- ------------ ----------
REVENUES............................. $ -- $ 116,410 $ 2,394 $ 118,804
COST OF SERVICES..................... -- 92,167 1,085 93,252
--------- --------- ------------ ----------
Gross profit........................ -- 24,243 1,309 25,552
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 6,557 22,947 (7,236) 15,711
--------- --------- ------------ ----------
Income (loss) from operations....... (6,557) 1,296 8,545 9,841
OTHER INCOME (EXPENSE):
Interest expense.................... -- (1,232) 1,232 --
Other income (expense), net......... -- 871 5 876
--------- --------- ------------ ----------
INCOME (LOSS) BEFORE INCOME TAXES.... (6,557) 935 9,782 10,717
INCOME TAX PROVISION (BENEFIT)....... -- 2,444 2,421 4,865
--------- --------- ------------ ----------
NET INCOME (LOSS) ................... $(6,557) $ (1,509) $ 7,361 $ 5,852
========= ========= ============ ==========
NET INCOME PER SHARE ......................................................... $ 0.48
==========
SHARES USED IN COMPUTING PRO FORMA NET INCOME PER SHARE(1) ................... 12,222,592
==========
</TABLE>
(1) Includes (i) 1,574,158 shares issued to Notre Capital Ventures II, L.L.C.
(ii) 985,240 shares issued to management, directors and consultants of
LandCARE, (iii) 5,162,645 shares issued to owners of the Founding Companies,
(iv) 25,000 shares (determined to be common stock equivalents for purposes
of computing earnings per share) of the 100,000 shares issuable upon the
exercise of outstanding options, and (v) 4,475,549 of the 5,000,000 shares
sold in the Offering necessary to pay the cash portion of the Merger
consideration, expenses of this Offering and repayment of the Founding
Companies' existing debt. Basic and diluted income per share were the same
for the year ended December 31, 1997. The 524,451 shares excluded reflect
the net cash proceeds to LandCARE.
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE>
LANDCARE USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
LandCARE USA, Inc. was formed to become a leading national provider of
landscape, lawncare, tree trimming, line clearing and other related services.
LandCARE USA, Inc. conducted no operations prior to the IPO and acquired the
Founding Companies simultaneously with the consummation of the IPO.
The historical financial statements represent the financial position and
results of operations of the Founding Companies and were derived from the
respective financial statements included elsewhere herein, with the exception of
Trees, Inc., whose results of operations were derived from the unaudited
financial statements for the year ended December 31, 1997. The periods included
in these financial statements for the individual Founding Companies are as of
and for the year ended December 31, 1997. The historical financial statements
included elsewhere herein have been included in accordance with Securities and
Exchange Commmission Rule 3-05.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrently with and as a condition to the closing of the Offering,
LandCARE will acquire all of the outstanding capital stock of the Founding
Companies. The Mergers were accounted for using the purchase method of
accounting with Trees being treated as the accounting acquiror. The following
table sets forth the consideration to be paid (a) in cash and (b) in shares of
the Company's Common Stock to the stockholders of each of the Founding
Companies. For purposes of computing the estimated purchase price for accounting
purposes, the value of the shares has been determined using an estimated fair
value of $8.80 per share, which represents a discount of twenty percent from the
assumed initial public offering price due to restrictions on the sale and
transferability of the shares issued. The estimated purchase price for the
acquisitions is based upon preliminary estimates and is subject to certain
purchase price adjustments at and following closing. Adjustments to the purchase
price will be based upon the actual initial public offering price.
COMMON STOCK
----------------------
VALUE OF
CASH SHARES SHARES
--------- --------- ---------
(DOLLARS IN THOUSANDS)
Trees................................ $ 11,036 1,863,137 $ 16,396
Four Seasons......................... 4,952 742,581 6,535
Southern Tree........................ 1,399 482,863 4,249
Church............................... 2,941 725,451 6,384
Ground Control....................... 2,640 360,000 3,168
Arteka............................... 2,625 646,684 5,691
Desert Care.......................... 1,618 341,929 3,008
--------- --------- ---------
Total........................... $ 27,211 5,162,645 $ 45,431
========= ========= =========
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records the borrowings assumed to be required to fund the S
Corporation Distributions of $1.4 million.
(b) Records the distribution of certain real estate and nonoperating
assets and liabilities in connection with the Mergers. In addition, reflects the
reduction for certain operating assets and liabilities which were not acquired
in the Mergers.
F-6
<PAGE>
LANDCARE USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Records the purchase of the Founding Companies for a total purchase
price of $72.6 million, including $27.4 million attributed to Trees as
accounting acquiror. The entry includes the liability of $27.2 million for the
cash portion of the consideration paid to the stockholders of the Founding
Companies in connection with the Mergers and the issuance of 5.2 million shares
of Common Stock to the Founding Companies resulting in the creation of $39.5
million of goodwill after allocating the purchase price to the aggregate assets
acquired and liabilities assumed, excluding Trees, as shown below. In addition,
goodwill of $17.3 million has been recorded attributable to the 2.0 million
shares of Common Stock issued to Notre Capital Ventures II, L.L.C. and certain
management of and consultants to LandCARE (dollars in thousands).
ASSETS
Cash and cash equivalents............... $ 925
Accounts receivable, net................ 10,374
Related - party receivable.............. 113
Inventories............................. 2,712
Deferred tax asset...................... 452
Other current assets.................... 728
---------
Total current assets............... 15,304
Property and equipment, net............. 8,528
Deferred tax asset...................... 243
Other assets, net....................... 1,839
---------
Total assets....................... $ 25,914
=========
LIABILITIES
Accounts payable and accrued expenses... $ 7,894
Lines of credit......................... 2,532
Current maturities of long-term debt.... 3,578
Current maturities of long-term payable
to related party...................... 232
Deferred tax liability.................. 549
Other current liabilities............... 176
---------
Total current liabilities.......... 14,961
Long-term debt, net of current
maturities............................ 3,659
Long-term payable to related party, net
of current maturities................. 926
Deferred tax liability.................. 704
---------
Total liabilities.................. $ 20,250
=========
(d) Records the net deferred income tax liability attributable to the
balance sheet adjustments and temporary differences between the financial
reporting and tax bases of assets and liabilities held in Desert Care, an S
Corporation.
(e) Records the cash proceeds from the issuance of 5,000,000 shares of
Common Stock, net of estimated offering costs (based on an assumed initial
public offering price of $11.00 per share. Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and printing
expenses.
(f) Records the cash portion of the consideration to be paid to the
stockholders of the Founding Companies in connection with the Mergers, the
payment of the S Corporation Distributions and the repayment of long-term debt.
F-7
<PAGE>
LANDCARE USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize the unaudited pro forma combined balance
sheet adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(a) (b) (c) (d) ADJUSTMENTS
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............ $ (172) $ (19) $ -- $ -- $ (191)
Accounts receivable, net............. -- (43) -- -- (43)
Inventories.......................... -- -- 889 -- 889
Deferred tax assets.................. -- -- -- (29) (29)
Other current assets................. -- -- -- -- --
--------- --------- --------- --------- ------------
Total current assets........ (172) (62) 889 (29) 626
Property and equipment, net.......... -- (2,202) -- -- (2,202)
Other assets, net.................... -- -- -- -- --
Goodwill............................. -- -- 56,854 -- 56,854
--------- --------- --------- --------- ------------
Total assets................ (172) (2,264) 57,743 (29) 55,278
========= ========= ========= ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses........................... -- (3) -- -- (3)
Current maturities of long-term
debt............................... -- (48) -- -- (48)
Deferred tax liability............... -- -- -- 511 511
Payable to Founding Company
stockholders....................... -- -- 27,211 -- 27,211
--------- --------- --------- --------- ------------
Total current liabilities... -- (51) 27,211 511 27,671
Long-term debt, net of current
maturities......................... 1,188 (1,485) -- -- (297)
Deferred tax liability............... -- -- -- 22 22
--------- --------- --------- --------- ------------
Total liabilities........... 1,188 (1,536) 27,211 533 27,396
Stockholders' equity:
Common stock..................... -- -- (679) -- (679)
Additional paid-in capital....... -- -- 28,453 -- 28,453
Retained earnings................ (1,360) (728) 2,691 (562) 41
Treasury stock, at cost.......... -- -- 67 -- 67
--------- --------- --------- --------- ------------
Total stockholders'
equity.................... (1,360) (728) 30,532 (562) 27,882
--------- --------- --------- --------- ------------
Total liabilities and
stockholders' equity...... $ (172) $ (2,264) $ 57,743 $ (29) $ 55,278
========= ========= ========= ========= ============
</TABLE>
F-8
<PAGE>
LANDCARE USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
POST MERGER
(e) (f) ADJUSTMENTS
--------- --------- -------------
ASSETS
Cash and cash equivalents............ $ 47,150 $ (41,381) $ 5,769
Other current assets................. (218) -- (218)
--------- --------- -------------
Total current assets........ 46,932 (41,381) 5,551
Total assets................ 46,932 (41,381) 5,551
========= ========= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses........................... (203) -- (203)
Line of Credit....................... -- (2,532) (2,532)
Current maturities of long-term
debt............................... -- (3,693) (3,693)
Current maturities of long-term
payable to related party........... -- (452) (452)
Payable to Founding Company
stockholders....................... -- (27,211) (27,211)
--------- --------- -------------
Total current liabilities... (203) (33,888) (34,091)
Long-term debt, net of current
maturities......................... -- (4,143) (4,143)
Long-term payable to related party
net of current maturities.......... -- (3,350) (3,350)
--------- --------- -------------
Total liabilities........... (203) (41,381) (41,584)
Stockholders' equity:
Common stock..................... 50 -- 50
Additional paid-in capital....... 47,085 -- 47,085
--------- --------- -------------
Total stockholders'
equity..................... 47,135 -- 47,135
--------- --------- -------------
Total liabilities and
stockholders' equity....... $ 46,932 $ (41,381) $ 5,551
========= ========= =============
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
YEAR ENDED DECEMBER 31, 1997
(a) Reflects the nursery operations of Church which will not be acquired
in the Mergers.
(b) Reflects the pre-acquisition historical results of operations of two
landscape operations acquired by Arteka in December 1997.
(c) Reflects the reduction in operations for the distribution of certain
non-operating assets and liabilities which will not be acquired in the Mergers.
(d) Reflects the $2.6 million reduction in salaries, bonuses and benefits
to the owners of the Founding Companies to which they agreed in connection with
the mergers and the reversal of the $6.6 million non-cash compensation charge
related to the issuance of 795,240 shares of Common Stock to management and
directors of and consultants to the Company offset by a charge for the recurring
portion of salary expenses of management.
(e) Reflects the amortization of goodwill to be recorded as a result of
the Mergers over a 40-year estimated life.
(f) Reflects the reduction in interest expense of $1.3 million due to the
planned repayment of existing debt in connection with the Mergers.
(g) Reflects the reduction in certain related party rental and lease
expenses which has been agreed to prospectively.
(h) Reflects the incremental provision for federal and state income taxes
relating to the statement of operations adjustments and to reflect income taxes
on S corporation income as if these entities had been taxable as C corporations
during the periods presented.
F-9
<PAGE>
LANDCARE USA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the unaudited pro forma combined statements
of operations adjustments:
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g) (h)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ (233) $ 2,627 $ -- $ -- $ -- $ -- $ -- $ --
Cost of services..................... (247) 1,332 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 14 1,295 -- -- -- -- -- --
Selling, general and
administrative..................... (29) 681 (86) (9,122) 1,421 -- (101) --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ 43 614 86 9,122 (1,421) -- 101 --
Other income (expense)
Interest expense, net............ -- (165) 89 -- -- 1,308 -- --
Other income (expense), net...... -- 5 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes.... 43 454 175 9,122 (1,421) 1,308 101 --
Provision (benefit) for income
taxes.............................. -- -- -- -- -- -- -- 2,421
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss).................... $ 43 $ 454 $ 175 $ 9,122 $ (1,421) $ 1,308 $ 101 $ (2,421)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
PRO FORMA
ADJUSTMENTS
-----------
Revenues............................. $ 2,394
Cost of services..................... 1,085
-----------
Gross profit......................... 1,309
Selling, general and
administrative..................... (7,236)
-----------
Income (loss) from operations........ 8,545
Other income (expense)
Interest expense, net............ 1,232
Other income (expense), net...... 5
-----------
Income (loss) before income taxes.... 9,782
Provision (benefit) for income
taxes.............................. 2,421
-----------
Net income (loss).................... $ 7,361
===========
F-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To LandCARE USA, Inc.:
We have audited the accompanying balance sheet of LandCARE USA, Inc., as of
December 31, 1997, and the related statements of operations, stockholders'
equity and cash flows for the period from inception (October 9, 1997) to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 LandCARE USA, Inc., as of
December 31, 1997, and for the period from inception (October 9, 1997) to
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 6, 1998
F-11
<PAGE>
LANDCARE USA, INC.
BALANCE SHEET -- DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
CASH AND CASH EQUIVALENTS............ $ 9
DEFERRED OFFERING COSTS.............. 218
---------
Total assets............... $ 227
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE
TO A STOCKHOLDER................... $ 203
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par,
5,000,000 shares authorized,
none issued.................... --
Common stock, $.01 par,
50,000,000 shares authorized,
2,369,398 shares outstanding... 24
Additional paid-in capital...... 6,557
Retained deficit................ (6,557)
---------
Total stockholders'
equity....................... 24
---------
Total liabilities and
stockholders' equity......... $ 227
=========
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
LANDCARE USA, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1997)
TO DECEMBER 31, 1997
(IN THOUSANDS)
REVENUES............................. $ --
COMPENSATION EXPENSE RELATING TO
ISSUANCE OF COMMON STOCK TO
MANAGEMENT AND CONSULTANTS......... 6,557
---------
LOSS BEFORE INCOME TAXES............. (6,557)
INCOME TAX BENEFIT................... --
---------
NET LOSS............................. $ (6,557)
=========
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
LANDCARE USA, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1997)
TO DECEMBER 31, 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 BY NOTRE
(October 9, 1997).................. 78,708 $ 1 $-- $ -- $ 1
Issuance of shares to Notre..... 1,495,450 15 -- -- 15
Issuance of management,
consultant and director
shares........................ 795,240 8 6,557 -- 6,565
Net loss........................ -- -- -- (6,557) (6,557)
--------- ------- ----------- --------- --------------
BALANCE, December 31, 1997........... 2,369,398 $ 24 $ 6,557 $ (6,557) $ 24
========= ======= =========== ========= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
LANDCARE USA, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1997)
TO DECEMBER 31, 1997
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $ (6,557)
Adjustments to reconcile net loss
to net cash provided by operating
activities --
Compensation expense related
to issuance of common stock
to management and
consultants.................. 6,557
Changes in assets and
liabilities --
Increase in deferred
offering costs........... (218)
Increase in accrued
liabilities and amounts
due to stockholders...... 203
---------
Net cash provided
by operating
activities........... (15)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock.................. 24
---------
Net cash provided
by financing
activities........... 24
---------
NET INCREASE............................ 9
CASH, beginning of period............... --
---------
CASH, end of period..................... $ 9
=========
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
LANDCARE USA, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
LandCARE USA, Inc. (LandCARE or the Company), a Delaware corporation, was
founded in October 1997 to become a leading national provider of landscape,
lawncare, tree trimming, line clearing and other related services. LandCARE
intends to acquire seven businesses (the Mergers), complete an initial public
offering of its common stock (the Offering) and, subsequent to the Offering,
continue to acquire, through merger or purchase, similar companies to expand its
national operations.
LandCARE has not conducted any operations, and all activities to date have
related to the Offering and the Mergers. All expenditures to date have been
funded by the majority stockholder, Notre Capital Ventures II, L.L.C. (Notre),
on behalf of the Company. Notre has committed to fund the organization expenses
and Offering costs. As of December 31, 1997, costs of approximately $218,000
have been incurred by Notre in connection with the Offering. LandCARE has
treated these costs as deferred offering costs. LandCARE is dependent upon the
Offering to execute the pending Mergers. There is no assurance that the pending
Mergers discussed below will be completed or that LandCARE will be able to
generate future operating revenues.
The Company has an absence of a combined operating history, and LandCARE'S
future success is dependent upon a number of factors which include, among
others, the ability to integrate operations, reliance on the identification and
integration of satisfactory acquisition candidates, reliance on acquisition
financing and the ability to manage growth and attract and retain qualified
management and sales personnel as well as the need for additional capital.
2. STOCKHOLDERS' EQUITY:
COMMON STOCK AND PREFERRED STOCK
LandCARE effected a 78.7079-for-one stock dividend in March 1998, for each
share of common stock of the Company (Common Stock) then outstanding. In
addition, the Company increased the number of authorized shares of Common Stock
to 100,000,000 and authorized 5,000,000 shares of $.01 par value preferred
stock. The effects of the Common Stock dividend have been retroactively
reflected on the balance sheet and in the accompanying notes.
In connection with the organization and initial capitalization of LandCARE,
the Company issued 78,708 shares of Common Stock at $.01 per share to Notre.
Notre incurred approximately $15,000 of expenses on behalf of the Company for
which the Company issued 1,495,450 shares to Notre in October 1997.
In November 1997, the Company issued a total of 795,240 shares of Common
Stock to management and directors of and consultants to the Company at a price
of $.01 per share. As a result, the Company recorded a nonrecurring, noncash
compensation charge of $6.6 million representing the difference between the
amount paid for the shares and an estimated fair value of the shares on the date
of sale, as if the Founding Companies were combined. During the first quarter of
1998, the Company issued an additional 190,000 shares to management and
directors of the Company at a price of $.01 per share. As a result, the Company
recorded a nonrecurring, noncash compensation charge of $1.6 million
representing the difference between the amount paid for the shares (the exercise
price, in the case of the options granted) and an estimated fair value of the
shares on the date of sale, as if the Founding Companies were combined.
RESTRICTED VOTING COMMON STOCK
In March 1998, the Company authorized 2,000,000 shares of $.01 par value
restricted voting common stock (Restricted Common Stock) and the primary
stockholder exchanged 1,305,408 shares of Common Stock for an equal number of
shares of Restricted Common Stock. The holder of Restricted Common Stock is
entitled to elect one member of the Company's board of directors and to .30 of
one vote for each share on all other matters on which they are entitled to vote.
Holders of Restricted Common Stock are not entitled to vote on the election of
any other directors.
F-16
<PAGE>
LANDCARE USA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (a) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986, as amended)), (b) in the event
any person acquires beneficial ownership of 15 percent or more of the total
number of outstanding shares of Common Stock of the Company, (c) in the event
any person offers to acquire 15 percent or more of the total number of
outstanding shares of Common Stock of the Company, (d) in the event the holder
of Restricted Common Stock elects to convert it into Common Stock at any time
after the second anniversary of the consummation of the Company's initial public
offering of its Common Stock (the Public Offering), (e) on the third anniversary
of the date of the consummation of the Company's Public Offering, or (f) in the
event a majority of the aggregate number of votes which may be cast by the
holders of outstanding shares of Common Stock and Restricted Common Stock
entitled to vote approve such conversion. After June 30, 2000, the board of
directors may elect to convert any remaining shares of Restricted Common Stock
into shares of Common Stock in the event 80 percent or more of the originally
outstanding shares of Restricted Common Stock have been previously converted
into shares of Common Stock.
LONG-TERM INCENTIVE PLAN
In February 1998, the Board of Directors and the Company's stockholders
approved the Company's 1998 Long-Term Incentive Plan (the Plan), which provides
for the granting or awarding of incentive or nonqualified stock options, stock
appreciation rights, restricted or deferred stock, dividend equivalents and
other incentive awards to directors, officers and key employees of and
consultants to the Company. The number of shares authorized and reserved for
issuance under the Plan is the greater of 2,000,000 shares or 15 percent of the
aggregate number of shares of Common Stock outstanding at the date of grant. The
terms of the option awards will be established by the compensation committee of
the Company's board of directors. The Company intends to file a registration
statement registering the issuance of shares upon exercise of options granted
under this Plan. In February 1998, options to purchase 100,000 shares of Common
Stock were issued at an exercise price of $6.00 per share. Accordingly,
compensation expense of $0.2 million has been recorded in the first quarter of
1998 for the difference between the exercise price and an estimated fair value,
as if the Founding Companies were combined. The Company expects to grant
nonqualified stock options to purchase a total of 570,000 shares of Common Stock
to key employees of the Company at the initial public offering price upon
consummation of the Offering. In addition, the Company expects to grant options
to purchase a total of 767,819 shares of Common Stock to certain employees of
the Founding Companies at the initial public offering price per share. These
options will vest at the rate of 20 percent per year, commencing on the first
anniversary of the Offering and will expire seven years from the date of grant
or three months following termination of employment.
NONEMPLOYEE DIRECTORS' STOCK PLAN
In February 1998, the Company's stockholders approved the 1998 Nonemployee
Directors' Stock Plan (the Directors' Plan), which provides for the granting or
awarding of stock options and stock appreciation rights to nonemployee directors
of the Company. The number of shares authorized and reserved for issuance under
the Directors' Plan is 250,000 shares. The Directors' Plan provides for the
automatic grant of options to purchase 10,000 shares to each nonemployee
director serving at the commencement of the Offering.
Each nonemployee director will be granted options to purchase an additional
10,000 shares at the time of the initial election. In addition, each director
will be automatically granted options to purchase 5,000 shares at each annual
meeting of the stockholders occurring more than two months after the date of the
F-17
<PAGE>
LANDCARE USA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
director's initial election. All options will be exercised at the fair market
value at the date of grant and are immediately vested upon grant.
Options will be granted to each of three future and one current member of
the board of directors to purchase 10,000 shares of Common Stock at the initial
public offering price per share effective upon the consummation of this
Offering. These options will expire the earlier of 10 years from the date of
grant or one year after termination of service as a director.
The Directors' Plan allows nonemployee directors to receive shares
(deferred shares) at future settlement dates in lieu of cash. The number of
deferred shares will have an aggregate fair market value equal to the fees
payable to the directors.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," allows entities to choose between a new fair
value-based method of accounting for employee stock options or similar equity
instruments and the current intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25. 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 had been applied. The Company will provide pro forma disclosure of
net income and earnings per share, as applicable, in the notes to future
consolidated financial statements.
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. The
Company will adopt SFAS No. 131 in the year ended December 31, 1998.
4. EVENTS SUBSEQUENT TO THE DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
Wholly owned subsidiaries of LandCARE have signed definitive agreements to
acquire by merger or share exchange seven companies (the Founding Companies) to
be effective contemporaneously with the Offering. The companies to be acquired
are Trees, Inc., Four Seasons Landscape and Maintenance, Inc., Southern Tree &
Landscape Co., D. R. Church Landscape Co., Inc., Ground Control Landscaping,
Inc., Arteka Corporation and Desert Care Landscaping, Inc. LandCARE will acquire
the Founding Companies for cash and 5.2 million shares of Common Stock.
In March 1998, LandCARE filed a registration statement on Form S-1 for the
sale of 5,000,000 shares of its Common Stock. An investment in shares of Common
Stock offered by this Prospectus involves a high degree of risk as discussed in
Note 1. For a more thorough discussion of risk factors, see "Risk Factors"
included elsewhere in this Prospectus.
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trees, Inc.:
We have audited the accompanying consolidated balance sheet of Trees, Inc.
(the Company), as defined in Note 1 to the financial statements, as of December
31, 1997, and the related consolidated statements of operations, equity and cash
flows for the nine months ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trees, Inc.
as of December 31, 1997, and the results of their operations and their cash
flows for the nine months ended December 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 13, 1998
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trees, Inc:
We have audited the accompanying consolidated balance sheets of Trees, Inc.
(the Company), as defined in Note 1 to the financial statements, as of March 31,
1997 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Trees, Inc. as of March 31, 1997 and 1996, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
HARPER & PEARSON COMPANY PC
Houston, Texas
May 7, 1997, except for Note 2,
Reclassification and Adjustments,
as to which the date is February 13, 1998
F-20
<PAGE>
TREES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 3,060 $ 2,899
Accounts receivable, net........... 4,861 6,893
Deferred tax asset................. 742 743
Other current assets............... 206 465
--------- ------------
Total current assets.......... 8,869 11,000
PROPERTY AND EQUIPMENT, net............. 8,395 9,020
OTHER ASSETS............................ 322 339
--------- ------------
Total assets.................. $17,586 $ 20,359
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses.......................... $ 5,070 $ 6,235
Current maturities of long-term
debt.............................. 112 115
Current maturities of long-term
payable to related party.......... 207 220
--------- ------------
Total current liabilities..... 5,389 6,570
LONG-TERM DEBT, net..................... 569 484
LONG-TERM PAYABLE TO RELATED PARTY,
net................................... 2,591 2,424
DEFERRED TAX LIABILITY.................. 1,859 1,813
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value,
1,000,000 shares authorized,
710,000 shares issued and 708,000
shares outstanding................ 710 710
Retained earnings.................. 6,470 8,360
Treasury stock, 2,000 shares, at
cost.............................. (2) (2)
--------- ------------
Total shareholders' equity.... 7,178 9,068
--------- ------------
Total liabilities and
shareholders' equity....... $17,586 $ 20,359
========= ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
TREES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED NINE MONTHS
MARCH 31 ENDED
-------------------- DECEMBER 31,
1996 1997 1997
--------- --------- -------------
REVENUES............................. $ 47,142 $ 44,847 $38,764
COST OF SERVICES..................... 41,054 39,046 33,667
--------- --------- -------------
Gross profit............... 6,088 5,801 5,097
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 3,224 4,264 2,523
--------- --------- -------------
Income from operations..... 2,864 1,537 2,574
OTHER INCOME (EXPENSE):
Interest expense................ (590) (306) (200)
Other income, net............... 142 205 693
--------- --------- -------------
INCOME BEFORE INCOME TAXES........... 2,416 1,436 3,067
INCOME TAX PROVISION................. 896 553 1,177
--------- --------- -------------
NET INCOME........................... $ 1,520 $ 883 $ 1,890
========= ========= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
TREES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED TREASURY SHAREHOLDERS'
STOCK EARNINGS STOCK EQUITY
------ -------- -------- --------------
<S> <C> <C> <C> <C>
BALANCE, March 31, 1995.............. $ 710 $4,067 $ (2) $4,775
Net income...................... -- 1,520 -- 1,520
------ -------- --- --------------
BALANCE, March 31, 1996.............. 710 5,587 (2) 6,295
Net income...................... -- 883 -- 883
------ -------- --- --------------
BALANCE, March 31, 1997.............. 710 6,470 (2) 7,178
Net income...................... -- 1,890 -- 1,890
------ -------- --- --------------
BALANCE, December 31, 1997........... $ 710 $8,360 $ (2) $9,068
====== ======== === ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
TREES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED NINE MONTHS
MARCH 31 ENDED
-------------------- DECEMBER 31,
1996 1997 1997
--------- --------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 1,520 $ 883 $ 1,890
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation.................. 2,079 2,050 1,725
Gain on sale of equipment..... (10) (15) (82)
Deferred income tax provision
(benefit).................. 308 (308) (47)
Changes in assets and
liabilities --
Accounts receivable, net... (386) 312 (2,032)
Other current assets....... 20 (21) (259)
Other assets............... (68) (55) (17)
Accounts payable and
accrued expenses........ 222 121 1,139
--------- --------- -------------
Net cash provided by
operating
activities........... 3,685 2,967 2,317
--------- --------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment....................... 24 29 106
Purchases of property and
equipment....................... (371) (953) (2,345)
--------- --------- -------------
Net cash used in
investing activities. (347) (924) (2,239)
--------- --------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt....... 866 -- --
Payments on long-term debt......... (2,551) (1,986) (239)
--------- --------- -------------
Net cash used in
financing activities. (1,685) (1,986) (239)
--------- --------- -------------
NET INCREASE (DECREASE) IN CASH...... 1,653 57 (161)
CASH, beginning of period............ 1,350 3,003 3,060
--------- --------- -------------
CASH, end of period.................. $ 3,003 $ 3,060 $ 2,899
========= ========= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period
for --
Interest................... $ 570 287 $ 183
Income taxes............... 703 769 539
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
TREES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Trees, Inc. includes the financial statements of Tree Holding Company, Inc.
(a Texas corporation) and its wholly owned subsidiary, Trees, Inc. (a Nevada
corporation) (collectively, the Company). The Company, which is headquartered in
Houston, Texas, was founded in 1953 and serves customers in 12 states. The
Company provides tree trimming and line clearing services primarily to utility
customers, but also provides commercial and residential tree services to
customers in Houston, Texas.
The Company and its shareholders intend to enter into a definitive
agreement with LandCARE USA, Inc. (LandCARE), pursuant to which all outstanding
shares of the Company's common stock will be exchanged for cash and shares of
LandCARE's common stock concurrently with the consummation of an initial public
offering of the common stock of LandCARE.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and results of
operations of the Company and its subsidiary. All significant intercompany
transactions and balances have been eliminated in consolidation.
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.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts based upon the
estimated collectibility of all accounts receivable.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
The Company recognizes revenue when services are performed. Revenues from
tree trimming, line clearing service contracts are recognized based on the
amount of labor and materials incurred.
COST OF SERVICES
Cost of services represents direct labor and associated costs (such as
benefits and workers' compensation expense), materials, supervisory personnel
and equipment and vehicle costs, such as fuel, insurance and depreciation.
F-25
<PAGE>
TREES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTY COSTS
A reserve for warranty costs is recorded based upon the historical level of
warranty claims, property damage costs and management's estimate of future
costs.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
MAJOR CUSTOMERS AND RISK CONCENTRATION
The Company had sales of approximately 57 percent of total sales to four
major customers for the year ended March 31, 1996 and 57 percent and 54 percent
of total sales to three major customers for the years ended March 31, 1997 and
for the nine months ended December 31, 1997, respectively.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, lines of credit and long-term debt. The
Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS AND ADJUSTMENTS
Certain reclassifications and adjustments have been made to the
prior-period amounts to conform to current-period presentations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. The
Company will adopt SFAS No. 131 in fiscal 1998.
F-26
<PAGE>
TREES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED
USEFUL LIVES MARCH 31, DECEMBER 31,
IN YEARS 1997 1997
------------ ---------- -------------
Land............................... -- $ 129 $ 129
Transportation equipment........... 5 20,730 21,454
Machinery and equipment............ 5-10 4,311 4,954
Buildings and improvements......... 30 258 258
Office furniture and equipment..... 5 127 164
---------- -------------
Total.................... 25,555 26,959
Less -- Accumulated depreciation... (17,160) (17,939)
---------- -------------
Property and equipment,
net................... $ 8,395 $ 9,020
========== =============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
MARCH 31, DECEMBER 31,
1997 1997
---------- -------------
Accounts receivable, trade........... $4,385 $ 5,236
Receivable from equipment
financing.......................... -- 1,766
Accounts receivable, other........... 15 61
Income tax refund.................... 644 --
Allowance for doubtful accounts...... (183) (170)
---------- -------------
$4,861 $ 6,893
========== =============
As of December 31, 1997, the Company has recorded a $1.8 million receivable
from equipment financing associated with cash expended for leased equipment that
was reimbursed by the company underwriting the related operating leases in
January 1998.
Accounts payable and accrued expenses consist of the following (in
thousands):
MARCH 31, DECEMBER 31,
1997 1997
---------- -------------
Accounts payable, trade.............. $ 752 $ 939
Accrued compensation and benefits.... 1,138 1,988
Accrued insurance premiums........... 2,307 2,700
Income tax payable................... -- 193
Warranty accrual..................... 235 235
Other accrued expenses............... 638 180
---------- -------------
$5,070 $ 6,235
========== =============
5. LINE OF CREDIT AND LONG-TERM DEBT:
LINE OF CREDIT
The Company has a revolving credit agreement with a financial institution,
which provides for borrowings up to the lesser of $500,000 or the Company's loan
limit as defined by the agreement. Advances made under this agreement will bear
interest at the prime rate, will be secured by accounts receivable and equipment
of the Company, and will be subject to certain covenants including the
maintenance of certain
F-27
<PAGE>
TREES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tangible net worth and working capital levels and restrictions on dividend
payments and change in executive management. There were no advances outstanding
on this line of credit at March 31, 1997, and December 31, 1997.
The Company has irrevocable standby letters of credit of approximately
$2,537,000 pledged against the Company's workers' compensation insurance plan.
These letters of credit are secured by accounts receivable. Fees associated with
these letters of credit were approximately $17,000 for the year ended December
31, 1997.
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
Note payable to a financial institution
in monthly installments
of $13,301 including interest at a
rate equal to 30-day
commercial paper plus 2.2%, secured by
equipment due 2002.................... $ 681 $ 599
Note payable to former shareholder
payable in monthly installments of
$35,335 including interest of 8.0%,
due 2006.............................. 2,798 2,644
--------- ------------
3,479 3,243
Less -- Current portion................. (319) (335)
--------- ------------
$ 3,160 $2,908
========= ============
The aggregate maturities of long-term debt at December 31, 1997, are as
follows (in thousands):
Year ending December 31 --
1998............................... $ 335
1999............................... 368
2000............................... 398
2001............................... 429
2002............................... 370
Thereafter......................... 1,343
---------
Total......................... $ 3,243
=========
F-28
<PAGE>
TREES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the provision for income taxes are as follows (in thousands):
YEAR ENDED NINE MONTHS
MARCH 31 ENDED
-------------------- DECEMBER 31,
1996 1997 1997
--------- --------- ------------
Federal --
Current......................... $ 472 $ 729 $1,043
Deferred........................ 287 (264) (40)
--------- --------- ------------
759 465 1,003
--------- --------- ------------
State --
Current......................... 117 131 180
Deferred........................ 20 (43) (6)
--------- --------- ------------
137 88 174
--------- --------- ------------
Total provision............ $ 896 $ 553 $1,177
========= ========= ============
The provision for income taxes differs from an amount computed at the
statutory rate as follows (in thousands):
YEAR ENDED NINE MONTHS
MARCH 31 ENDED
-------------------- DECEMBER 31,
1996 1997 1997
--------- --------- ------------
Federal income tax at statutory
rates.............................. $ 846 $ 502 $1,074
State income taxes................... 89 57 113
Nondeductible expenses............... 24 50 31
Other................................ (63) (56) (41)
--------- --------- ------------
$ 896 $ 553 $1,177
========= ========= ============
The significant items giving rise to the deferred tax assets and
liabilities are as follows (in thousands):
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
Deferred tax assets --
Accrued expenses................ $ 698 $ 671
Allowance for doubtful
accounts........................ 81 84
State taxes..................... 50 48
Other........................... 40 65
--------- ------------
Total deferred tax
assets..................... 869 868
--------- ------------
Deferred tax liabilities --
Bases differences in property
and equipment................. (1,986) (1,938)
--------- ------------
Total deferred tax
liabilities................ (1,986) (1,938)
--------- ------------
Net deferred tax
liability.................. $(1,117) $ (1,070)
========= ============
F-29
<PAGE>
TREES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED-PARTY TRANSACTIONS:
The Company makes lease payments to an affiliate for equipment. Total
payments made under this lease agreement were approximately $109,000, $81,000
and $64,000 for the years ended March 31, 1996 and 1997, and for the nine months
ended December 31, 1997, respectively.
The Company purchases tools, equipment and supplies from a company owned by
the shareholders of the Company. Purchases for the years ended March 31, 1996
and 1997, and for the nine months ended December 31, 1997, were approximately
$420,000, $289,000 and $458,000, respectively.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases equipment and vehicles under operating lease agreements,
including leases with related parties. These leases are noncancelable and expire
on various dates through 2003. The lease agreements are subject to renewal under
essentially the same terms and conditions as the original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1998............................ $ 1,376
1999............................ 1,339
2000............................ 1,334
2001............................ 1,314
2002............................ 1,314
Thereafter...................... 301
---------
$ 6,978
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $701,000, $324,000 and $247,000 for the
years ended March 31, 1996 and 1997, and for the nine months ended December 31,
1997, respectively.
LITIGATION
The Company is involved in 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 standard range of insurance coverage, including
business auto liability, general liability, workers' compensation, excess
liability, commercial property and an umbrella policy. The Company has not
incurred significant claims or losses on any of these insurance policies.
The Company is self-insured for medical claims up to $50,000 per year per
covered individual. Additionally, the Company is responsible for workers'
compensation claims up to $350,000 per accident. Claims in excess of these
amounts are covered by a stop-loss policy. Under the state's policy, the Company
has several letters of credit totaling $2,537,000 which expire March 31, 1998.
The Company has recorded reserves for its portion of self-insured claims based
on estimated claims incurred through March 31, 1996 and 1997, and December 31,
1997.
EMPLOYEE 401(K) RETIREMENT PLAN
The Company maintains a 401(k) employee savings and retirement plan (the
Plan) which provides that all qualified employees may defer the maximum income
allowed under current tax law and the Company
F-30
<PAGE>
TREES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
will match a predetermined percentage of the first 3 percent of elective
deferrals. The Company's policy is to fund the matching contribution on an
annual basis. The matching contribution for fiscal 1996 and 1997 was
approximately $29,000 and $31,000, respectively, and is included in accrued
expenses at March 31, 1996 and 1997. No matching contributions were made during
the nine months ended December 31, 1997. In addition to the matching
contribution, the Company may make discretionary contributions allocated to
eligible participants. No discretionary contributions were made for fiscal 1996
or 1997 or for the nine months ended December 31, 1997.
EXECUTIVE BENEFIT PLAN
The Company has established executive retirement and survivor benefit
agreements for certain executives of the Company, providing for fiscal annual
benefits payable over a period of 10 years in the event of the employee's death,
disability or retirement at age 65. A portion of the future liability is being
funded by investing in life insurance policies with a cash surrender value of
$322,000 and $339,000 at March 31, 1997, and December 31, 1997. The cost of
these benefits is being charged to expense and accrued using a present value
method over the expected terms of employment. The charge to expense was
approximately $137,000 each of the years ended March 31, 1996 and 1997 and
$103,000 for the nine months ended December 31, 1997. The Company's obligation
under the Plan is $412,000 and $515,000 at March 31, 1997, and December 31,
1997.
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1998, the Company and its shareholders entered into a definitive
agreement with a wholly owned subsidiary of LandCARE providing for the merger of
the Company with the subsidiary of LandCARE (the Merger). Equipment of
approximately $26,000, which is included in the balance sheet at December 31,
1997, will be distributed to the shareholders. Had these distributions been made
at December 31, 1997, the effect on the Company's balance sheet would have been
to decrease shareholders' equity by approximately $26,000. In addition, selling,
general and administrative expenses would have been reduced by approximately
$8,000 assuming the transaction had occurred January 1, 1997.
F-31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Four Seasons Landscape and Maintenance, Inc.:
We have audited the accompanying balance sheets of Four Seasons Landscape
and Maintenance, Inc. as of December 31, 1997 and 1996, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Four Seasons Landscape and
Maintenance, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 13, 1998
F-32
<PAGE>
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
--------------------
1996 1997
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 120 $ 397
Accounts receivable, net........ 937 1,480
Inventories..................... 23 36
Deferred tax asset.............. 212 165
Other current assets............ 66 50
--------- ---------
Total current assets....... 1,358 2,128
PROPERTY AND EQUIPMENT, net.......... 1,189 1,240
OTHER ASSETS......................... 17 25
--------- ---------
Total assets............... $ 2,564 $ 3,393
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $ 1,227 $ 1,604
Line of credit.................. 200 --
Current maturities of long-term
debt........................... 109 38
Other current liabilities....... 33 33
--------- ---------
Total current
liabilities.............. 1,569 1,675
LONG-TERM DEBT, net.................. 147 103
DEFERRED TAX LIABILITY............... 242 286
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value,
100,000 shares authorized,
1215.5 shares issued and
outstanding.................... 1 1
Additional paid-in capital...... 11 11
Retained earnings............... 594 1,317
--------- ---------
Total shareholders'
equity................... 606 1,329
--------- ---------
Total liabilities and
shareholders' equity..... $ 2,564 $ 3,393
========= =========
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31
-------------------------------
1995 1996 1997
--------- --------- ---------
REVENUES............................. $ 12,000 $ 13,367 $ 16,066
COST OF SERVICES..................... 9,255 10,106 11,067
--------- --------- ---------
Gross profit............... 2,745 3,261 4,999
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,829 3,319 3,754
--------- --------- ---------
Income (loss) from
operations................. (84) (58) 1,245
OTHER INCOME (EXPENSE):
Interest expense................... (37) (43) (37)
Other income (expense), net........ (9) 12 (9)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.... (130) (89) 1,199
INCOME TAX PROVISION (BENEFIT)....... (65) (50) 476
--------- --------- ---------
NET INCOME (LOSS).................... $ (65) $ (39) $ 723
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994........... $ 1 $ 11 $ 698 $ 710
Net loss........................... -- -- (65) (65)
------- ----------- ---------- -------------
BALANCE, December 31, 1995........... 1 11 633 645
Net loss........................... -- -- (39) (39)
------- ----------- ---------- -------------
BALANCE, December 31, 1996........... 1 11 594 606
Net income......................... -- -- 723 723
------- ----------- ---------- -------------
BALANCE, December 31, 1997........... $ 1 $ 11 $1,317 $ 1,329
======= =========== ========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31
-------------------------------
1995 1996 1997
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ (65) $ (39) $ 723
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation............... 404 331 319
Losses on sales of
assets.................. (6) (15) (13)
Deferred income tax
provision (benefit)..... (29) (24) 92
Changes in assets and
liabilities --
Accounts receivable,
net................ (278) 49 (543)
Inventories........... 2 27 (13)
Other assets.......... 20 24 7
Accounts payable and
accrued expenses... 125 109 377
Other, net............ 14 (2) 1
--------- --------- ---------
Net cash
provided by
operating
activities... 187 460 950
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property
and equipment.................. -- -- 30
Purchases of property and
equipment...................... (310) (553) (394)
--------- --------- ---------
Net cash used in
investing
activities... (310) (553) (364)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and
long-term debt................. 175 225 --
Payments on line of credit and
long-term debt................. (105) (132) (309)
--------- --------- ---------
Net cash
provided by
(used in)
financing
activities... 70 93 (309)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... (53) -- 277
CASH, beginning of year.............. 173 120 120
--------- --------- ---------
CASH, end of year.................... $ 120 $ 120 $ 397
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for --
Interest................... $ 37 $ 43 $ 37
Income taxes............... 4 27 7
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Four Seasons Landscape and Maintenance, Inc. (the Company), a California
corporation, headquartered in Foster City, California, was founded in 1973 and
operates primarily in northern California with six branches in the Bay Area and
two branches in Sacramento. The Company provides commercial landscape
maintenance and offers commercial tree maintenance services for its customers.
The Company and its shareholders intend to enter into a definitive
agreement with LandCARE USA, Inc. (LandCARE), pursuant to which all outstanding
shares of the Company's common stock will be exchanged for cash and shares of
LandCARE's common stock (the Merger) concurrently with the consummation of an
initial public offering of the common stock of LandCARE.
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.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts based upon the
estimated collectibility of all accounts receivable.
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.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated 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 life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
The Company's revenues consist of landscape maintenance revenues. The
Company's landscape maintenance contracts are for terms of one to two years and
payments to the Company are remitted monthly over the term of the contract.
Revenues from landscape maintenance contracts are recognized based on agreed
upon monthly contract payments.
COST OF SERVICES
Cost of services represents direct labor and associated costs (such as
benefits and workers' compensation expense), materials, supervisory personnel
and equipment and vehicle costs, such as fuel, insurance and depreciation.
F-37
<PAGE>
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTY COSTS
For certain contracts, the Company warrants plant life up to 90 days after
installation. A reserve for warranty costs is recorded based upon the historical
level of warranty claims and management's estimate of future costs.
SEASONALITY
The Company has experienced and expects to continue to experience
variability in revenue and net income as a result of the seasonal nature of the
Company's business. Generally, the Company's revenues from landscape maintenance
contracts remain relatively constant throughout the year; however, the related
cost of services varies due to seasonality. As a result, the gross margin from
landscape maintenance contracts can vary seasonally.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, a line of credit and debt. The Company
believes that the carrying value of these instruments on the accompanying
balance sheets approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. The
Company will adopt SFAS No. 131 for the year ended December 31, 1998.
F-38
<PAGE>
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------
IN YEARS 1996 1997
------------ --------- ---------
Transportation equipment............. 5 $ 1,700 $ 1,801
Machinery and equipment.............. 5-10 608 724
Leasehold improvements............... 5-10 216 230
Office furniture and equipment....... 5 85 170
--------- ---------
Total...................... 2,609 2,925
Less -- Accumulated depreciation..... (1,420) (1,685)
--------- ---------
Property and equipment,
net....................... $ 1,189 $ 1,240
========= =========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Accounts receivable, trade........... $ 973 $ 1,569
Income tax refund.................... 41 --
Accounts receivable, other........... 16 11
Allowance for doubtful accounts...... (93) (100)
--------- ---------
$ 937 $ 1,480
========= =========
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Accounts payable, trade.............. $ 408 $ 484
Accrued compensation and benefits.... 583 611
Accrued insurance premiums........... 136 65
Income tax payable................... -- 344
Warranty accrual..................... 100 100
--------- ---------
$ 1,227 $ 1,604
========= =========
5. LINE OF CREDIT AND LONG-TERM DEBT:
LINE OF CREDIT
The Company has a $600,000 line of credit with a financial institution that
is secured by accounts receivable, other rights to payment, general intangibles,
inventory and equipment. In addition, it is guaranteed by shareholders of the
Company. Interest is at the financial institution's prime rate plus .75 percent,
which was 9 percent at December 31, 1996. The line of credit expires on
September 1, 1998, and there was a total of $200,000 and no amounts outstanding
on the line at December 31, 1996 and 1997, respectively.
F-39
<PAGE>
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Note payable to a financial institution
in monthly installments of $4,123
including interest at 8.71%, secured
by accounts receivable, other rights
to payment, general intangibles,
inventory and equipment due 2001...... $ 177 $ 141
Notes payable to a financial institution
in total monthly installments of
$9,436 including interest at 8.25%,
secured by accounts receivable, other
rights to payment, general
intangibles, inventory and equipment
due 1997.............................. 79 --
--------- ---------
256 141
Less -- Current portion................. (109) (38)
--------- ---------
$ 147 $ 103
========= =========
The aggregate maturities of long-term debt as of December 31, 1997, are as
follows (in thousands):
Year ending December 31 --
1998............................... $ 38
1999............................... 42
2000............................... 45
2001............................... 16
---------
$ 141
=========
6. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
DECEMBER 31
-------------------------------
1995 1996 1997
--------- --------- ---------
Federal --
Current......................... $ (33) $ (25) $ 296
Deferred........................ (23) (19) 72
--------- --------- ---------
(56) (44) 368
--------- --------- ---------
State --
Current......................... (3) (1) 88
Deferred........................ (6) (5) 20
--------- --------- ---------
(9) (6) 108
--------- --------- ---------
Total provision............ $ (65) $ (50) $ 476
========= ========= =========
F-40
<PAGE>
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from an amount computed at the
statutory rate as follows (in thousands):
DECEMBER 31
-------------------------------
1995 1996 1997
--------- --------- ---------
Federal income tax at statutory
rates.............................. $ (46) $ (31) $ 419
State income taxes................... (6) (4) 70
Fuel tax credit...................... (21) (23) (22)
Nondeductible expenses............... 8 8 9
--------- --------- ---------
$ (65) $ (50) $ 476
========= ========= =========
The significant items giving rise to the deferred tax assets and
liabilities are as follows (in thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Deferred tax assets --
Accrued expenses................ $ 176 $ 139
Allowance for doubtful
accounts...................... 54 44
State taxes..................... 4 11
--------- ---------
Total deferred tax
assets.................. 234 194
--------- ---------
Deferred tax liabilities --
Bases differences in property
and equipment................. (142) (193)
Other........................... (122) (122)
--------- ---------
Total deferred tax
liabilities............. (264) (315)
--------- ---------
Net deferred tax
liability............... $ (30) $ (121)
========= =========
7. RELATED-PARTY TRANSACTIONS:
The Company leases facilities from companies whose owners are shareholders
of the Company. The total amount of rent expense incurred under these leases was
$185,110, $218,899 and $228,239 for the years ended December 31, 1995, 1996 and
1997, respectively.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various facilities, equipment and vehicles under
operating lease agreements, including leases with related parties. These leases
are noncancelable and expire on various dates through 2002. The lease agreements
are subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1998............................ $ 273
1999............................ 206
2000............................ 143
2001............................ 70
2002............................ 12
---------
$ 704
=========
F-41
<PAGE>
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense under all operating leases, including operating leases
with related parties, was $215,460, $251,778 and $301,480 for the years ended
December 31, 1995, 1996 and 1997, respectively.
LITIGATION
The Company is involved in 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 standard range of insurance coverage, including
business auto liability, general liability, workers' compensation, commercial
property and an umbrella policy. The Company has not incurred significant claims
or losses on any of these insurance policies.
From May 1, 1996, through April 30, 1997, the Company was self-insured for
medical claims up to $35,000 per year per covered individual with a maximum
payout of approximately $250,000. Claims in excess of this amount were covered
by a stop loss policy. The Company has recorded reserves for its portion of
self-insured claims based on estimated claims.
EMPLOYEE 401(K) RETIREMENT PLAN
The Company offers its employees a 401(k) profit-sharing plan (the Plan)
which covers all employees at least 21 years of age who have completed at least
one year of service subsequent to employment. The Plan allows for employee
contributions through salary reductions up to the statutory limits. Employer
matching contributions are made at 20 percent of the employee's contribution and
were $19,000, $20,000 and $23,000 for the years ended December 31, 1995, 1996
and 1997, respectively.
STOCK AWARD INCENTIVE PROGRAM
In May 1997, the Company instituted a stock award incentive program that
authorizes the shareholders of the Company to grant up to 135 shares to
participants at the shareholders' discretion. The shares are not distributed
except in the event of a change in control. If a change in control occurs,
participants become fully vested immediately prior to the change and shares of
common stock are issued. If a change in control does not occur, the shares earn
cash value over a five-year vesting period from the date of grant. The cash
value earned as of December 31, 1997 was de minimus. Subsequent to December 31,
1997, the Company has recorded compensation expense of approximately $200,000 to
recognize the effect of the pending Merger.
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1998, the Company and its shareholders entered into a definitive
agreement with a wholly owned subsidiary of LandCARE, providing for the merger
of the Company with the subsidiary of LandCARE. Equipment of approximately
$34,000, which is included in the balance sheet at December 31, 1997, will be
distributed to the shareholders. Had these distributions been made at December
31, 1997, the effect on the Company's balance sheet would have been to decrease
shareholders' equity by aproximately $34,000. In addition, selling, general and
administrative expenses would have been reduced by approximately $16,000
assuming the transactions had occurred January 1, 1997.
Concurrently with the Merger, the Company will enter into an agreement with
the shareholders to lease land used in the Company's operations for negotiated
amounts and terms.
F-42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southern Tree & Landscape Co., Inc.:
We have audited the accompanying balance sheet of Southern Tree & Landscape
Co., Inc., as of December 31, 1997, and the related statements of operations,
shareholders' equity (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southern Tree & Landscape
Co., Inc., as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 20, 1998
F-43
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
BALANCE SHEET -- DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash............................... $ 49
Accounts receivable, net........... 1,810
Inventories........................ 619
Deferred tax asset................. 77
Other current assets............... 305
---------
Total current assets.......... 2,860
PROPERTY AND EQUIPMENT, net............. 2,146
---------
Total assets.................. $ 5,006
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses.......................... $ 1,754
Lines of credit.................... 1,858
Payable to related parties......... 39
Current maturities of long-term
debt.............................. 346
---------
Total current liabilities..... 3,997
LONG-TERM DEBT, net..................... 820
DEFERRED TAX LIABILITY.................. 72
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 100,000
shares authorized, 2,900 shares
issued and outstanding............ 3
Retained earnings.................. 114
---------
Total shareholders' equity.... 117
---------
Total liabilities and
shareholders' equity......... $ 5,006
=========
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
REVENUES............................. $ 14,176
COST OF SERVICES..................... 11,617
---------
Gross profit............... 2,559
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,766
---------
Income from operations..... 793
OTHER INCOME (EXPENSE):
Interest expense................ (429)
Other income, net............... 26
---------
INCOME BEFORE INCOME TAXES........... 390
INCOME TAX PROVISION................. 158
---------
NET INCOME........................... $ 232
=========
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
RETAINED TOTAL
COMMON EARNINGS SHAREHOLDERS'
STOCK (DEFICIT) EQUITY (DEFICIT)
------ --------- -----------------
BALANCE, December 31, 1996........... $ 3 $ (118) $ (115)
Net income...................... -- 232 232
------ --------- -------
BALANCE, December 31, 1997........... $ 3 $ 114 $ 117
====== ========= =======
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 232
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation.................... 311
Loss on sale of property and
equipment..................... 5
Deferred income tax provision... (87)
Changes in assets and
liabilities --
Accounts receivable, net...... (106)
Inventories................... (37)
Other current assets.......... (174)
Accounts payable and accrued
expenses..................... 312
Payable to related parties.... 39
---------
Net cash provided by
operating activities...... 495
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment........................ 2
Purchases of property and
equipment........................ (1,130)
---------
Net cash used in investing
activities................ (1,128)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit and
long-term debt.................. 843
Payments on lines of credit and
long-term debt.................. (176)
---------
Net cash provided by
financing activities...... 667
---------
NET INCREASE IN CASH................. 34
CASH, beginning of year.............. 15
---------
CASH, end of year.................... $ 49
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for --
Interest........................ $ 429
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Southern Tree & Landscape Co., Inc. (the Company), a North Carolina
corporation headquartered in Charlotte, North Carolina, was founded in 1977 and
operates primarily in North Carolina and South Carolina with four branches in
North Carolina and one branch in South Carolina. The Company provides commercial
landscape installation and maintenance and also offers commercial tree services
for customers. The Company is a subsidiary of Southern Shade Tree Co. (the
Parent).
Effective December 31, 1997, the Company and the Parent entered into a
reorganization in which certain net assets of the Parent were transferred to the
Company in exchange for 1,900 shares of the Company's common stock. The
transaction was accounted for as a reorganization of companies under common
control in a manner similar to a pooling of interests. After the reorganization,
approximately 83% of the Company was owned by the Parent.
The Company had a working capital deficit at December 31, 1997. The Company
has funded its operations with cash flows from operations and short-term
borrowings from lenders. Management expects that operations will generate
sufficient cash flows to meet the Company's working capital needs during 1998.
The Company and its shareholders intend to enter into a definitive
agreement with LandCARE USA, Inc. (LandCARE), pursuant to which all outstanding
shares of the Company's common stock will be exchanged for cash and shares of
LandCARE's common stock concurrently with the consummation of an initial public
offering of the common stock of LandCARE.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts based upon the
estimated collectibility of all accounts receivable.
INVENTORIES
Inventories consist primarily of trees and shrubs held for use in the
ordinary course of business and are stated at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated 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 life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
The Company's revenues consist of maintenance revenues and installation
revenues. The Company's landscape maintenance contracts are for one year and
payments to the Company are remitted monthly over the term of the contract.
Revenues from maintenance contracts are recognized based on agreed upon monthly
contract payments. Revenues from installation contracts are recognized when the
services are performed and billable under the terms of the applicable contract.
The balances billed but not paid by customers pursuant to retainage
provisions in installation contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's
F-48
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
experience with similar contracts in recent years, the retention balance at each
balance sheet date will be collected within the subsequent fiscal year.
COST OF SERVICES
Cost of services represents direct labor and associated costs (such as
benefits and workers' compensation expense), materials, supervisory personnel,
and equipment and vehicle costs, such as fuel, insurance and depreciation.
WARRANTY COSTS
For certain contracts, the Company warrants plant life up to a year after
installation. A reserve for warranty costs is recorded based upon the historical
level of warranty claims and management's estimate of future costs.
SEASONALITY
The Company has experienced and expects to continue to experience
variability in revenue and net income as a result of the seasonal nature of the
Company's business. Revenues from landscape maintenance contracts remain
relatively constant throughout the year; however, the related cost of services
vary due to seasonality. As a result, the gross margin from landscape
maintenance contracts can vary seasonally.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable, lines of credit and debt. The Company believes that the
carrying value of these instruments on the accompanying balance sheet
approximates their fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. The
Company will adopt SFAS No. 131 for the year ended December 31, 1998.
F-49
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment as of December 31, 1997, consist of the following
(in thousands):
ESTIMATED
USEFUL LIVES
IN YEARS
-------------
Machinery and equipment................. 5-10 $ 1,914
Transportation equipment................ 5 804
Leasehold improvements.................. Life of lease 423
Office furniture and equipment.......... 5 345
Buildings and improvements.............. 30 90
---------
Total......................... 3,576
Less -- Accumulated depreciation........ (1,430)
---------
Property and equipment, net... $ 2,146
=========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable as of December 31, 1997, consist of the following (in
thousands):
Accounts receivable, trade.............. $ 1,854
Retainage............................... 35
Allowance for doubtful accounts......... (79)
---------
$ 1,810
=========
Other current assets as of December 31, 1997, consist of the following (in
thousands):
Prepaid expenses........................ $ 189
Advance to related party................ 83
Other current assets.................... 33
---------
$ 305
=========
Accounts payable and accrued expenses as of December 31, 1997, consist of
the following (in thousands):
Accounts payable, trade................. $ 1,319
Income tax payable...................... 188
Warranty accrual........................ 123
Accrued compensation and benefits....... 64
Other accrued expenses.................. 60
---------
$ 1,754
=========
5. LINES OF CREDIT AND LONG-TERM DEBT:
LINES OF CREDIT
The Company and the Parent jointly obtained lines of credit and a term loan
with a financial institution. The maximum amount allowed to the Company under
the $1.6 million line of credit held jointly with the Parent is $1.2 million,
with the remainder available to the Parent. The Company also has a $650,000 line
of credit with the same financial institution. The lines of credit are secured
by accounts receivable, other rights to payment, general intangibles, inventory
and equipment. The lines of credit are
F-50
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
also guaranteed by shareholders of the Company. The lines of credit are cross
collateralized between the Company and the Parent. The interest rate on the
lines of credit is at the financial institutions prime rate plus one percent,
which was 9.5 percent at December 31, 1997. The lines of credit expire on
November 30, 1998. The Company had $1.2 million and $650,000 outstanding at
December 31, 1997.
Under the lines of credit and term loan agreement, the Company is required
to comply with certain financial covenants and restrictions. As the Company and
the Parent jointly hold the lines of credit and term loan, a violation of
covenants by one entity may cause the other entity to be in default. The Company
was not in compliance with certain covenants as of December 31, 1997. Subsequent
to yearend the Company obtained waivers for all covenant violations.
LONG-TERM DEBT
Long-term debt as of December 31, 1997, consists of the following (in
thousands):
Notes payable to various financial
institutions in total monthly
installments of approximately
$20,329 including interest ranging
from 8.99% to 10.5%, secured by
certain vehicles, machinery and
equipment with payments due in
varying maturities ranging from
1998-2002.......................... $ 538
Notes payable to other creditors in
total monthly installments of
approximately $2,265 including
interest ranging from 8.53% to 10%,
secured by certain vehicles,
machinery and equipment with
payments due in varying maturities
ranging from 1998-2001............. 99
Lease payable to various leasing
companies in total monthly
installments of approximately
$19,608 including interest ranging
from 8.88% to 21%, secured by
certain vehicles, machinery and
equipment with payments due in
varying maturities ranging from
1998-2002.......................... 529
---------
Total...................... 1,166
Less -- Current portion.............. (346)
---------
$ 820
=========
The aggregate maturities of long-term debt as of December 31, 1997, are as
follows (in thousands):
Year ending December 31-
1998............................ $ 346
1999............................ 244
2000............................ 226
2001............................ 194
2002............................ 156
---------
$ 1,166
=========
F-51
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the provision for income taxes as of December 31, 1997,
are as follows (in thousands):
Federal --
Current......................... $ 199
Deferred........................ (71)
---------
128
---------
State --
Current......................... 47
Deferred........................ (17)
---------
30
---------
Total provision............ $ 158
=========
The provision for income taxes as of December 31, 1997, differs from an
amount computed at the statutory rate as follows (in thousands):
Federal income tax at statutory
rates............................... $ 137
State income taxes................... 19
Nondeductible expenses............... 2
---------
$ 158
=========
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1997, are as follows (in thousands):
Deferred tax assets --
Accrued expenses................ $ 101
Net operating loss
carryforward................... 62
Other........................... 3
---------
Total deferred tax
assets....................... 166
---------
Deferred tax liabilities --
Bases differences in property
and equipment.................. 135
Other........................... 26
---------
Total deferred tax
liabilities.................. 161
---------
Net deferred tax asset..... $ 5
=========
7. RELATED-PARTY TRANSACTIONS:
The Company leases a facility under an operating lease from an entity owned
by shareholders of the Company. Rent expense on the lease was approximately
$66,000 for the year ended December 31, 1997.
During the year ended December 31, 1997, the Company purchased equipment
parts and supplies of approximately $57,000 from an affiliated entity.
The Company reimburses the Parent for various administrative services
performed by the Parent on behalf of the Company. In 1997, such payments totaled
approximately $370,000. As of December 31, 1997, the Company made advances of
approximately $83,000 to the Parent for expenses paid and services performed by
the Parent.
F-52
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended December 31, 1997, the Company purchased inventory of
approximately $113,000 from an affiliated entity.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various facilities, equipment and vehicles under
operating lease agreements, including leases with related parties. These leases
are noncancelable and expire on various dates through 2002. Certain lease
agreements are subject to renewal under essentially the same terms and
conditions as the original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1998....................... 747
1999....................... 659
2000....................... 430
2001....................... 142
2002....................... 77
---------
$ 2,055
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $844,000 for the year ended December 31,
1997.
STOCK REDEMPTION AGREEMENTS
Under the terms of the stock redemption agreements executed in August 1997,
if a shareholder desires to dispose of his shares of common stock (Offered
Shares), the Company has the exclusive right to purchase the Offered Shares
within 30 days from the shareholder. If the Company does not elect to purchase
the Offered Shares, the remaining shareholders have 30 days to purchase the
portion of the Offered Shares not purchased by the Company.
LITIGATION
The Company is involved in 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 standard range of insurance coverage, including
business auto liability, general liability, workers' compensation, commercial
property and an umbrella policy. The Company has not incurred significant claims
or losses on any of these insurance policies.
EMPLOYEE 401(K) RETIREMENT PLAN
The Company participates in a 401(k) profit-sharing plan (the Plan) with
related companies which covers eligible employees at least 21 years of age who
have completed at least one-half year of service. The Plan allows for employee
contributions through salary reductions of up to 20 percent of total
compensation, subject to the statutory limits. The Company matches 25 percent of
the employee's contribution, up to 4 percent of the employee's total
compensation. Employer matching contributions totaled approximately $11,000 for
1997. The Company did not make any discretionary profit-sharing contributions in
1997.
F-53
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
On January 26, 1998, the Company entered into a debt agreement with a
shareholder. Under the terms of this agreement, the Company borrowed $125,000
with a 12 percent interest rate. The note matures on April 26, 1998.
In March 1998, the Company and its shareholders entered into a definitive
agreement with a wholly owned subsidiary of LandCARE, providing for the merger
of the Company with the subsidiary of LandCARE (the Merger).
Concurrently with the Merger, the Company will enter into an agreement with
the shareholders to lease a building used in the Company's operations for
negotiated amounts and terms.
F-54
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To D.R. Church Landscape Co., Inc.:
We have audited the accompanying consolidated balance sheets of D.R. Church
Landscape Co., Inc., and subsidiary, as of December 31, 1996 and 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of D.R. Church
Landscape Co., Inc., and subsidiary as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 13, 1998
F-55
<PAGE>
D.R. CHURCH LANDSCAPE CO., INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
--------------------
1996 1997
--------- ---------
ASSETS
CURRENT ASSETS:
Cash............................ $ 22 $ 136
Accounts receivable, net........ 2,077 2,971
Inventories..................... 96 134
Deferred tax asset.............. 411 136
--------- ---------
Total current assets....... 2,606 3,377
PROPERTY AND EQUIPMENT, net.......... 1,482 1,917
DEFERRED TAX ASSET................... -- 243
OTHER ASSETS......................... 203 75
--------- ---------
Total assets............... $ 4,291 $ 5,612
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $ 1,091 $ 1,560
Line of credit.................. 551 140
Current maturities of long-term
debt........................... 282 366
Current maturities of long-term
payable to related parties..... -- 106
--------- ---------
Total current
liabilities.................. 1,924 2,172
LONG-TERM DEBT, net.................. 589 765
LONG-TERM PAYABLE TO RELATED PARTIES,
net................................ -- 15
DEFERRED TAX LIABILITY............... 16 --
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value,
150,000 shares authorized,
65,076 and 62,878 shares
issued, 62,446 and 62,253
shares outstanding............. 6 6
Retained earnings............... 1,824 2,677
Treasury stock, 2,630 and 625
shares, at cost................ (68) (23)
--------- ---------
Total shareholders'
equity.................... 1,762 2,660
--------- ---------
Total liabilities and
shareholders' equity...... $ 4,291 $ 5,612
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-56
<PAGE>
D.R. CHURCH LANDSCAPE CO., INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31
-------------------------------
1995 1996 1997
--------- --------- ---------
REVENUES............................. $ 9,141 $ 10,951 $ 13,257
COST OF SERVICES..................... 6,121 7,624 8,906
--------- --------- ---------
Gross profit............... 3,020 3,327 4,351
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,136 3,591 2,864
--------- --------- ---------
Income (loss) from
operations.............. 884 (264) 1,487
OTHER INCOME (EXPENSE):
Interest expense................ (94) (117) (184)
Other income, net............... 37 78 97
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.... 827 (303) 1,400
INCOME TAX PROVISION (BENEFIT)....... 329 (120) 547
--------- --------- ---------
NET INCOME (LOSS).................... $ 498 $ (183) $ 853
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-57
<PAGE>
D.R. CHURCH LANDSCAPE CO., INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED TREASURY SHAREHOLDERS'
STOCK EARNINGS STOCK EQUITY
------ --------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994.............. $ 6 $ 1,509 $-- $ 1,515
Repurchase of common stock......... -- -- (3) (3)
Net income......................... -- 498 -- 498
------ --------- -------- -------------
BALANCE, December 31, 1995.............. 6 2,007 (3) 2,010
Repurchase of common stock......... -- -- (65) (65)
Net loss........................... -- (183) -- (183)
------ --------- -------- -------------
BALANCE, December 31, 1996.............. 6 1,824 (68) 1,762
Sale of common stock held in
treasury......................... -- -- 45 45
Net income......................... -- 853 -- 853
------ --------- -------- -------------
BALANCE, December 31, 1997.............. $ 6 $ 2,677 $ (23) $ 2,660
====== ========= ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-58
<PAGE>
D.R. CHURCH LANDSCAPE CO., INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31
-------------------------------
1995 1996 1997
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 498 $ (183) $ 853
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities --
Depreciation............... 246 389 480
Gain on sale of property
and equipment........... -- -- (9)
Deferred income tax
provision (benefit)..... (26) (347) 16
Changes in assets and
liabilities --
Accounts receivable,
net................ (630) (22) (894)
Inventories........... (31) -- (38)
Other assets.......... (100) 29 128
Accounts payable and
accrued expenses... 920 108 469
--------- --------- ---------
Net cash
provided by
(used in)
operating
activities... 877 (26) 1,005
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property
and equipment.................. -- -- 11
Purchases of property and
equipment...................... (832) (712) (917)
--------- --------- ---------
Net cash used in
investing
activities... (832) (712) (906)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and
long-term debt................. 204 1,051 2,460
Payments on line of credit and
long-term debt................. (183) (251) (2,490)
Cash received (paid) for
treasury stock................. (3) (65) 45
--------- --------- ---------
Net cash
provided by
financing
activities... 18 735 15
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... 63 (3) 114
CASH, beginning of year.............. (38) 25 22
--------- --------- ---------
CASH, end of year.................... $ 25 $ 22 $ 136
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for --
Interest................... $ 94 $ 117 $ 184
Income taxes............... 36 80 36
The accompanying notes are an integral part of these consolidated financial
statements.
F-59
<PAGE>
D.R. CHURCH LANDSCAPE CO., INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
D.R. Church Landscape Co., Inc. (the Company), and its wholly owned
subsidiary Royal Oaks Nursery, Inc. (both Illinois corporations), are
headquartered in Chicago, Illinois. The Company was founded in 1963 and operates
primarily in the greater Chicago and Milwaukee areas with branches in Wadsworth,
Illinois and Milwaukee, Wisconsin. The Company provices commercial landscape
installation and maintenance and also provides snow removal services.
The Company and its shareholders intend to enter into a definitive
agreement with LandCARE USA, Inc. (LandCARE), pursuant to which all outstanding
shares of the Company' s common stock will be exchanged for cash and shares of
LandCARE'S common stock concurrently with the consummation of an initial public
offering of the common stock of LandCARE.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and results of
operations of the Company and its subsidiary. All significant intercompany
transactions have been eliminated in consolidation.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts based upon
estimated collectibility of all accounts receivable.
INVENTORIES
Inventories consist of materials and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated 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 life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
The Company's revenues consist of maintenance revenues and installation
revenues. The Company's landscape maintenance contracts are for terms of one to
two years and payments to the Company are remitted monthly over the term of the
contract. Revenues from landscape maintenance contracts are recognized based on
agreed upon monthly contract payments. Revenues from installation services are
recognized when the services are performed and billable under the terms of the
applicable contract.
The balances billed but not paid by customers pursuant to retainage
provisions in installation 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.
F-60
<PAGE>
D.R. CHURCH LANDSCAPE CO., INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COST OF SERVICES
Cost of services represents direct labor and associated costs (such as
benefits and workers' compensation expense), materials, supervisory personnel
and equipment and vehicle costs, such as fuel, insurance and depreciation.
WARRANTY COSTS
For certain contracts, the Company warrants plants, trees and hardscape for
up to one year after installation. A reserve for warranty costs is recorded
based upon the historical level of warranty claims and management's estimate of
future costs.
SEASONALITY
The Company has experienced and expects to continue to experience
variability in revenue and net income as a result of the seasonal nature of the
Company's business. Generally, the Company's revenues from installation projects
are concentrated during the warmer months of April to October. Revenues from
landscape maintenance contracts typically do not generate revenues in the
winter. As a result, the gross margin from landscape maintenance contracts can
vary seasonally.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and debt. The Company believes that the carrying value of these
instruments on the accompanying balance sheets approximates their fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. The
Company will adopt SFAS No. 131 in the year ended December 31, 1998.
F-61
<PAGE>
D.R. CHURCH LANDSCAPE CO., INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------
IN YEARS 1996 1997
------------ --------- ---------
Transportation equipment............. 5 $ 2,041 $ 2,677
Machinery and equipment.............. 3-10 3,020 3,248
Leasehold improvements............... 15-30 53 74
--------- ---------
Total...................... 5,114 5,999
Less -- Accumulated depreciation..... (3,632) (4,082)
--------- ---------
Property and equipment,
net....................... $ 1,482 $ 1,917
========= =========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Accounts receivable, trade........... $ 2,584 $ 3,404
Retainage............................ 234 308
Allowance for doubtful accounts...... (741) (741)
--------- ---------
$ 2,077 $ 2,971
========= =========
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Accounts payable, trade.............. $ 292 $ 259
Accrued compensation and benefits.... 153 202
Income tax payable................... 362 853
Accrued professional fees............ 200 177
Other accrued expenses............... 84 69
--------- ---------
$ 1,091 $ 1,560
========= =========
5. LINE OF CREDIT AND LONG-TERM DEBT:
LINE OF CREDIT
The Company has a $1.4 million line of credit with a financial institution
that is secured by accounts receivable, bearing interest at the financial
institution's prime rate plus 0.75 percent, which was 9 percent and 9.25 percent
at December 31, 1996 and 1997, respectively. The line of credit expires on
February 1, 1998, and there was a total of $551,000 and $140,000 outstanding on
the line at December 31, 1996 and 1997, respectively.
F-62
<PAGE>
D.R. CHURCH LANDSCAPE CO., INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Notes payable to financial
institutions in total monthly
installments of approximately
$19,000 including interest ranging
from 8.57% to 9.50%, secured by
vehicles and equipment with payment
due in varying maturities ranging
from 1999-2001..................... $ 443 $ 501
Notes payable to financial
institutions in total monthly
installments of approximately
$8,300 including interest at
financial institution's prime rate
plus 1.25%, which was 9.50% and
9.75% at December 31, 1996 and
1997, respectively, secured by
vehicles and equipment with final
payment due 1998................... 46 16
Note payable to a shareholder in
monthly installments of $656
including interest at 9.00%,
secured by a vehicle with final
payment due 2001................... -- 21
Note payable to a shareholder
including interest at 9.00%,
unsecured and due on demand........ -- 100
Capital leases of vehicles payable in
monthly installments of
approximately $19,000 including
interest at 6.25%, with varying
maturities ranging from
1999-2002.......................... 175 607
Capital leases of equipment payable
in monthly installments of
approximately $5,000 including
interest at 6.25%, with varying
maturities ranging from
1998-1999.......................... 207 7
--------- ---------
871 1,252
Less- Current portion................ (282) (472)
--------- ---------
$ 589 $ 780
========= =========
The aggregate maturities of long-term debt and capital lease obligations as
of December 31, 1997, are as follows (in thousands):
Year ending December 31 --
1998............................ $ 472
1999............................ 371
2000............................ 286
2001............................ 123
---------
$ 1,252
=========
F-63
<PAGE>
D.R. CHURCH LANDSCAPE CO., INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows
(in thousands):
DECEMBER 31
-------------------------------
1995 1996 1997
--------- --------- ---------
Federal --
Current............................ $ 289 $ 185 $ 434
Deferred........................... (21) (284) 13
--------- --------- ---------
268 (99) 447
--------- --------- ---------
State --
Current............................ 66 42 97
Deferred........................... (5) (63) 3
--------- --------- ---------
61 (21) 100
--------- --------- ---------
Total provision............... $ 329 $ (120) $ 547
========= ========= =========
The provision (benefit) for income taxes differs from an amount computed at
the statutory rate as follows (in thousands):
DECEMBER 31
-------------------------------
1995 1996 1997
--------- --------- ---------
Federal income tax at statutory rates... $ 290 $ (106) $ 482
State income taxes...................... 39 (14) 65
--------- --------- ---------
$ 329 $ (120) $ 547
========= ========= =========
The significant items giving rise to the deferred tax assets and
liabilities, are as follows (in thousands):
1996 1997
--------- ---------
Deferred tax assets --
Allowance for doubtful accounts.... $ 370 $ 286
Accrued expenses................... 82 169
Other.............................. 19 17
--------- ---------
Total deferred tax assets..... 471 472
--------- ---------
Deferred tax liabilities --
Bases differences in property and
equipment......................... (32) (42)
Other.............................. (44) (51)
--------- ---------
Total deferred tax
liabilities................ (76) (93)
--------- ---------
Net deferred tax assets....... $ 395 $ 379
========= =========
7. RELATED-PARTY TRANSACTIONS:
The Company entered into agreements with the shareholders and other related
entities for the leases of office buildings and property used for nursery
operations. The Company also leases vehicles, landscaping and office equipment
from a shareholder. Total lease payments to shareholders were $216,000, $242,000
and $273,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
F-64
<PAGE>
D.R. CHURCH LANDSCAPE CO., INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various facilities, equipment, vehicles and land under
operating lease agreements, including leases with related parties. These leases
expire on various dates through 2001. The lease agreements are subject to
renewal under essentially the same terms and conditions as the original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1998............................ $ 249
1999............................ 166
2000............................ 116
2001............................ 92
---------
$ 623
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $233,000, $338,000 and $327,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
LITIGATION
The Company is involved in 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 consolidated financial position
or consolidated results of operations.
INSURANCE
The Company carries a standard range of insurance coverage, including
business auto liability, general liability, workers' compensation, commercial
property and an umbrella policy. The Company has not incurred significant claims
or losses on any of these insurance policies.
The Company is self-insured for medical claims up to $10,000 per year per
covered individual. Claims in excess of these amounts are covered by a stop-loss
policy.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company participates in an Employee Stock Ownership Plan (the Plan)
which covers all employees who have completed at least 1,000 hours of service as
of the first year of employment ending July 1, the first day of the Plan year.
Participation in the Plan is based on the total compensation paid to employees
during the Plan year. The Company makes discretionary stock or cash
contributions to the Plan, which were $85,000 in cash during 1995, $50,000 in
cash and $50,000 in common stock during 1996 and $50,000 in common stock during
1997.
F-65
<PAGE>
D.R. CHURCH LANDSCAPE CO., INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1998, the Company and its shareholders entered into a definitive
agreement with a wholly owned subsidiary of LandCARE, providing for the merger
of the Company with the subsidiary of LandCARE (the Merger). Royal Oaks Nursery,
Inc. and the related operating assets and liabilities, will not be acquired in
the Merger. Approximately $19,000 of cash, $43,000 of related party receivables
and $19,000 of property and equipment, net, which are included in the
consolidated balance sheet at December 31, 1997 will be sold to the shareholders
of the Company. In addition, shareholders of the Company will assume liabilities
of approximately $3,000, which are included in the consolidated balance sheet at
December 31, 1997. Revenue would have been reduced by approximately $233,000 and
income from operations would have been increased by approximately $43,000 for
the year ended December 31, 1997 assuming the transaction had occurred January
1, 1997. Had these distributions been made at December 31, 1997, the effect on
the Company's balance sheet would have been to decrease shareholders' equity by
approximately $78,000.
Concurrently with the Merger, the Company will enter into an agreement with
the shareholders to lease land, equipment and buildings used in the Company's
operations for negotiated amounts and terms.
F-66
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Ground Control Landscaping, Inc.:
We have audited the accompanying balance sheet of Ground Control
Landscaping, Inc. as of December 31, 1997, and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ground Control Landscaping,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 13, 1998
F-67
<PAGE>
GROUND CONTROL LANDSCAPING, INC.
BALANCE SHEET -- DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash............................ $ 94
Accounts receivable, net........ 965
Inventories..................... 34
Deferred tax asset.............. 103
Other current assets............ 150
---------
Total current assets....... 1,346
PROPERTY AND EQUIPMENT, net.......... 2,855
OTHER ASSETS......................... 156
---------
Total assets .............. $ 4,357
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $ 988
Line of credit.................. 434
Current maturities of long-term
debt........................... 180
---------
Total current
liabilities............... 1,602
LONG-TERM DEBT, net.................. 1,588
DEFERRED TAX LIABILITY............... 145
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value,
1,000 shares authorized and
issued, 450 shares outstanding.... --
Additional paid-in capital...... 4
Retained earnings............... 1,060
Treasury stock, 550 shares, at
cost........................... (42)
---------
Total stockholders'
equity.................... 1,022
---------
Total liabilities and
stockholders' equity...... $ 4,357
=========
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
GROUND CONTROL LANDSCAPING, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
REVENUES............................. $ 8,979
COST OF SERVICES..................... 6,663
---------
Gross profit............... 2,316
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,510
---------
Income from operations..... 806
OTHER EXPENSE:
Interest expense................ (151)
Other expense, net.............. (16)
---------
INCOME BEFORE INCOME TAXES........... 639
INCOME TAX PROVISION................. 248
---------
NET INCOME........................... $ 391
=========
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
GROUND CONTROL LANDSCAPING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
------ ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996........... $ -- $ 4 $ 669 $ (42) $ 631
Net income...................... -- -- 391 -- 391
------ ---- --------- -------- -------------
BALANCE, December 31, 1997........... $ -- $ 4 $ 1,060 $ (42) $ 1,022
====== ==== ========= ======== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE>
GROUND CONTROL LANDSCAPING, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 391
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation............... 267
Loss on sale of property
and equipment............. 32
Deferred income tax
provision................. 9
Changes in assets and
liabilities --
Accounts receivable,
net.................. (135)
Inventories........... (34)
Other assets.......... (90)
Accounts payable and
accrued expenses..... 19
---------
Net cash
provided by
operating
activities........ 459
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property
and equipment.................. 52
Purchases of property and
equipment...................... (662)
---------
Net cash used in
investing
activities........ (610)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and
long-term debt................. 1,671
Payments on line of credit and
long-term debt................. (1,551)
---------
Net cash
provided by
financing
activities........ 120
---------
NET DECREASE IN CASH................. (31)
CASH, beginning of year.............. 125
---------
CASH, end of year.................... $ 94
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for --
Interest................... $ 152
Income taxes............... 135
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE>
GROUND CONTROL LANDSCAPING, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Ground Control Landscaping, Inc. (the Company), a Florida corporation,
headquartered in Orlando, Florida, was founded in 1973 and operates primarily in
Florida with branches in Tampa and Orlando. The Company provides commercial
landscape installation and maintenance services.
The Company had a working capital deficit at December 31, 1997. The Company
has funded its operations with cash flows from operations and short-term
borrowings from lenders. Management expects that operations will generate
sufficient cash flows to meet the Company's working capital needs during 1998.
The Company and its stockholders intend to enter into a definitive
agreement with LandCARE USA, Inc. (LandCARE), pursuant to which all outstanding
shares of the Company's common stock will be exchanged for cash and shares of
LandCARE'S common stock concurrently with the consummation of an initial public
offering of the common stock of LandCARE.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts based upon the
estimated collectibility of all accounts receivable.
INVENTORIES
Inventories consist of materials and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
NON-CASH INVESTING AND FINANCING ACTIVITIES
In June 1997, the Company purchased its corporate headquarters facility in
Orlando, Florida, for $1.5 million. The Company paid $140,000 in cash and
financed the balance with a mortage note issued to the seller (See Note 5).
REVENUE RECOGNITION
The Company's revenues consist of landscape maintenance revenues and
installation revenues. The Company's landscape maintenance contracts are for
terms of one to two years and payments to the Company are remitted monthly over
the term of the contract. Revenues from landscape maintenance contracts are
recognized based on agreed upon monthly contract payments. Revenues from
installation services are recognized when the services are performed and
billable under the terms of the applicable contract.
F-72
<PAGE>
GROUND CONTROL LANDSCAPING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The balances billed but not paid by customers pursuant to retainage
provisions in installation 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.
COST OF SERVICES
Cost of services represents direct labor and associated costs (such as
benefits and workers' compensation expense), materials, supervisory personnel
and equipment and vehicle costs, such as fuel, insurance and depreciation.
WARRANTY COSTS
For certain contracts, the Company warrants plant life for up to one year
after installation. A reserve for warranty costs is recorded based upon the
historical level of warranty claims and management's estimate of future costs.
SEASONALITY
The Company has experienced and expects to continue to experience
variability in revenues and net income as a result of the seasonal nature of the
Company's business. Revenues from landscape maintenance contracts remain
relatively constant throughout the year; however, the related cost of services
varies due to seasonality. As a result, the gross margin from landscape
maintenance contracts can vary seasonally.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable, a line of credit and debt. The Company believes that the
carrying value of these instruments on the accompanying balance sheet
approximates their fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. The
Company will adopt SFAS No. 131 in the year ended December 31, 1998.
F-73
<PAGE>
GROUND CONTROL LANDSCAPING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment as of December 31, 1997, consist of the following
(in thousands):
ESTIMATED
USEFUL LIVES
IN YEARS
------------
Land................................. -- $ 219
Buildings and improvements........... 30 1,910
Transportation equipment............. 5 1,204
Machinery and equipment.............. 3-10 292
Office furniture and equipment....... 5 188
---------
Total...................... 3,813
Less -- Accumulated depreciation..... (958)
---------
Property and equipment,
net..................... $ 2,855
=========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable as of December 31, 1997, consist of the following (in
thousands):
Accounts receivable, trade........... $ 881
Retainage............................ 99
Allowance for doubtful accounts...... (15)
---------
$ 965
=========
Other current assets as of December 31, 1997, consist of the following (in
thousands):
Deposits on materials................ $ 82
Other current assets................. 68
---------
$ 150
=========
Accounts payable and accrued expenses as of December 31, 1997, consist of
the following (in thousands):
Accounts payable, trade.............. $ 334
Accrued compensation and benefits.... 174
Self-insurance reserves.............. 245
Income tax payable................... 107
Warranty accrual..................... 104
Other accrued expenses............... 24
---------
$ 988
=========
5. LINE OF CREDIT AND LONG-TERM DEBT:
LINE OF CREDIT
The Company has a $500,000 line of credit with a financial institution that
is secured by the receivables and equipment of the Company, as well as a life
insurance policy insuring the primary stockholder (waived until March 1998). The
stockholders personally guarantee all amounts borrowed. In addition, interest is
at the financial institution's prime rate plus 1 percent, which was 9.5 percent
at December 31, 1997. There was a total of $434,000 outstanding on this facility
as of December 31, 1997. Under the Credit Agreement, the Company is required to
comply with certain financial covenants and
F-74
<PAGE>
GROUND CONTROL LANDSCAPING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
restrictions. The Company was not in compliance with certain covenants as of
December 31, 1997. Subsequent to year end, the Company obtained waivers for all
covenant violations.
LONG-TERM DEBT
Long-term debt as of December 31, 1997, consists of the following (in
thousands):
Notes payable to a financial
institution in monthly installments
of approximately $14,000 including
interest ranging from 9% to 10%,
secured by certain vehicles and
equipment due in varying maturities
ranging from 1998-2000............. $ 250
Note payable to a construction
company in monthly installments of
approximately $12,600 including
interest at 9.5%, secured by
property due 2013.................. 1,330
Note payable to a bank in monthly
installments of approximately
$2,300 including interest at 8.5%,
secured by land and property due
2008............................... 188
---------
1,768
Less -- Current portion.............. (180)
---------
$ 1,588
=========
The aggregate maturities of long-term debt as of December 31, 1997, are as
follows (in thousands):
Year ending December 31 --
1998............................ $ 180
1999............................ 130
2000............................ 65
2001............................ 50
2002............................ 54
Thereafter...................... 1,289
---------
$ 1,768
=========
6. INCOME TAXES:
The components of the provision for income taxes as of December 31, 1997,
are as follows (in thousands):
Federal --
Current......................... $ 204
Deferred........................ 8
---------
212
---------
State --
Current......................... 35
Deferred........................ 1
---------
36
---------
Total provision............ $ 248
=========
F-75
<PAGE>
GROUND CONTROL LANDSCAPING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes as of December 31, 1997, differs from an
amount computed at the statutory rate as follows (in thousands):
Federal income tax at statutory
rates.............................. $ 223
State income taxes................... 23
Nondeductible expenses............... 5
Fuel tax credit...................... (3)
---------
$ 248
=========
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1997, are as follows (in thousands):
Deferred tax assets --
Accrued expenses................ $ 64
Other........................... 7
---------
Total deferred tax
assets.................. 71
---------
Deferred tax liabilities --
Bases differences in property
and equipment.................. (64)
Accrued expenses................ (32)
Other........................... (17)
---------
Total deferred tax
liabilities............. (113)
---------
Net deferred tax
liability............... $ (42)
=========
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various facilities, equipment and vehicles under
operating lease agreements. These leases expire on various dates through 2002
and include purchase and renewal provisions.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1998............................ $ 135
1999............................ 128
2000............................ 89
2001............................ 34
2002............................ 4
---------
$ 390
=========
Total rent expense under all operating leases was $149,000 for the period
ended December 31, 1997.
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company's financial position or results of
operations.
F-76
<PAGE>
GROUND CONTROL LANDSCAPING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INSURANCE
The Company carries a standard range of insurance coverage, including
business auto liability, general liability, workers' compensation and an
umbrella policy. The Company has not incurred significant claims or losses on
any of these insurance policies.
The Company is self-insured for workers' compensation. The policy is on a
claims-made basis and provides for a maximum loss exposure to the Company,
including premiums, of approximately $240,000. Claims in excess of this amount
are covered by a stop-loss policy. The Company has recorded reserves for its
portion of self-insured claims based on estimated claims.
EMPLOYEE RETIREMENT PLAN
The Company participates in a retirement plan (the Plan) for employees with
two full years of service in a management or supervisory position. Eligible
employees vest in the Plan over 20 years beginning five years after qualifying
for the Plan. The benefit is payable over 20 years to participants over 65-years
old based on Plan specifications. The Company's obligation under the Plan as of
December 31, 1997, is $75,000. The Company is funding its obligation by
investing in life insurance policies with a cash surrender value of $131,000 at
December 31, 1997.
8. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1998, the Company and its stockholders entered into a definitive
agreement with a wholly owned subsidiary of LandCARE, providing for the merger
of the Company with the subsidiary of LandCARE (the Merger). Land and net
property and equipment of approximately $2.1 million, which is included in the
balance sheet at December 31, 1997, will be distributed to the stockholders. In
addition, stockholders of the Company will assume liabilities of approximately
$1.5 million, which are included in the consolidated balance sheet at December
31, 1997. Selling, general and administrative expenses would have been reduced
by approximately $62,000, interest expense, net would have been reduced by
approximately $89,000 and income before income taxes would have been increased
by approximately $151,000 assuming the transaction had occurred January 1, 1997.
Had these distributions been made at December 31, 1997, the effect on the
Company's balance sheet would have been to decrease stockholders' equity by
approximately $545,000.
Concurrently with the Merger, the Company will enter into an agreement with
the stockholders to lease land and buildings used in the Company's operations
for negotiated amounts and terms.
F-77
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Arteka Corporation:
We have audited the accompanying combined balance sheets of the companies
identified in Note 1 to the combined financial statements (collectively, the
Group) as of December 31, 1997 and 1996, and the related combined statements of
operations, shareholder's equity and cash flows for the years then ended. These
combined financial statements are the responsibility of the Group's management.
Our responsibility is to express an opinion on these combined financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Group as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 13, 1998
F-78
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31
--------------------
1996 1997
--------- ---------
ASSETS
CURRENT ASSETS:
Cash............................... $ 5 $ 268
Accounts receivable, net........... 1,743 2,105
Related-party receivable........... 120 --
Inventories........................ 1,020 1,000
Other current assets............... 30 207
--------- ---------
Total current assets....... 2,918 3,580
PROPERTY AND EQUIPMENT, net.......... 714 1,539
OTHER ASSETS......................... 30 1,554
--------- ---------
Total assets............... $ 3,662 $ 6,673
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $ 1,332 $ 1,554
Lines of credit.................... 410 100
Current maturities of long-term
debt............................ 233 2,510
Current maturities of long-term
payable to related party........ -- 87
Deferred tax liability............. 323 38
Other current liabilities.......... 123 90
--------- ---------
Total current
liabilities.................. 2,421 4,379
LONG-TERM DEBT, net.................. 439 301
LONG-TERM PAYABLE TO RELATED PARTY,
net................................ -- 911
DEFERRED TAX LIABILITY............... 74 179
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock....................... 10 10
Retained earnings.................. 718 893
--------- ---------
Total shareholder's
equity....................... 728 903
--------- ---------
Total liabilities and
shareholder's equity..... $ 3,662 $ 6,673
========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-79
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31
--------------------
1996 1997
--------- ---------
REVENUES............................. $ 7,052 $ 7,366
COST OF SERVICES..................... 5,055 5,227
--------- ---------
Gross profit............... 1,997 2,139
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,722 2,136
--------- ---------
Income from operations..... 275 3
OTHER INCOME (EXPENSES):
Interest expense................ (129) (95)
Other income, net............... 32 16
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.... 178 (76)
INCOME TAX PROVISION (BENEFIT)....... 75 (251)
--------- ---------
NET INCOME (LOSS).................... $ 103 $ 175
========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-80
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
TOTAL
COMMON RETAINED SHAREHOLDER'S
STOCK EARNINGS EQUITY
------ --------- --------------
BALANCE, December 31, 1995........... $ 10 $ 615 $ 625
Net income...................... -- 103 103
------ --------- --------------
BALANCE, December 31, 1996 10 718 728
Net income...................... -- 175 175
------ --------- --------------
BALANCE, December 31, 1997........... $ 10 $ 893 $ 903
====== ========= ==============
The accompanying notes are an integral part of these combined financial
statements.
F-81
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31
--------------------
1996 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 103 $ 175
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation............... 165 208
Gain on sale of property... (4) (3)
Deferred income tax
provision (benefit)...... 62 (251)
Changes in assets and
liabilities --
Accounts receivable,
net................. (717) (9)
Inventories........... 144 20
Other assets.......... (48) (116)
Accounts payable and
accrued expenses.... 746 (2)
Other, net............ (50) (14)
--------- ---------
Net cash
provided by
operating
activities...... 401 8
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of
cash acquired.................. -- (45)
Proceeds from sales of property
and equipment.................. 122 --
Purchases of property and
equipment...................... (390) (246)
--------- ---------
Net cash used in
investing
activities...... (268) (291)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net line-of-credit repayments... (424) (310)
Net long-term borrowings
(repayments)................... 294 (144)
Borrowings from related party... -- 1,000
--------- ---------
Net cash
provided by
(used in)
financing
activities...... (130) 546
--------- ---------
NET INCREASE IN CASH................. 3 263
CASH, beginning of year.............. 2 5
--------- ---------
CASH, end of year.................... $ 5 $ 268
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for --
Interest................... $ 129 $ 95
Income taxes............... 5 9
The accompanying notes are an integral part of these combined financial
statements.
F-82
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The financial statements of Arteka Corporation (Arteka) and affiliates
(collectively, the Group) combine the financial statements of the following
companies under common control and ownership: Arteka Corporation, Arteka Natural
Green Corporation, Arteka Nurseries, Inc., and Southwest Lawn Maintenance, Inc.,
a wholly owned subsidiary of Arteka Corporation (all Minnesota corporations).
The Group headquartered in Eden Prairie, Minnesota, was founded in 1976 and
operates in four locations in the Twin Cities area. The Group provides
commercial landscape installation and maintenance services, operates a tree
nursery, which primarily provides trees to its own operations, and provides snow
removal services.
The Company had a working capital deficit at December 31, 1997. The Company
has funded its operations with cash flows from operations and short-term
borrowings from lenders. Management expects that operations will generate
sufficient cash flows to meet the Company's working capital needs during 1998.
The Group and its shareholder intend to enter into a definitive agreement
with LandCARE USA, Inc. (LandCARE), pursuant to which all outstanding shares of
the Group's common stock will be exchanged for cash and shares of LandCARE's
common stock concurrently with the consummation of an initial public offering of
the common stock of LandCARE.
ACQUISITIONS
MANAGEMENT AND MAINTENANCE, INC. -- Effective December 31, 1997, the Group
acquired certain equipment and service contracts from Management and
Maintenance, Inc. (MMI). MMI's owner also entered into a three-year noncompete
agreement with the Group. The noncompete agreement was valued at $15,000. The
Group recorded the equipment and service contracts on its December 31, 1997,
balance sheet based on the amounts paid to MMI's owner.
As consideration for the purchase, the Group paid MMI's owner $10,000 in
cash; issued to MMI's owner a $580,000 note payable; and agreed to a performance
payment due January 1, 1999, equal to 10 percent of the gross revenues generated
under the purchased contracts or $80,000 whichever is greater. The Group also
entered into a three-year lease with MMI's owner beginning January 1, 1998, to
lease certain office space owned by MMI's owner. The lease requires annual rent
of approximately $24,000 payable in even monthly installments.
SOUTHWEST LAWN MAINTENANCE, INC. -- Effective December 31, 1997, the Group
purchased all the outstanding stock of Southwest Lawn Maintenance, Inc. (SWL).
Prior to the acquisition, SWL was engaged in the same business as the Group. The
Group accounted for the acquisition as a business combination using purchase
accounting. The purchase price was allocated among the assets and liabilities of
SWL which resulted in goodwill of approximately $1.5 million. The Group is
amortizing the goodwill over 40 years.
The Group acquired SWL for $50,000 in cash plus a $1,735,000 note payable
to SWL's former shareholder. The Group has recorded the note at its estimated
fair value of $1,658,000. In conjunction with the SWL acquisition, the Group
entered into a one-year lease beginning January 1, 1998, with SWL's former
shareholder to rent SWL's offices owned by SWL's former shareholder. The lease
requires annual rent of $30,000 payable in even monthly installments.
As part of the acquisition, SWL's former shareholder granted the Group the
option to terminate the acquisition, the related lease and the note payable
under certain circumstances. If the Group exercises the option, SWL's former
shareholder will be entitled to retain the $50,000 cash payment plus will be
entitled to receive an additional payment of $10,000. The agreement also grants
SWL's former shareholder the right to accelerate the amounts due under the
$1,735,000 note.
F-83
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In conjunction with the acquisitions, liabilities were assumed as follows
(in thousands):
Fair value of assets acquired, net of
cash acquired...................... $ 1,144
Goodwill............................. 1,437
Cash paid, net of cash acquired...... (45)
Issuance of convertible notes........ (2,318)
---------
Liabilities.......................... $ 218
=========
The following unaudited pro forma summary presents information as if the
SWL acquisition had occurred at January 1, 1997. The pro forma information is
provided for information purposes only. It is based on historical information
and does not necessarily reflect the actual results that would have occurred nor
is it necessarily indicative of future results of operations of the combined
enterprise (in thousands):
YEAR ENDED
DECEMBER 31,
1997
------------
(UNAUDITED)
Pro forma revenue.................... $9,249
Pro forma net income................. 432
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group for all periods during which the companies were under
common control. All significant intercompany transactions have been eliminated
in combination.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Group maintains an allowance for doubtful accounts based upon the
estimated collectability of all accounts receivable.
INVENTORIES
Inventories consist of growing stock held by Arteka Nurseries, Inc., and
parts and supplies held for use in the ordinary course of business by Arteka
Natural Green, Inc. The book value of these inventories at December 31, 1996 and
1997, is as follows (in thousands):
1996 1997
--------- ---------
Growing stock........................ $ 933 $ 897
Parts and supplies................... 87 103
--------- ---------
$ 1,020 $ 1,000
========= =========
Parts and supplies inventories are stated at the lower of cost or market.
Growing stock includes planting and growing costs. Harvesting costs are expensed
as incurred. Inventory is relieved and cost of services is charged as growing
stock is harvested or lost as the result of casualty.
F-84
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated 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 life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
The Group's revenues consist of maintenance revenues, installation revenues
and snow removal revenues. The Group's landscape maintenance contracts are for
terms of one to three years and payments to the Group are remitted monthly over
the term of the contract. Revenues from landscape maintenance contracts are
recognized based on agreed upon monthly contract payments. The Group recognizes
installation and snow removal revenue when services are performed and billable
under the terms of the applicable contract.
The balances billed but not paid by customers pursuant to retainage
provisions in installation contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Group's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
COST OF SERVICES
Cost of services represents direct labor and associated costs (such as
benefits and workers' compensation expense), materials, supervisory personnel
and equipment and vehicle costs, such as fuel, insurance and depreciation.
WARRANTY COSTS
For certain contracts, the Group warrants plant life for the first year
after installation. A reserve for warranty costs is recorded based upon the
historical level of warranty claims and management's estimate of future costs.
SEASONALITY
The Group has experienced and expects to continue to experience variability
in revenue and net income as a result of the seasonal nature of the Group's
business. Generally, the Group's revenues from installation projects are
concentrated during the warmer months of April to October. Revenues from
landscape maintenance contracts typically do not generate revenues in the
winter; however, snow removal services provided in the winter partially offset
these decreases. As a result, the gross margin from landscape maintenance can
vary seasonally.
INCOME TAXES
The Group, with the exception of Arteka Nurseries, Inc., accounts for
income taxes in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount to be realized. The provision for income taxes
is the tax payable for the year and the change during the year in deferred tax
assets and liabilities.
F-85
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, Arteka Nurseries, Inc. (the Nursery) elected S Corporation
status as defined by the Internal Revenue Code, whereby the Nursery is not
subject to taxation for federal purposes. Under S Corporation status, the
shareholders report their shares of the Nursery's taxable earnings or losses in
their personal tax returns.
SHAREHOLDER'S EQUITY
The equity structure of the Group is as follows at each December 31, 1996
and 1997:
SHARES
AUTHORIZED ISSUED AND
SHARES OUTSTANDING PAR VALUE
---------- ----------- ---------
Arteka Corporation................... 2,500 1,000 No par
Arteka Natural Green Corporation..... 25,000 10,000 $1.00
Arteka Nurseries, Inc................ 25,000 10,000 No par
FINANCIAL INSTRUMENTS
The Group's financial instruments consist of cash, accounts receivable,
accounts payable, lines of credit, and debt. The Group believes that the
carrying value of these instruments on the accompanying balance sheets
approximates their fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. The
Group will adopt SFAS No. 131 in the year ended December 31, 1998.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------
IN YEAR 1996 1997
------------ --------- ---------
Machinery and equipment.............. 5-10 1,356 2,345
Office furniture and equipment....... 5 207 212
Leasehold improvements............... 5 122 122
--------- ---------
Total...................... 1,685 2,679
Less -- Accumulated depreciation..... (971) (1,140)
--------- ---------
Property and equipment,
net..................... $ 714 $ 1,539
========= =========
F-86
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Accounts receivable, trade........... $ 1,459 $ 1,673
Retainage............................ 280 394
Accounts receivable, other........... 48 85
Allowance for doubtful accounts...... (44) (47)
--------- ---------
$ 1,743 $ 2,105
========= =========
Other assets consist of the following (in thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Goodwill............................. $ -- $ 1,472
Other................................ 30 82
--------- ---------
$ 30 $ 1,554
========= =========
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Accounts payable, trade.............. $ 717 $ 1,046
Accrued compensation and benefits.... 466 286
Warranty accrual..................... 95 91
Other accrued expenses............... 54 131
--------- ---------
$ 1,332 $ 1,554
========= =========
Other current liabilities consist of the following (in thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Customer deposits.................... $ 123 $ 3
Performance payment.................. -- 80
Other................................ -- 7
--------- ---------
$ 123 $ 90
========= =========
5. LINE OF CREDIT AND LONG-TERM DEBT:
LINE OF CREDIT
The Group has two lines of credit which provide for borrowings up to $1.3
million with a financial institution that are secured by accounts receivable and
bear interest at prime plus 1.25 percent which was 9.5 percent and 9.75 percent
at December 31, 1996 and 1997, respectively. Each of the lines of credit expire
in April 1998. The Group had $410,000 and $100,000 outstanding under these lines
of credit at December 31, 1996 and 1997, respectively.
F-87
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Note payable to a financial
institution in monthly installments
of $14,300 including interest at
9.25%, secured by certain of the
Group's equipment, due November
1999............................... $ 439 $ 302
Notes payable to various equipment
vendors in total monthly
installments of approximately
$10,000 including interest ranging
from 7.5% to 10.9%, secured by
certain of the Group's equipment
due in varying maturities ranging
from 1998 -- 2001.................. 233 221
Note payable to a financial
institution in monthly installments
of $1,754 including interest at
9.75%, secured by certain of the
Group's equipment, due July 2000... -- 48
Note payable to the Group's sole
shareholder in monthly installments
of $16,416 including interest at
9.5%, due February 2005............ -- 1,000
Note payable to former SWL owner
including imputed interest at 10%
due June 1998...................... -- 1,658
Note payable to MMI owner in two
payments of $145,000 on January 9,
1998 and $435,000 on July 1, 1998
including interest of 10%.......... -- 580
--------- ---------
672 3,809
Less -- Current portion.............. (233) (2,597)
--------- ---------
$ 439 $ 1,212
========= =========
The aggregate maturities of long-term debt as of December 31, 1997, are as
follows (in thousands):
Year ending December 31 --
1998....................... $ 2,597
1999....................... 391
2000....................... 151
2001....................... 139
2002....................... 153
Thereafter................. 378
---------
$ 3,809
=========
F-88
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows
(in thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Federal --
Current............................ $ (1) $ 3
Deferred........................... 58 (248)
--------- ---------
57 (245)
--------- ---------
State --
Current............................ 14 (1)
Deferred........................... 4 (5)
--------- ---------
18 (6)
--------- ---------
Total provision............ $ 75 $ (251)
========= =========
The provision (benefit) for income taxes differs from an amount computed at
the statutory rate as follows (in thousands):
DECEMBER 31
--------------------
1996 1997
--------- ---------
Federal income tax at statutory rates... $ 62 $ (27)
State income taxes...................... 12 (4)
Nondeductible expenses.................. 1 2
Effect of the conversion of Arteka
Nurseries, Inc. to an S Corporation... -- (230)
Valuation allowance..................... -- 8
--------- ---------
$ 75 $ (251)
========= =========
The significant items giving rise to the deferred tax assets and
liabilities are as follows (in thousands):
1996 1997
--------- ---------
Deferred tax assets --
Allowance for doubtful accounts.... $ 20 $ 21
Accrued expenses................... 4 2
Net operating loss................. 19 27
State taxes........................ 39 12
--------- ---------
Total deferred tax assets..... 82 62
--------- ---------
Valuation allowance..................... -- (8)
Deferred tax liabilities --
Bases differences in property and
equipment......................... (50) (131)
Bases differences in inventory..... (349) (60)
Other.............................. (80) (80)
--------- ---------
Total deferred tax
liabilities................ (479) (271)
--------- ---------
Net deferred tax liability.... $ (397) $ (217)
========= =========
F-89
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED-PARTY TRANSACTIONS:
The Group leases certain of its property and facilities from the Group's
sole shareholder. These leases are five-year leases which expire in 2002. The
future annual minimum payments under these leases are approximately $84,000.
In December 1997, the Group borrowed $1,000,000 from its sole shareholder
in order to fund its near-term working capital requirements. See Note 5 for a
discussion of the terms of this borrowing.
In December 1996, the Group had a receivable from its sole shareholder of
$120,014. This receivable relates to services performed by the Group for its
sole shareholder.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities, equipment and land under operating
lease agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2002. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1998............................ $ 146
1999............................ 108
2000............................ 108
2001............................ 84
2002............................ 84
---------
$ 530
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $144,000 for each of the years ended
December 31, 1996 and 1997.
LITIGATION
The Group is involved in 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 Group's combined financial position or
combined results of operations.
INSURANCE
The Group carries a standard range of insurance coverage, including
business auto liability, general liability, workers' compensation, excess
liability, commercial property and an umbrella policy. The Group has not
incurred significant claims or losses on any of these insurance policies.
EMPLOYEE 401(K) RETIREMENT PLAN
The Group offers its employees a 401(k) profit-sharing plan (the Plan)
which covers all employees at least 21 years of age who have completed at least
one-half year of service (6 months) subsequent to employment. The Plan allows
for employee contributions through salary reductions of up to 15 percent of
total compensation, subject to the statutory limits. Employer matching
contributions are made solely at the discretion of the Group and were $14,827
and $15,936 for 1996 and 1997, respectively.
F-90
<PAGE>
ARTEKA CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1998, the Group and its shareholder entered into a definitive
agreement with a wholly owned subsidiary of LandCARE, providing for the merger
of the Group with the subsidiary of LandCARE (the Merger).
Concurrently with the Merger, the Group will enter into an agreement with
the shareholder to lease land and buildings used in the Group's operations for
negotiated amounts and terms.
F-91
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Desert Care Landscaping, Inc.:
We have audited the accompanying balance sheet of Desert Care Landscaping,
Inc. as of December 31, 1997, and the related statements of operations,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Desert Care Landscaping,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 13, 1998
F-92
<PAGE>
DESERT CARE LANDSCAPING, INC.
BALANCE SHEET -- DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash............................ $ 172
Accounts receivable, net........ 1,086
Related-party receivable........ 113
Other current assets............ 16
---------
Total current assets....... 1,387
PROPERTY AND EQUIPMENT, net.......... 1,007
OTHER ASSETS......................... 29
---------
Total assets............... $ 2,423
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses...................... $ 437
Current maturities of long-term
debt.......................... 186
Other current liabilities....... 53
---------
Total current
liabilities.............. 676
LONG-TERM DEBT, net.................. 379
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value,
10,000 shares authorized, 100
shares issued and
outstanding.................... --
Additional paid-in capital...... 50
Retained earnings............... 1,318
---------
Total shareholders'
equity.................... 1,368
---------
Total liabilities and
shareholders' equity...... $ 2,423
=========
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE>
DESERT CARE LANDSCAPING, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
REVENUES............................. $ 6,481
COST OF SERVICES..................... 5,119
---------
Gross profit............... 1,362
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 672
---------
Income from operations..... 690
OTHER INCOME (EXPENSE):
Interest expense................ (64)
Other income, net............... 13
---------
NET INCOME........................... $ 639
=========
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE>
DESERT CARE LANDSCAPING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996.............. $-- $ 50 $ 819 $ 869
Distributions...................... -- -- (140) (140)
Net income......................... -- -- 639 639
------ --- --------- -------------
BALANCE, December 31, 1997.............. $-- $ 50 $ 1,318 $ 1,368
====== === ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE>
DESERT CARE LANDSCAPING, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 639
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation............... 181
Gain on sales of assets.... 5
Changes in assets and
liabilities --
Accounts receivable,
net................... (83)
Related-party
receivable............ 133
Accounts payable and
accrued expenses...... (124)
Other, net.............. (34)
---------
Net cash
provided by
operating
activities........ 717
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property
and equipment.................. 8
Purchases of property and
equipment...................... (320)
---------
Net cash used in
investing
activities........ (312)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit
and long-term debt............. 973
Payments on lines of credit and
long-term debt................. (1,150)
Distributions to shareholders... (140)
---------
Net cash used in
financing
activities........ (317)
---------
NET INCREASE IN CASH................. 88
CASH, beginning of year.............. 84
---------
CASH, end of year.................... $ 172
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for --
Interest................... $ 64
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE>
DESERT CARE LANDSCAPING, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Desert Care Landscaping, Inc. (the Company), an Arizona corporation, was
founded in 1992 and operates primarily in Arizona with two branches in Phoenix.
The Company provides commercial landscape installation and maintenance services.
The Company also provides native plant reclamation, which consists of temporary
removal of native plants, maintaining them during a construction period and
replacing them following construction.
The Company and its shareholders intend to enter into a definitive
agreement with LandCARE USA, Inc. (LandCARE), pursuant to which all outstanding
shares of the Company's common stock will be exchanged for cash and shares of
LandCARE'S common stock concurrently with the consummation of an initial public
offering of the common stock of LandCARE.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts based upon the
estimated collectibility of all accounts receivable.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated 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 life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
The Company's revenues consist of maintenance revenues and installation
revenues. The Company's landscape maintenance contracts are for terms of one to
two years and payments to the Company are remitted monthly over the term of the
contract. Revenues from landscape maintenance contracts are recognized based on
agreed upon monthly contract payments. Revenues from installation services are
recognized when the services are performed and billable under the terms of the
applicable contract.
The balances billed but not paid by customers pursuant to retainage
provisions in installation 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.
COST OF SERVICES
Cost of services represents direct labor and associated costs (such as
benefits and workers' compensation expense), materials, supervisory personnel
and equipment and vehicle costs, such as fuel, insurance and depreciation.
F-97
<PAGE>
DESERT CARE LANDSCAPING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTY COSTS
For certain contracts, the Company warrants plant life for a 90-day period
after installation and tree life and irrigation work for a one-year period after
installation. A reserve for warranty costs is recorded based upon the historical
level of warranty claims and management's estimate of future costs.
SEASONALITY
The Company has experienced and expects to continue to experience
variability in revenue and net income as a result of the seasonal nature of the
Company's business. Revenues from landscape maintenance contracts remain
relatively constant throughout the year. As a result, the gross margin from
landscape maintenance contracts can vary seasonally.
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 this offering.
MAJOR CUSTOMERS AND RISK CONCENTRATION
The Company had sales of approximately 22 percent of total sales to two
major customers during the year ended December 31, 1997.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable, lines of credit and debt. The Company believes that the
carrying value of these instruments on the accompanying balance sheet
approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. The
Company will adopt SFAS No. 131 in the year ended December 31, 1998.
F-98
<PAGE>
DESERT CARE LANDSCAPING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment as of December 31, 1997, consist of the following
(in thousands):
ESTIMATED
USEFUL LIVES
IN YEARS
-------------
Transportation equipment............. 5 $ 707
Machinery and equipment.............. 5-10 634
Leasehold improvements............... 10 15
Office furniture and equipment....... 5 96
---------
Total...................... 1,452
Less- Accumulated depreciation....... (445)
---------
Property and equipment,
net..................... $ 1,007
=========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable as of December 31, 1997, consist of the following (in
thousands):
Accounts receivable, trade........... $ 911
Retainage............................ 103
Accounts receivable, other........... 104
Allowance for doubtful accounts...... (32)
---------
$ 1,086
=========
Accounts payable and accrued expenses as of December 31, 1997, consist of
the following (in thousands):
Accounts payable, trade.............. $ 247
Accrued compensation and benefits.... 99
Warranty accrual..................... 80
Other accrued expenses............... 11
---------
$ 437
=========
Other current liabilities as of December 31, 1997, consist of the following
(in thousands):
Customer deposits.................... $ 50
Other................................ 3
---
$ 53
===
5. LINES OF CREDIT AND LONG-TERM DEBT:
LINES OF CREDIT
The Company has a $400,000 revolving line of credit with a financial
institution that is secured by accounts receivable and equipment. Certain
shareholders of the Company have personally guaranteed all amounts borrowed
under this facility. There was no amount outstanding on this facility at
December 31, 1997. Subsequent to December 31, 1997, the Company has drawn down a
net amount of $225,000 on this facility. The line of credit expires on June 1,
1998.
F-99
<PAGE>
DESERT CARE LANDSCAPING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a $100,000 nonrevolving line of credit with a financial
institution that is secured by accounts receivable and certain equipment.
Certain shareholders of the Company have personally guaranteed all amounts
borrowed. This facility will convert to a term loan effective June 1, 1998.
There were no amounts outstanding on this facility at December 31, 1997.
LONG-TERM DEBT
Long-term debt as of December 31, 1997, consists of the following (in
thousands):
Notes payable to a financial
institution in total monthly
installments of $7,137 including
interest ranging from 4.9% to
10.25%, secured by various
equipment and personal guarantees
from certain shareholders, due in
1999 through 2001.................. $ 198
Notes payable to a financial
institution in total monthly
installments of approximately
$3,257 including interest at prime
plus 2%, which was 10.5% at
December 31, 1997, and 10.74%,
secured by various equipment,
receivables and personal guarantees
from certain shareholders, due in
1998 through 2002.................. 106
Notes payable to a financial
institution in total monthly
installments of $2,194 including
interest at 9.8% and 9.9%, secured
by various vehicles and personal
guarantees from certain
shareholders, with final payment
due 2001........................... 76
Notes payable to a financial
institution in total monthly
installments of $2,625 including
interest ranging from 8.9% to
10.5%, secured by various vehicles
and personal guarantees from
certain shareholders, due in 1998
through 2001....................... 69
Notes payable to a financial
institution in total monthly
installments of $2,252 including
interest at 9% and 9.5%, secured by
various vehicles and personal
guarantees from certain
shareholders, due in 1999 through
2001............................... 59
Notes payable to a financial
institution in total monthly
installments of $2,126 including
interest at 8.9% and 9.5%, secured
by various vehicles and personal
guarantees from certain
shareholders, due 1999 through
2001............................... 42
Notes payable to a financial
institution in total monthly
installments of $1,171 including
interest at 10.9% and 12.4%,
secured by various equipment, due
in 1998 through 2000............... 15
---------
565
Less -- Current portion.............. (186)
---------
$ 379
=========
The aggregate maturities of long-term debt as of December 31, 1997, are as
follows (in thousands):
Year ending December 31 --
1998............................... $ 186
1999............................... 165
2000............................... 142
2001............................... 63
2002............................... 9
---------
$ 565
=========
6. RELATED-PARTY TRANSACTIONS:
The Company leased facilities under operating leases from a company that is
owned by the shareholders of the Company. Rent expense incurred under these
leases was approximately $94,000 for the year ended December 31, 1997.
Additionally, the Company both sells trees to and purchases trees from this
related party. The amounts related to these transactions for the year ended
December 31, 1997, were trees sold of approximately $10,000 and trees purchased
of approximately $73,000.
F-100
<PAGE>
DESERT CARE LANDSCAPING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various facilities, equipment and vehicles under
operating lease agreements, including leases with related parties. These leases
are noncancelable and expire on various dates through 2002. The lease agreements
are subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1998............................... $ 163
1999............................... 147
2000............................... 108
2001............................... 90
2002............................... 90
---------
$ 598
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $145,000 for the year ended December 31,
1997.
LITIGATION
The Company is involved in 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 standard range of insurance coverage, including
business auto liability, general liability, workers' compensation, commercial
property and an umbrella policy. The Company has not incurred significant claims
or losses on any of these insurance policies.
PROFIT-SHARING PLAN
The Company offers its employees a profit-sharing plan (the Plan) which
covers all employees at least 21 years of age who have completed at least 1,000
hours of service in a 12-month period subsequent to employment. The Company may
declare a discretionary contribution annually which is placed into a trust fund
for the benefit of Plan participants. There was no discretionary profit-sharing
contribution for the year ended December 31, 1997.
8. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1998, the Company and its shareholders entered into a definitive
agreement with a wholly owned subsidiary of LandCARE, providing for the merger
of the Company with the subsidiary of LandCARE (the Merger).
Concurrently with the Merger, the Company will enter into an agreement with
the shareholders to lease land, equipment and buildings used in the Company's
operations for negotiated amounts and terms.
F-101
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary................... 3
Risk Factors......................... 10
The Company.......................... 16
Use of Proceeds...................... 18
Dividend Policy...................... 18
Capitalization....................... 19
Dilution............................. 20
Selected Financial Data.............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 23
Business............................. 35
Management........................... 46
Certain Transactions................. 52
Principal Stockholders............... 56
Description of Capital Stock......... 57
Shares Eligible for Future Sale...... 60
Underwriting......................... 61
Legal Matters........................ 62
Experts.............................. 62
Additional Information............... 62
Index to Financial Statements........ F-1
UNTIL , 1998 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
5,000,000 Shares
[LOGO]
LANDCARE USA, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BT ALEX. BROWN
NATIONSBANC MONTGOMERY
SECURITIES LLC
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 costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the SEC.
AMOUNT TO
BE PAID
----------
SEC registration fee................. $ 20,355
Printing expenses.................... $ 300,000
Legal fees and expenses.............. $ 875,000
Accounting fees and expenses......... $1,750,000
Blue Sky fees and expenses........... $ 10,000
Transfer Agent's and Registrar's
fees............................... $ 4,000
Miscellaneous........................ $1,040,645
----------
TOTAL........................... $4,000,000
==========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the Company
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that such person is or was an officer or director of the Company or is or
was serving at the request of the Company as a director, officer or employee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise.
As permitted by Section 102 of the DGCL, the Company's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director or officer who is successful on the merits in defense of a suit against
such person.
The Company intends to enter into Indemnity Agreements with its directors
and certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.
II-1
<PAGE>
The Company intends to purchase liability insurance policies covering
directors and officers in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On October 9, 1997, LandCARE issued and sold 20,000 shares of Common Stock
to Notre for a consideration of $1,000. This sale was exempt from registration
under Section 4(2) of the Securities Act, no public offering being involved.
On November 12, 1997, LandCARE issued and sold shares of Common Stock to
the following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act, no
public offering being involved: William F. Murdy -- 3,176.30 shares for a
consideration of $2,500; William L. Fielder -- 1,270.52 shares for a
consideration of $1,000; Kenneth V. Garcia -- 1,270.52 shares for a
consideration of $1,000; Fred M. Ferreira -- 127.05 shares for a consideration
of $100; Steven Ives -- 635.26 shares for a consideration of $500; Fieldstone
Partners, Inc. -- 1,105.35 shares for a consideration of $870; Infoscope
Partners, Inc. -- 1,016.41 shares for a consideration of $800; John T. King --
98.33 shares for a consideration of $77.40; Susan Yancey -- 63.52 shares for a
consideration of $50; Jennifer Davidson -- 31.76 shares for a consideration of
$25; Shellie LePori -- 317.63 shares for a consideration of $250; Steven Blum --
190.57 shares for a consideration of $150; Richard T. Howell -- 254.10 shares
for a consideration of $200; Jennifer Jackson -- 127.05 shares for a
consideration of $100; Melinda Malek -- 12.70 shares for a consideration of $10;
and Tina Rose -- 12.70 shares for a consideration of $10.
On February 1, 1998, LandCARE issued and sold 127.05 shares of Common Stock
to Richard Owen for a consideration of $100. This sale was exempt from
registration under Section 4(2) of the Securities Act, no public offering being
involved.
On March 6, 1998, LandCARE issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act, no
public offering being involved: Peter C. Forbes -- 1,270.52 shares of Common
Stock for a consideration of $1,000; William F. Murdy -- 317.62 shares for a
consideration of $250; William L. Fielder -- 127.05 shares for a consideration
of $100; Kenneth V. Garcia -- 127.05 shares for a consideration of $100; Rohan
Crichton -- 254.10 shares for a consideration of $200; Steven Ives -- 63.52
shares for a consideration of $50.00; Clark A. Johnson -- 127.05 shares for a
consideration of $100; Patrick J. Norton -- 127.05 shares for a consideration of
$100; Michael Loy -- 190.57 shares for a consideration of $150; Michael Pacini
- -- 12.70 shares for a consideration of $10; and Kenneth Wable -- 63.52 shares
for a consideration of $50.00.
Effective March 15, 1998, LandCARE effected a 78.7079-to-1 stock split on
shares of Common Stock outstanding as of March 15, 1998.
Effective March 15, 1998, LandCARE issued and sold 1,305,408 shares of
Restricted Common Stock to Notre in exchange for 1,305,408 shares of Common
Stock. This sale was exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved.
Simultaneously with the consummation of the Offering, the Company will
issue 5,162,645 shares of its Common Stock in connection with the Mergers of the
Founding Companies. Each of these transactions was completed without
registration under the Securities Act in reliance upon the exemption provided by
Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement
*3.1 -- Amended and Restated Certificate of Incorporation of LandCARE USA, Inc., as amended
*3.2 -- Bylaws of LandCARE, Inc., as amended
4.1 -- Form of certificate evidencing ownership of Common Stock of LandCARE USA, Inc.
5.1 -- Opinion of Bracewell & Patterson, L.L.P.
*10.1 -- LandCARE USA, Inc. 1998 Long-Term Incentive Plan
*10.2 -- LandCARE USA, Inc. 1998 Non-Employee Directors' Stock Plan
*10.3 -- Agreement and Plan of Organization dated as of
March 17, 1998, by and among LandCARE USA, Inc.,
Arteka Acquisition Corp., Arteka Natural Acquisition
Corp., Arteka Nurseries Acquisition Corp., Arteka
Corporation, Arteka Natural Green Corporation, Arteka
Nurseries, Inc. and the Stockholders named therein
*10.4 -- Agreement and Plan of Organization dated as of
March 17, 1998, by and among LandCARE USA, Inc.,
Desert Care Acquisition Corp., Desert Care
Landscaping, Inc, and the Stockholders named therein
*10.5 -- Agreement and Plan of Organization dated as of March 17, 1998, by and among LandCARE USA,
Inc., D. R. Church Landscape Co., Inc. and the Stockholders named therein
*10.6 -- Agreement and Plan of Organization dated as of March 17, 1998, by and among LandCARE USA,
Inc., Four Seasons Acquisition Corp., Four Seasons Landscape and Maintenance, Inc. and the
Stockholders named therein
*10.7 -- Agreement and Plan of Organization dated as of March 17, 1998, by and among LandCARE USA,
Inc., Ground Control Acquisition Corp., Ground Control Landscaping, Inc. and the
Stockholders named therein
*10.8 -- Agreement and Plan of Organization dated as of March 17, 1997, by and among LandCARE USA,
Inc., Southern Tree Acquisition Corp., Southern Tree & Landscape Co., Inc. and the
Stockholders named therein
*10.9 -- Agreement and Plan of Organization dated as of March 17, 1998, by and among LandCARE USA,
Inc., Trees Acquisition Corp, Trees Inc. and the Stockholders named therein
10.12 -- Form of Employment Agreement between LandCARE USA, Inc. and William F. Murdy
10.13 -- Form of Employment Agreement between LandCARE USA, Inc. and Peter C. Forbes
10.14 -- Form of Employment Agreement between LandCARE USA, Inc. and William L. Fiedler
10.15 -- Form of Employment Agreement between LandCARE USA, Inc. and Kenneth V. Garcia
10.16 -- Form of Employment Agreement between LandCARE USA, Inc. and Steven Ives
10.17 -- Form of Employment Agreement between LandCARE USA, Inc. and Harold D. Cranston
10.19 -- Form of Founders' Employment Agreement
*10.20 -- Form of Agreement Among Certain Stockholders
*10.21 -- Form of Indemnity Agreement with Notre Capital Ventures II, L.L.C.
*10.22 -- Form of Management Indemnity Agreement
*10.23 -- Form of Management Employment Agreement
*21.1 -- List of subsidiaries of LandCARE USA, Inc.
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Harper & Pearson Company
23.3 -- Consent of Bracewell & Patterson, L.L.P. (included in Exhibit 5.1)
*23.4 -- Consent of Linda T. Benge to be named as a director
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
*23.5 -- Consent of Roger S. Braswell to be named as a director
*23.6 -- Consent of Bruce A. Church to be named as a director
*23.7 -- Consent of Harold D. Cranston to be named as a director
*23.8 -- Consent of Fred M. Ferreira to be named as a director
*23.9 -- Consent of Peter C. Forbes to be named as a director
*23.10 -- Consent of Clark A. Johnson to be named as a director
*23.11 -- Consent of David K. Luse to be named as a director
*23.12 -- Consent of Jeff A. Meyer to be named as a director
*23.13 -- Consent of William F. Murdy to be named as a director
*23.14 -- Consent of Patrick J. Norton to be named as a director
*23.15 -- Consent of Ronald L. Stanfa to be named as a director
*23.16 -- Consent of Mark S. Yahn to be named as a director
*24.1 -- Power of Attorney (included on signature page to this Registration Agreement)
*27 -- Financial Data Schedule
</TABLE>
- ------------
* Filed herewith
(b) Financial Statement Schedules
The following financial statement schedules are included herein.
Schedule I
All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions, are inapplicable, or the information is included in the
consolidated financial statements, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described in Item 14, or otherwise, the
Company has been advised that in the opinion of the SEC 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 payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company 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
Company 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.
(b) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; (ii) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, LANDCARE USA,
INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF HOUSTON, STATE OF TEXAS, ON MARCH 18, 1998.
LANDCARE USA, INC.
By: /s/ WILLIAM F. MURDY
WILLIAM F. MURDY
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of William F. Murdy and William L. Fiedler with full power to act without
the other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all amendments
(including post-effective amendments) to this Registration Statement, to file
the same, together with all exhibits thereto and other documents in connection
therewith, with the SEC, to sign any and all applications, registration
statements, notices and other documents necessary or advisable to comply with
the applicable state securities laws, and to file this same, together with all
other documents in connection therewith, with the appropriate state securities
authorities, granting unto said attorneys-in-fact and agents or any of them or
their or his substitutes or substitute, full power and authority to perform and
does each and every act and thing necessary and advisable as fully to all
intents and purposes as he might or could perform and do in person, thereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON MARCH 18, 1998.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
WILLIAM F. MURDY Chairman of the Board; Chief March 18, 1998
WILLIAM F. MURDY Executive Officer and President
PETER C. FORBES Senior Vice President; Chief March 18, 1998
PETER C. FORBES Financial Officer and Director
(Chief Accounting Officer)
RONALD L. STANFA Director March 18, 1998
RONALD L. STANFA
</TABLE>
II-5
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SISYPHUS ACQUISITION CORP.
The undersigned, William F. Murdy, President, and William L. Fiedler,
Secretary of Sisyphus Acquisition Corp., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), do hereby certify
as follows:
FIRST: The name of the Corporation is
Sisyphus Acquisition Corp.
SECOND: The Certificate of Incorporation of the Corporation was filed in
the Office of the Secretary of State of Delaware on October 9, 1997.
THIRD: This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law, the Board of Directors having duly adopted
resolutions setting forth and declaring advisable this Amended and Restated
Certificate of Incorporation, and in lieu of a meeting of the stockholders,
written consent to this Amended and Restated Certificate of Incorporation having
been given by the holders of a majority of the outstanding stock of the
Corporation in accordance with Section 228 of the General Corporation Law of the
State of Delaware.
FOURTH: This Amended and Restated Certificate of Incorporation is being
filed pursuant to Sections 242 and 245 of the Delaware General Corporation Law
in order to restate the Certificate of Incorporation of the Corporation as
amended to date, and also to amend further the Certificate of Incorporation to
(i) change the name of the Company, (ii) increase the authorized capital stock
of the Corporation, (iii) authorize the issuance of preferred stock and
restricted voting common stock and (iv) to provide for the classification of the
Board of Directors of the Corporation.
FIFTH: The Certificate of Incorporation of the Corporation is hereby
amended and restated in its entirety as follows:
1
<PAGE>
ARTICLE ONE
The name of the corporation is
LandCARE USA, Inc.
ARTICLE TWO
The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, County of New Castle.
The name of its registered agent is The Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE FOUR
The total number of shares of stock which the Corporation shall have
authority to issue is One Hundred Seven Million (107,000,000) shares, of which
Five Million (5,000,000) shares, designated as Preferred Stock, shall have a par
value of One Cent ($.01) per share (the "Preferred Stock"), One Hundred Million
(100,000,000) shares, designated as Common Stock, shall have a par value of One
Cent ($.01) per share (the "Common Stock"), and Two Million, (2,000,000) shares,
designated as Restricted Voting Common Stock, shall have a par value of One Cent
($.01) per share (the "Restricted Voting Common Stock").
A statement of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of each class of stock of the
Corporation is as follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of this Certificate of Incorporation and the limitations prescribed by law, the
Board of Directors is expressly authorized by adopting resolutions to issue the
shares, fix the number of shares and change the number of shares constituting
any series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
2
<PAGE>
qualifications, limitations or restrictions thereof, including dividend rights
(and whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), a redemption price or prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, without any further action or vote by the
stockholders.
COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, as and when declared by the Board of Directors out
of the funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may from time to
time determine, payable to stockholders of record on such dates, not exceeding
60 days preceding the dividend payment dates, as shall be fixed for such purpose
by the Board of Directors in advance of payment of each particular dividend. All
dividends on Common Stock shall be paid PARI PASSU with dividends on Restricted
Voting Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Common Stock
and Restricted Voting Common Stock ratably in proportion to the number of shares
of Common Stock and Restricted Voting Common Stock held by them respectively.
3. VOTING RIGHTS.
Except as otherwise required by law, each holder of shares of Common Stock
shall be entitled to one vote for each share of Common Stock standing in such
holder's name of the books of the Corporation.
3
<PAGE>
RESTRICTED VOTING COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Restricted
Voting Common Stock shall be entitled to receive, as and when declared by the
Board of Directors out of the funds of the Corporation legally available
therefor, such dividends (payable in cash, stock or otherwise) as the Board of
Directors may from time to time determine, payable to stockholders of record on
such dates, not exceeding 60 days preceding the dividend payment dates, as shall
be fixed for such purpose by the Board of Directors in advance of payment of
each particular dividend. All dividends on Restricted Voting Common Stock shall
be paid PARI PASSU with dividends on Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Restricted
Voting Common Stock and Common Stock ratably in proportion to the number of
shares of Restricted Voting Common Stock and Common Stock held by them
respectively.
3. VOTING RIGHTS.
Holders of Restricted Voting Common Stock voting as a class shall be
entitled to elect one member of the Board of Directors, but shall not otherwise
be entitled to vote in the election of directors of the Corporation. Subject to
the foregoing, and except as otherwise required by law, each holder of shares of
Restricted Voting Common Stock shall be entitled to three-tenths (.30) of one
vote for each share of Restricted Voting Common Stock standing in such holder's
name of the books of the Corporation.
4. CONVERSION OF THE RESTRICTED VOTING COMMON STOCK.
Each share of Restricted Voting Common Stock will automatically convert
into Common Stock on a share for share basis (a) in the event of a disposition
of such share of
4
<PAGE>
Restricted Voting Common Stock by the holder thereof (other than a disposition
which is a distribution by a holder to its partners or beneficial owners or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986)), (b) in the event any person
acquires beneficial ownership of 15% or more of the outstanding shares of Common
Stock of the Corporation, (c) in the event any person offers to acquire 15% or
more of the outstanding shares of Common Stock of the Corporation, (d) in the
event the holder of Restricted Voting Common Stock elects to convert it into
Common Stock at any time after the second anniversary of the consummation of the
Corporation's initial public offering of its Common Stock (the "Public
Offering"), (e) on the third anniversary of the date of the consummation of the
Corporation's Public Offering, or (f) in the event a majority of the aggregate
number of votes which may be cast by the holders of outstanding shares of Common
Stock and Restricted Voting Common Stock entitled to vote approve such
conversion.
After June 30, 2000, the Corporation may elect to convert any outstanding
shares of Restricted Voting Common Stock into shares of Common Stock in the
event 80% or more of the outstanding shares of Restricted Voting Common Stock
have been converted into shares of Common Stock.
ARTICLE FIVE
1. BOARD OF DIRECTORS.
Following the consummation of the Corporation's Public Offering, the
Directors shall be classified with respect to the time for which they shall
severally hold office into three classes as nearly equal in number as possible.
The Class I directors shall be elected to hold office for an initial term
expiring at the 1999 annual meeting of stockholders, the Class II Directors
shall be elected to hold office for an initial term expiring at the 2000 annual
meeting of stockholders and the Class III Directors shall be elected to hold
office for an initial term expiring at the 2001 annual meeting of stockholders,
with the members of each class of directors to hold office until their
successors have been duly elected and qualified. At each annual meeting of
stockholders, the successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election and until their successors have been duly elected and qualified. At
each annual meeting of stockholders at which a quorum is present, the persons
receiving a plurality of the votes cast shall be directors. No director or class
of directors may be removed from office by a vote
5
<PAGE>
of the stockholders at any time except for cause. Election of directors need not
be by written ballot unless the Bylaws of the Corporation so provide.
Notwithstanding the foregoing, the holders of Restricted Voting Common
Stock voting as a class shall be entitled to elect one member of the Board of
Directors, and only the holders of the Restricted Voting Common Stock shall be
entitled to remove such member from the Board of Directors.
2. VACANCIES.
Any vacancy on the Board of Directors resulting from death, retirement,
resignation, disqualification or removal from office or other cause, as well as
any vacancy resulting from an increase in the number of directors which occurs
between annual meetings of the stockholders at which directors are elected,
shall be filled only by a majority vote of the remaining directors then in
office, though less than a quorum, except that those vacancies resulting from
removal from office by a vote of the stockholders may be filled by a vote of the
stockholders at the same meeting at which such removal occurs. The directors
chosen to fill vacancies shall hold office for a term expiring at the end of the
next annual meeting of stockholders at which the term of the class to which they
have been elected expires. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director. If the
vacancy on the Board of Directors results from the death, retirement,
resignation, disqualification or removal from office of the director elected by
the holders of the Restricted Voting Common Stock, only the holders of the
Restricted Voting Common Stock shall be entitled to fill such vacancy.
Notwithstanding the foregoing, whenever the holders of one or more classes
or series of Preferred Stock shall have the right, voting separately, as a class
or series, to elect directors, the election, term of office, filling of
vacancies, removal and other features of such directorships shall be governed by
the terms of the resolution or resolutions adopted by the Board of Directors
pursuant to ARTICLE FOUR applicable thereto, and each director so elected shall
not be subject to the provisions of this ARTICLE FIVE unless otherwise provided
therein.
3. POWER TO MAKE, ALTER AND REPEAL BYLAWS.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter and repeal the
Bylaws of the Corporation.
6
<PAGE>
4. AMENDMENT AND REPEAL OF ARTICLE FIVE.
Notwithstanding any provision of this Certificate of Incorporation and of
the Bylaws, and notwithstanding the fact that a lesser percentage may be
specified by Delaware law, unless such action has been approved by a majority
vote of the full Board of Directors, the affirmative vote of 66 2/3 percent of
the votes which all stockholders of the then outstanding shares of capital stock
of the Corporation would be entitled to cast thereon, voting together as a
single class, shall be required to amend or repeal any provisions of this
ARTICLE FIVE or to adopt any provision inconsistent with this ARTICLE FIVE. In
the event such action has been previously approved by a majority vote of the
full Board of Directors, the affirmative vote of a majority of the outstanding
stock entitled to vote thereon shall be sufficient to amend or repeal any
provision of this ARTICLE FIVE or adopt any provision inconsistent with this
ARTICLE FIVE.
ARTICLE SIX
The Corporation reserves the right to amend, alter, change or repeal any
provision in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute.
ARTICLE SEVEN
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation law or (iv) for any transaction
from which the director derived an improper personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify each director and officer of the Corporation from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section and the indemnification provided for herein shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders, vote of disinterested
directors or otherwise, and shall continue as to a person who has ceased to be
7
<PAGE>
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such persons and the Corporation may purchase and maintain
insurance on behalf of any director or officer to the extent permitted by
Section 145 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Certificate of Incorporation on behalf of the Corporation and have
attested such execution and do verify and affirm, under penalty of perjury, that
this Amended and Restated Certificate of Incorporation is the act and deed of
the Corporation and that the facts stated herein are true as of this ____ of
March, 1998.
SISYPHUS ACQUISITION CORP.
By:____________________________
William F. Murdy
President
Attest:
__________________________
William L. Fiedler
Secretary
8
EXHIBIT 3.2
BYLAWS
OF
LANDCARE USA, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as may be designated by the Board of Directors,
for the purpose of' electing Directors and for the transaction of such other
business as may be properly brought before the meeting, which date shall be
within thirteen (13) months subsequent to the last annual meeting of
stockholders.
SECTION 2. SPECIAL MEETINGS. Unless otherwise provided in the Certificate
of Incorporation of the Corporation, special meetings of the stockholders for
any purpose or purposes may be called at any time by the Chief Executive
Officer, by a majority of the Board of Directors, or by a majority of the
executive committee (if any), at such time and at such place as may be stated in
the notice of the meeting. Business transacted at such meeting shall be confined
to the purpose(s) stated in the notice of such meeting.
SECTION 3. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF STOCKHOLDERS.
(i) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
Stockholders may be made at an annual meeting of Stockholders
(A) pursuant to the Corporation's notice of meeting, (B) by or
at the direction of the Board of Directors or (C) by any
Stockholder who was a Stockholder of record at the time of
giving of notice provided for in this Section, who is entitled
to vote at the meeting and who complies with the notice
procedures set forth in this Section.
(ii) For nominations or other business to be properly brought
before an annual meeting by a Stockholder pursuant to section
3(a)(i) of this ARTICLE I, the Stockholder must have given
timely notice thereof in writing to the Secretary of the
Corporation and such other business must otherwise be a proper
matter for Stockholder action. To be timely, a Stockholder's
notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close
of business on the sixtieth (60th) day nor
<PAGE>
earlier than the close of business on the ninetieth (90th) day
prior to the first (1st) anniversary of the preceding year's
annual meeting; PROVIDED, HOWEVER, that in the event that the
date of the annual meeting is more than thirty (30) days
before or more than sixty (60) days after such anniversary
date, notice by the Stockholder to be timely must be so
delivered not earlier than the close of business on the
ninetieth (90th) day prior to such annual meeting and not
later than the close of business on the later of the sixtieth
(60th) day prior to such annual meeting or the tenth (10th)
day following the day on which public announcement of the date
of such meeting is first made by the Corporation. In no event
shall the public announcement of an adjournment of an annual
meeting commence a new time period for the giving of a
Stockholders's notice as described above. Such Stockholder's
notice shall set forth:
(A) as to each person whom the Stockholder proposes to
nominate for election or reelection as a Director all
information relating to such person that is required to
be disclosed in solicitations of proxies for election of
Directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") and Rule 14a-11 thereunder (including
such person's written consent to being named in the
proxy statement as a nominee and to serving as a
Director if elected);
(B) as to any other business that the Stockholder
proposes to bring before the meeting, a brief
description of the business desired to be brought before
the meeting, the reasons for conducting such business at
the meeting and any material interest in such business
of such Stockholder and the beneficial owner, if any, on
whose behalf the proposal is made; and
(C) as to the Stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination
or proposal is made (1) the name and address of such
Stockholder, as they appear on the Corporations's books,
and of such beneficial owner and (2) the class and
number of shares of the Corporation which are owned
beneficially and of record by such Stockholder and such
beneficial owner.
-2-
<PAGE>
(iii) Notwithstanding anything in the second sentence of
Section 3(a)(ii) of this ARTICLE I to the contrary, in the
event that the number of Directors to be elected to the Board
of Directors is increased and there is no public announcement
by the Corporation naming all of the nominees for Director or
specifying the size of the increased Board of Directors at
least seventy (70) days prior to the first (1st) anniversary
of the preceding year's annual meeting, a Stockholder's notice
required by this Section shall also be considered timely, but
only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later
than the close of business on the tenth (10th) day following
the day on which such public announcement is first made by the
Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of Stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of Stockholders at which
Directors are to be elected pursuant to the Corporation's notice of
meeting (a) by or at the direction of the Board of Directors or (b)
provided that the Board of Directors has determined that Directors
shall be elected at such meeting, by any Stockholder who is a
Stockholder of record at the time of giving of notice provided for
in this Section 3, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 3.
In the event the Corporation calls a special meeting of Stockholders
for the purpose of electing one or more Directors to the Board of
Directors, any such Stockholder may nominate a person or persons (as
the case may be), for election to such positions(s) as specified in
the Corporation's notice of meeting, if the Stockholder's notice
required by Section 3(a)(ii) of this ARTICLE I shall be delivered to
the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the ninetieth (90th) day
prior to such special meeting and not later than the close of
business on the later of the sixtieth (60th) day prior to such
special meeting or the tenth (10th) day following the day on which
public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected
at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the
giving of a Stockholder's notice as described above.
-3-
<PAGE>
(c) GENERAL.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 3 shall be eligible to
serve as Directors and only such business shall be conducted
at a meeting of Stockholders as shall have been brought before
the meeting in accordance with the procedures set forth in
this Section 3. Except as otherwise provided by applicable
law, the Chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to
be brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth in
this Section 3 and, if any proposed nomination or business is
not in compliance with this Section 3, to declare that such
defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 3, "public announcement"
shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national
news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
3, a Stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this
Section 3. Nothing in this Section 3 shall be deemed to affect
any rights (A) of Stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act; or (B) of the holders of
any series of Common Stock or Preferred Stock or any
outstanding voting indebtedness to elect Directors under
specified circumstances.
Notwithstanding any other provisions of the Certificate of Incorporation
of the Corporation, and notwithstanding that a lesser percentage may be
permitted from time to time by applicable law, no provision of this Section 3 of
ARTICLE I may be altered, amended or repealed in any respect, nor may any
provision inconsistent therewith be adopted, unless such alteration, amendment,
repeal or adoption is approved by the affirmative vote of the holders of at
least 80 percent of the combined voting power of the then outstanding shares of
the Corporation's stock entitled to vote generally at elections of Directors
voting together as a single class, and at least 80 percent of each class, series
and issuance of combined voting power of the then outstanding shares of the
Corporation's stock entitled to vote generally at elections of Directors voting
separately as a class, series and issuance.
-4-
<PAGE>
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these Bylaws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these Bylaws.
SECTION 5. ADJOURNED MEETINGS. Whether or not a quorum shall be present in
person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. ORGANIZATION. Each annual and special meeting of Stockholders
held in person shall be presided over by a chairman, who shall have the
exclusive authority to, among other things, determine (a) whether business and
nominations have been properly brought before such meetings, and (b) the order
in which business and nominations properly brought before such meeting shall be
considered. The chairman of each annual and special meeting shall be the
Chairman of the Board of Directors, or such person as shall be appointed by the
resolution approved by the majority of the Board of Directors.
The Secretary of the Corporation shall act as Secretary of all meetings of
the stockholders; but in the absence of the Secretary, the Chairman may appoint
any person to act as Secretary of the meeting. It shall be the duty of the
Secretary to prepare and make, at least ten (10) days before every
-5-
<PAGE>
meeting of stockholders, a complete list of stockholders entitled to vote at
such meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting or, if
not so specified, at the place where the meeting is to be held, for the ten (10)
days next preceding the meeting, to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, and shall be
produced and kept at the time and place of the meeting during the whole time
thereof and subject to the inspection of any stockholder who may be present.
SECTION 7. VOTING. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot. Except
as otherwise provided by law or by the Certificate of Incorporation, Directors
shall be elected by a plurality of the votes cast at a meeting of stockholders
by the stockholders entitled to vote in the election and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of stockholders by the
stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. INSPECTORS. When required by law or directed by the presiding
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided at any meeting of the stockholders by two or more Inspectors who may
be appointed by the Board of Directors before the meeting, or if not so
appointed, shall be appointed by the presiding officer at the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation of the Corporation, prior to a firm commitment
underwritten public offering of the
-6-
<PAGE>
Corporation's Common Stock in which gross proceeds equal or exceed $25 million
before deducting underwriters' discounts and other expenses of the offering (the
"Offering"), any action permitted or required by law, the Certificate of
Incorporation of the Corporation or these Bylaws to be taken at a meeting of
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the state of incorporation, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent, and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered in the manner required by this Section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the state of incorporation, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Prompt notice of the taking of corporation action without a meeting by
less than a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
Subsequent to the Offering, any action required or permitted to be taken
by the Stockholders must be effected at a duly called annual or special meeting
of Stockholders and may not be effected without such a meeting by any consent in
writing by such holders.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall,
except as hereinafter otherwise provided for filling vacancies or as otherwise
provided in the
-7-
<PAGE>
Certificate of Incorporation, be elected at the annual meeting of stockholders,
and shall hold office until their respective successors are elected and
qualified or until their earlier resignation or removal.
SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. Except as
otherwise provided in the Certificate of Incorporation, the stockholders may, at
any special meeting the notice of which shall state that it is called for that
purpose, remove, with or without cause, any Director and fill the vacancy;
provided that whenever any Director shall have been elected by the holders of
any class of stock of the Corporation voting separately as a class under the
provisions of the Certificate of Incorporation, such Director may be removed and
the vacancy filled only by the holders of that class of stock voting separately
as a class. Except as otherwise provided in the Certificate of Incorporation,
vacancies caused by any such removal and not filled by the stockholders at the
meeting at which such removal shall have been made, or any vacancy caused by the
death or resignation of any Director or for any other reason, and any newly
created directorship resulting from any increase in the authorized number of
Directors, may be filled by the affirmative vote of a majority of the Directors
then in office, although less than a quorum, and any Director so elected to fill
any such vacancy or newly created directorship shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. PLACE OF MEETING. The Board of Directors may hold its meetings
in such place or places in the State of Delaware or outside the State of
Delaware as the Board from time to time shall determine.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every Director at least
five (5) days before the first meeting held in pursuance thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman of the Board, the
Vice Chairman of the Board, the President or by any two of the Directors then in
office.
-8-
<PAGE>
Notice of the day, hour and place of holding of each special meeting shall
be given by mailing the same at least two (2) days before the meeting or by
causing the same to be transmitted by telegraph, cable or wireless at least one
day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these Bylaws may
be transacted at any special meeting, and an amendment of these Bylaws may be
acted upon if the notice of the meeting shall have stated that the amendment of
these Bylaws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these Bylaws.
SECTION 6. QUORUM. Subject to the provisions of Section 2 of this Article
II, a majority of the members of the Board of Directors in office (but, unless
the Board shall consist solely of one Director, in no case less than one-third
of the total number of Directors nor less than two Directors) shall constitute a
quorum for the transaction of business and the vote of the majority of the
Directors present at any meeting of the Board of Directors at which a quorum is
present shall be the act of the Board of Directors. If at any meeting of the
Board there is less than a quorum present, a majority of those present may
adjourn the meeting from time to time.
SECTION 7. ORGANIZATION. The Chairman of the Board, or in his absence, the
Vice Chairman of the Board, or in his absence, the President shall preside at
all meetings of the Board of Directors. In the absence of the Chairman of the
Board, the Vice Chairman of the Board and the President, a Chairman shall be
elected from the Directors present. The Secretary of the Corporation shall act
as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. COMMITTEE. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided by resolution
passed by a majority of the whole Board, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and the affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the
-9-
<PAGE>
Corporation or a revocation of a dissolution, or amending these Bylaws; and
unless such resolution, these Bylaws, or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
SECTION 9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by
the Certificate of Incorporation or by these Bylaws, the members of the Board of
Directors or any committee designated by the Board, may participate in a meeting
of the Board or such committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 10. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING. Unless
otherwise restricted by the Certificate of Incorporation or by these Bylaws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereto, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman
of the Board, a Vice Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 8 of this Article III. The Chairman of the Board, the Vice Chairman of
the Board, the President, one or more Vice Presidents, the Secretary and the
Treasurer shall be elected by the Board of Directors at its first meeting after
each annual meeting of the stockholders. The failure to hold such election shall
not of itself terminate the term of office of any officer. All officers shall
hold office at the pleasure of the Board of Directors. Any officer may resign at
any time upon written notice to the Corporation. Officers may, but need not, be
Directors. Any number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
-10-
<PAGE>
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these Bylaws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of
the Board shall be the chief executive officer of the Corporation and, subject
to the control of the Board of Directors, shall have general charge and control
of all its business and affairs and shall have all powers and shall perform all
duties incident to the office of Chairman of the Board. He shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors and
shall have such other powers and perform such other duties as may from time to
time be assigned to him by these Bylaws or by the Board of Directors.
SECTION 3. POWERS AND DUTIES OF THE VICE CHAIRMAN OF THE BOARD. The Vice
Chairman of the Board, in the absence of the Chairman of the Board, shall be the
chief executive officer of the Corporation and, subject to the control of the
Board of Directors and the Chairman of the Board, shall have general charge and
control of all its business and affairs and shall have all powers and shall
perform all duties incident to the office of Vice Chairman of the Board. In the
absence of the Chairman of the Board, he shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
to him by these Bylaws or by the Board of Directors or the Chairman of the
Board.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President shall be the
chief operating officer of the Corporation and, subject to the control of the
Board of Directors, the Chairman of the Board and the Vice Chairman of the
Board, shall have general charge and control of all its operations and shall
have all powers and shall perform all duties incident to the office of
President. In the absence of the Chairman of the Board and the Vice Chairman of
the Board, he shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors and shall have such other powers and perform
such other duties as may from time to time be assigned to him by these Bylaws or
by the Board of Directors, the Chairman of the Board or the Vice Chairman of the
Board.
SECTION 5. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice President
shall have all powers and shall perform all duties incident to the office of
Vice President and shall have such other powers and perform such other duties as
may from time to time be assigned to him by these Bylaws
-11-
<PAGE>
or by the Board of Directors, the Chairman of the Board, the Vice Chairman of
the Board or the President.
SECTION 6. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; he shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours; and whenever required by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or
the President shall render statements of such accounts; and he shall have all
powers and shall perform all duties incident to the office of Secretary and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned to him by these Bylaws or by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board or the
President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into his hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositaries as the Board of Directors may
designate; he shall sign all receipts and vouchers for payments made to the
Corporation; he shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or
the President shall render statements of such accounts; he shall, at all
reasonable times, exhibit his books and accounts to any Director of the
Corporation upon application at the office of the Corporation during business
hours; and he shall have all powers and he shall perform all duties incident to
the office of Treasurer and shall also have such other powers and shall perform
such other duties as may from time to time be assigned to him by these Bylaws or
by the Board of Directors, the Chairman of the Board, the Vice Chairman of the
Board or the President.
SECTION 8. ADDITIONAL OFFICERS. The Board of Directors may from time to
time elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them
-12-
<PAGE>
by the Board of Directors, the Chairman of the Board, the Vice Chairman of the
Board or the President.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties assigned to the Secretary.
SECTION 9. GIVING OF BOND BY OFFICERS. All officers of the Corporation, if
required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 10. VOTING UPON STOCKS. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board, the
President or any Vice President shall have full power and authority on behalf of
the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meeting of stockholders of any
corporation in which the Corporation may hold stock, and at any such meeting
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons.
SECTION 11. COMPENSATION OF OFFICERS. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. NATURE OF INDEMNITY. The Corporation shall 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, by reason of the fact that he is or was or has
agreed to become a Director or officer of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a Director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, and may indemnify any person who was or is a party or is
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that he is or was or has agreed to become an employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees),
-13-
<PAGE>
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or on his behalf in connection with such action, suit or proceeding and
any appeal therefrom, 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; except that in the case of an action or suit
by or in the right of the Corporation to procure a judgment in its favor (1)
such indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) 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 Delaware 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 Delaware Court of Chancery or
such other court shall deem proper.
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 2. SUCCESSFUL DEFENSE. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article IV 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 3. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1. Any 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.
-14-
<PAGE>
SECTION 4. ADVANCE PAYMENT OF EXPENSES. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall 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 the 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 this Article IV.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate. The
Board of Directors may authorize the Corporation's legal counsel to represent
such Director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.
SECTION 5. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which those indemnified 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, and shall 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. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
SECTION 6. SEVERABILITY. If this Article IV or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
-15-
<PAGE>
SECTION 7. SUBROGATION. In the event of payment of indemnification to a
person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
SECTION 8. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable
under this Article IV to make any payment in connection with any claim made
against a person described in Section 1 of this Article IV to the extent such
person has otherwise received payment (under any insurance policy, bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE V
STOCK-SEAL-FISCAL YEAR
SECTION 1. CERTIFICATES FOR SHARES OF STOCK. The certificates for shares
of stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed by the Chairman of the Board, the Vice Chairman
of the Board, the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall not be
valid unless so signed.
In case any officer or officers who shall have signed any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be such
officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
-16-
<PAGE>
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he shall file in the office of the Corporation
an affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. TRANSFER OF SHARES. Shares of stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof, in person or
by his attorney duly authorized in writing, upon surrender and cancellation of
certificates for the number of shares of stock to be transferred, except as
provided in Section 2 of this Article IV.
SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting prior to, or more than ten (10) days after,
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is delivered to
-17-
<PAGE>
the Corporation; and the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. CORPORATE SEAL. The Board of Directors shall provide a suitable
seal, containing the name of the Corporation, which seal shall be kept in the
custody of the Secretary. A duplicate of the seal may be kept and be used by any
officer of the Corporation designated by the Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board or the President.
SECTION 8. FISCAL YEAR. The fiscal year of the Corporation shall be such
fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. CHECKS, NOTES, ETC. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. LOANS. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank,
-18-
<PAGE>
trust company or other institution or from any firm, corporation or individual,
and for such loans and advances may make, execute and deliver promissory notes,
bonds or other evidences of indebtedness of the Corporation. When authorized so
to do, any officer or agent of the Corporation may pledge, hypothecate or
transfer, as security for the payment of any and all loans, advances,
indebtedness and liabilities of the Corporation, any and all stocks, securities
and other personal property at any time held by the Corporation, and to that end
may endorse, assign and deliver the same. Such authority may be general or
confined to specific instances.
SECTION 3. CONTRACTS. Except as otherwise provided in these Bylaws or by
law or as otherwise directed by the Board of Directors, the Chairman of the
Board, the Vice Chairman of the Board, the President or any Vice President shall
be authorized to execute and deliver, in the name and on behalf of the
Corporation, all agreements, bonds, contracts, deeds, mortgages, and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and the seal of the Corporation, if appropriate, shall be affixed
thereto by any of such officers or the Secretary or an Assistant Secretary. The
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board,
the President or any Vice President designated by the Board of Directors, the
Chairman of the Board, the Vice Chairman of the Board or the President may
authorize any other officer, employee or agent to execute and deliver, in the
name and on behalf of the Corporation, agreements, bonds, contracts, deeds,
mortgages, and other instruments, either for the Corporation's own account or in
a fiduciary or other capacity, and, if appropriate, to affix the seal of the
Corporation thereto. The grant of such authority by the Board or any such
officer may be general or confined to specific instances.
SECTION 4. WAIVERS OF NOTICE. Whenever any notice whatever is required to
be given by law, by the Certificate of Incorporation or by these Bylaws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
SECTION 5. OFFICES OUTSIDE OF DELAWARE. Except as otherwise required by
the laws of the State of Delaware, the Corporation may have an office or offices
and keep its books, documents and papers outside of the State of Delaware at
such place or places as from time to time may be determined by the Board of
Directors, the Chairman of the Board or the Vice Chairman of the Board.
-19-
<PAGE>
ARTICLE VII
AMENDMENTS
The Board of Directors shall have the power to adopt, amend and repeal
from time to time Bylaws of the Corporation, subject to the right of the
stockholders entitled to vote with respect thereto to amend or repeal such
Bylaws as adopted or amended by the Board of Directors; provided, however, that
unless a different percentage is called for in a particular provision hereof,
any amendment or repeal of the Bylaws of the Corporation by the stockholders
shall be by a vote of the holders of at least 66 2/3 percent of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal.
-20-
EXHIBIT 10.1
LANDCARE USA, INC.
1998 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of this 1998 Long-Term Incentive Plan (the"Plan")
of LandCARE USA, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company and its stockholders by providing a means to attract,
retain and reward executive officers and other key employees and consultants of
and service providers to the Company and its subsidiaries (including consultants
and others providing services of substantial value) and to enable such persons
to acquire or increase a proprietary interest in the Company, thereby promoting
a closer identity of interests between such persons and the Company's
stockholders.
2. DEFINITIONS. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards are set forth in Section 6 of the Plan. Such awards, together
with any other right or interest granted to a Participant under the Plan, are
termed "Awards." For purposes of the Plan, the following additional terms shall
be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company, acquires directly or indirectly the Beneficial Ownership (as
defined in Section 13(d) of the Exchange Act) of any voting security of the
Company and immediately after such acquisition such Person is, directly or
indirectly, the Beneficial Owner of voting securities representing 50 percent or
more of the total voting power of all of the then-outstanding voting securities
of the Company;
(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 the
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
<PAGE>
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 the Company approve a merger,
consolidation, recapitalization or reorganization of the Company, or 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 percent 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
percent of the holders of outstanding voting securities of the Company
immediately prior to the transaction, with the voting power of each such
continuing holder relative to other such continuing holders not substantially
altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e., 50
percent or more of the total assets of the Company).
(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(f) "Committee" means a Compensation Committee composed solely of two or
more Non-Employee Directors as defined in Rule 16b-3, or the full Board.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include rules thereunder and successor provisions and rules thereto.
(h) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, PROVIDED, HOWEVER, that (i) if the Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
Fair Market Value of such Stock on a given date shall be based upon the last
sales price or, if unavailable, the average of the closing bid and asked prices
per share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on the next preceding date on which there was trading or
quotation) as reported in the WALL STREET JOURNAL (or other reporting service
approved by the Committee), (ii) the "Fair Market Value" of Stock subject to
Options granted effective upon commencement of the Initial Public Offering shall
be the Initial Public Offering price of the shares so issued and sold in the
Initial Public Offering, as set forth in the first final prospectus
-2-
<PAGE>
used in such offering (the provisions of clause (i) notwithstanding) and (iii)
the "Fair Market Value" of Stock prior to the date of the Initial Public
Offering shall be as determined by the Board of Directors.
(i) "Initial Public Offering" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the Securities
and Exchange Commission in compliance with the provisions of the Securities Act
of 1933, as amended.
(j) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(k) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(l) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(m) "Stock" means the Common Stock, $.01 par value, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
such person;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of any
Award granted under the Plan (including, but not limited to, any exercise price,
grant price or purchase price, any restriction or condition, any schedule for
lapse of restrictions or conditions relating to transferability or forfeiture,
exercisability or settlement of an Award, and waivers or accelerations thereof,
performance conditions relating to an Award (including performance conditions
relating to Awards not intended to be governed by Section 7(e) and waivers and
modifications thereof), based in each case on such considerations as the
Committee shall determine), and all other matters to be determined in connection
with an Award;
-3-
<PAGE>
(iv) to determine whether, to what extent and under what
circumstances an Award may be settled, or the exercise price of an Award may be
paid, in cash, Stock, other Awards, or other property, or an Award may be
canceled, forfeited, or surrendered;
(v) to determine whether, to what extent and under what
circumstances cash, Stock, other Awards or other property payable with respect
to an Award will be deferred either automatically, at the election of the
Committee or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii)to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any Award,
rules and regulations, Award Agreement or other instrument hereunder; and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Committee shall
have sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, subsidiaries of the Company, Participants, any
person claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action not consistent with, its prior action. If not specified in
the Plan, the time at which the Committee must or may make any determination
shall be determined by the Committee, and any such determination may thereafter
by modified by the Committee (subject to Section 8(e)). The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee. The
Committee may delegate to officers or managers of the Company or any subsidiary
of the Company the authority, subject to such terms as the Committee shall
determine, to perform administrative functions and, with respect to Participants
not subject to Section 16 of the Exchange Act, to perform such other functions
as the Committee may determine, to the extent permitted under Rule 16b-3, if
applicable, and other applicable law.
-4-
<PAGE>
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
its behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
4. STOCK SUBJECT TO PLAN.
(a) AMOUNT OF STOCK RESERVED. The total amount of Stock that may be
subject to outstanding awards, determined immediately after the grant of any
Award, shall not exceed the greater of 2,00,000 shares of Stock or 15% of the
total number of shares of Stock outstanding at the time of such grant.
Notwithstanding the foregoing, the number of shares that may be delivered upon
the exercise of ISOs shall not exceed 500,000, subject in each case to
adjustment as provided in Section 4(c), and the number of shares that may be
delivered as Restricted Stock and Deferred Stock (other than pursuant to an
Award granted under Section 7(e)) shall not in the aggregate exceed 500,000,
provided, however, that shares subject to ISOs, Restricted Stock or Deferred
Stock Awards shall not be deemed delivered if such Awards are forfeited, expire
or otherwise terminate without delivery of shares to the Participant. To the
extent that an Award is only to be paid in cash or is paid in cash, any shares
of Stock subject to such Award shall again be available for the grant of an
Award. Any shares of Stock delivered pursuant to an Award may consist, in whole
or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's Account.
(b) ANNUAL PER-PARTICIPANT LIMITATIONS. During any calendar year, no
Participant may be granted Awards that may be settled by delivery of more than
250,000 shares of Stock, subject to adjustment as provided in Section 4(c). In
addition, with respect to Awards that may be settled in cash (in whole or in
part), no Participant may be paid during any calendar year cash amounts relating
to such Awards that exceed the greater of the Fair Market Value of the number of
shares of Stock set forth in the preceding sentence at the date of grant or the
date of settlement of Award. This provision sets forth two separate limitations,
so that Awards that may be settled solely by delivery of Stock will not operate
to reduce the amount of cash-only Awards, and vice versa; nevertheless, Awards
that may be settled in Stock or cash must not exceed either limitation.
(c) ADJUSTMENTS. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Stock or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange
-5-
<PAGE>
of Stock or other securities, liquidation, dissolution, or other similar
corporate transaction or event, affects the Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of
Participants under the Plan, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and kind of shares of Stock
reserved and available for Awards under Section 4(a), including shares reserved
for the ISOs and Restricted and Deferred Stock, (ii) the number and kind of
shares of Stock specified in the Annual Per-Participant Limitations under
Section 4(b), (iii) the number and kind of shares of outstanding Restricted
Stock or other outstanding Award in connection with which shares have been
issued, (iv) the number and kind of shares that may be issued in respect of
other outstanding Awards and (v) the exercise price, grant price or purchase
price relating to any Award (or, if deemed appropriate, the Committee may make
provision for a cash payment with respect to any outstanding Award). In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, events described in the
preceding sentence) affecting the Company or any subsidiary or the financial
statements of the Company or any subsidiary, or in response to changes in
applicable laws, regulations, or accounting principles. The foregoing
notwithstanding, no adjustments shall be authorized under this Section 4(c) with
respect to ISOs or SARs in tandem therewith to the extent that such authority
would cause the Plan to fail to comply with Section 422(b)(1) of the Code, and
no such adjustment shall be authorized with respect to Options, SARs or other
Awards subject to Section 7(e) to the extent that such authority would cause
such Awards to fail to qualify as "qualified performance-based compensation"
under Section 162(m)(4)(C) of the Code.
5. ELIGIBILITY. Executive officers and other key employees of the Company
and its subsidiaries, including any director or officer who is also such an
employee, and persons who provide consulting or other services to the Company
deemed by the Committee to be of substantial value to the Company, are eligible
to be granted Awards under the Plan. In addition, a person who has been offered
employment by the Company or its subsidiaries is eligible to be granted an Award
under the Plan, provided that such Award shall be canceled if such person fails
to commence such employment, and no payment of value may be made in connection
with such Award until such person has commenced such employment. The foregoing
notwithstanding, no member of the Committee shall be eligible to be granted
Awards under the Plan.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as provided in Section 6(f), 6(h), or 7(a),
or to the extent required to comply with requirements of the Delaware General
Corporation Law that lawful
-6-
<PAGE>
consideration be paid for Stock, only services may be required as consideration
for the grant (but not the exercise) of any Award.
(b) OPTIONS. The Committee is authorized to grant Options (including
"reload" options automatically granted to offset specified exercises of Options)
on the following terms and conditions ("Options"):
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee; PROVIDED,
HOWEVER, that, except as provided in Section 7(a), such exercise price shall be
not less than the Fair Market Value of a share on the date of grant of such
Option.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the form
of such payment, including, without limitation, cash, Stock, other Awards or
awards granted under other Company plans or other property (including notes or
other contractual obligations of Participants to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by which Stock will be delivered or deemed
to be delivered to Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code, including but
not limited to the requirement that no ISO shall be granted more than ten years
after the effective date of the Plan. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs shall be interpreted,
amended, or altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify either the Plan or any ISO under Section
422 of the Code, unless requested by the affected Participant.
(iv) TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee, upon termination of a Participant's employment with the Company and
its subsidiaries, such Participant may exercise any Options during the 90 days
period immediately following the date of such termination of employment, but
only to the extent such Option was exercisable immediately prior to such
termination of employment. Notwithstanding the foregoing, if the Committee
determines that such termination is for cause, all Options held by the
Participant shall terminate as of the termination of employment.
(c) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant SARs
on the following terms and conditions ("SARs"):
-7-
<PAGE>
(i) RIGHT TO PAYMENT. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one share of Stock on the date of exercise (or, if the
Committee shall so determine in the case of any such right other than one
related to an ISO, the Fair Market Value of one share at any time during a
specified period before or after the date of exercise), over (B) the grant price
of the SAR as determined by the Committee as of the date of grant of the SAR,
which, except as provided in Section 7(a), shall be not less than the Fair
Market Value of one share of Stock on the date of grant.
(ii) OTHER TERMS. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method by
which Stock will be delivered or deemed to be delivered to Participants, whether
or not an SAR shall be in tandem with any other Award, and any other terms and
conditions of any SAR. Limited SARs that may only be exercised upon the
occurrence of a Change in Control may be granted on such terms, not inconsistent
with this Section 6(c), as the Committee may determine. Limited SARs may be
either freestanding or in tandem with other Awards.
(d) RESTRICTED STOCK. The Committee is authorized to grant Restricted
Stock on the following terms and conditions ("Restricted Stock"):
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as the
Committee may impose, which restrictions may lapse separately or in combination
at such times, under such circumstances, in such installments, or otherwise, as
the Committee may determine. Except to the extent restricted under the terms of
the Plan and any Award Agreement relating to the Restricted Stock, a Participant
granted Restricted Stock shall have all of the rights of a stockholder
including, without limitation, the right to vote Restricted Stock or the right
to receive dividends thereon.
(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be forfeited
and reacquired by the Company; PROVIDED, HOWEVER, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Restricted Stock will be waived in whole or in part in the event of termination
resulting from specified causes.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates may bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Restricted Stock, the
Company
-8-
<PAGE>
may retain physical possession of the certificate, and the Participant shall
have delivered a stock power to the Company, endorsed in blank, relating to the
Restricted Stock.
(iv) DIVIDENDS. Dividends paid on Restricted Stock shall be either
paid at the dividend payment date in cash or in shares of unrestricted Stock
having a Fair Market Value equal to the amount of such dividends, or the payment
of such dividends shall be deferred and/or the amount or value thereof
automatically reinvested in additional Restricted Stock, other Awards, or other
investment vehicles, as the Committee shall determine or permit the Participant
to elect. Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Stock with respect
to which such Stock or other property has been distributed, unless otherwise
determined by the Committee.
(e) DEFERRED STOCK. The Committee is authorized to grant Deferred Stock
subject to the following terms and conditions ("Deferred Stock"):
(i) AWARD AND RESTRICTIONS. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock by
the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such restrictions
as the Committee may impose, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times, separately or
in combination, in installments or otherwise, as the Committee may determine.
(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable deferral period or portion
thereof to which forfeiture conditions apply (as provided in the Award Agreement
evidencing the Deferred Stock), all Deferred Stock that is at that time subject
to such forfeiture conditions shall be forfeited; PROVIDED, HOWEVER, that the
Committee may provide, by rule or regulation or in any Award Agreement, or may
determine in any individual case, that restrictions or forfeiture conditions
relating to Deferred Stock will be waived in whole or in part in the event of
termination resulting from specified causes.
(f) BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The
Committee is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of Company obligations to pay cash under other plans or
compensatory arrangements. Stock or Awards granted hereunder shall be subject to
such other terms as shall be determined by the Committee.
(g) DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents entitling the Participant to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock ("Dividend
-9-
<PAGE>
Equivalents"). Dividend Equivalents may be awarded on a free-standing basis or
in connection with another Award. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to have
been reinvested in additional Stock, Awards or other investment vehicles, and
subject to such restrictions on transferability and risks of forfeiture, as the
Committee may specify.
(h) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries ("Other Stock Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock issued
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS.
Awards granted under the Plan may, in the discretion of the Committee, be
granted either alone or in addition to, in tandem with or in substitution for
any other Award granted under the Plan or any award granted under any other plan
of the Company, any subsidiary or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive payment
from the Company or any subsidiary. Awards granted in addition to or in tandem
with other Awards or awards may be granted either as of the same time as or a
different time from the grant of such other Awards or awards.
(b) TERM OF AWARDS. The term of each Award shall be for such period as may
be determined by the Committee; PROVIDED, HOWEVER, that in no event shall the
term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a subsidiary
upon the grant, exercise or settlement of an Award may be made in such forms as
the Committee shall determine,
-10-
<PAGE>
including, without limitation, cash, Stock, other Awards or other property, and
may be made in a single payment or transfer, in installments or on a deferred
basis. Such payments may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalents in respect of installment or deferred
payments denominated in Stock.
(d) LOAN PROVISIONS. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a loan
or loans to a Participant with respect to the exercise of any Option or other
payment in connection with any Award, including the payment by a Participant of
any or all federal, state or local income or other taxes due in connection with
any Award. Subject to such limitations, the Committee shall have full authority
to decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the loan
is to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(e) PERFORMANCE-BASED AWARDS. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of performance conditions as a performance-based Award subject to
this Section 7(e), in order to qualify such Award as "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. The performance objectives for an Award subject to this
Section 7(e) shall consist of one or more business criteria and a targeted level
or levels of performance with respect to such criteria, as specified by the
Committee but subject to this Section 7(e). Performance objectives shall be
objective and shall otherwise meet the requirements of Section 162(m)(4)(C) of
the Code. Business criteria used by the Committee in establishing performance
objectives for Awards subject to this Section 7(e) shall be selected exclusively
from among the following:
(1) Annual return on capital;
(2) Annual earnings per share;
(3) Annual cash flow provided by operations;
(4) Changes in annual revenues; and/or
-11-
<PAGE>
(5) Strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market penetration, geographic
business expansion goals, cost targets, and goals relating to acquisitions or
divestitures.
The levels of performance required with respect to such business criteria
may be expressed in absolute or relative levels. Achievement of performance
objectives with respect to such Awards shall be measured over a period of not
less than one year nor more than five years, as the Committee may specify.
Performance objectives may differ for such Awards to different Participants. The
Committee shall specify the weighting to be given to each performance objective
for purposes of determining the final amount payable with respect to any such
Award. The Committee may, in its discretion, reduce the amount of a payout
otherwise to be made in connection with an Award subject to this Section 7(e),
but may not exercise discretion to increase such amount, and the Committee may
consider other performance criteria in exercising such discretion. All
determinations by the Committee as to the achievement of performance objectives
shall be in writing. The Committee may not delegate any responsibility with
respect to an Award subject to this Section 7(e).
(f) ACCELERATION UPON A CHANGE OF CONTROL. Notwithstanding anything
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and restrictions relating to an Award,
including limitations on exercisability, risks of forfeiture and conditions and
restrictions requiring the continued performance of services or the achievement
of performance objectives with respect to the exercisability or settlement of
such Award, shall immediately lapse upon a Change in Control.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system or
any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) LIMITATIONS ON TRANSFERABILITY. Awards and other rights under the Plan
will not be transferable by a Participant except by will or the laws of descent
and distribution or to a Beneficiary in the event of the Participant's death,
and, if exercisable, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative;
-12-
<PAGE>
PROVIDED, HOWEVER, that such Awards and other rights (other than ISOs and SARs
in tandem therewith) may be transferred to one or more transferees during the
lifetime of the Participant, and may be exercised by such transferees in
accordance with the terms of such Award consistent with the registration of the
offer and sale of Stock on Form S-8 or Form S-3 or a successor registration form
of the Securities and Exchange Commission, and permitted by the Committee.
Awards and other rights under the Plan may not be pledged, mortgaged,
hypothecated or otherwise encumbered, and shall not be subject to the claims of
creditors.
(c) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan
nor any action taken hereunder shall be construed as giving any employee or
other person the right to be retained in the employ or service of the Company or
any of its subsidiaries, nor shall it interfere in any way with the right of the
Company or any of its subsidiaries to terminate any employee's employment or
other person's service at any time.
(d) TAXES. The Company and any subsidiary is authorized to withhold from
any Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award or any payroll or other payment to
a Participant amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any such action shall be subject to the approval of the Company's stockholders
at or before the next annual meeting of stockholders for which the record date
is after such Board action if such stockholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to
him. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any Award
Agreement relating thereto; PROVIDED, HOWEVER, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under such Award.
-13-
<PAGE>
(f) NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. No Participant or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Participants and employees. No
Award shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any Award shall give any
such Participant any rights that are greater than those of a general creditor of
the Company; PROVIDED, HOWEVER, that the Committee may authorize the creation of
trusts or make other arrangements to meet the Company's obligations under the
Plan to deliver cash, Stock, other Awards, or other property pursuant to any
Award, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
(i) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the Company
that employee Options, SARs and other Awards designated as Awards subject to
Section 7(e) shall constitute "qualified performance-based compensation" within
the meaning of Code Section 162(m). Accordingly, if any provision of the Plan or
any Award Agreement relating to such an Award does not comply or is inconsistent
with the requirements of Code Section 162(m), such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements, and
no provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable in
connection with any such Award upon attainment of the performance objectives.
(k) GOVERNING LAW. The validity, construction and effect of the Plan, any
rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with
-14-
<PAGE>
the laws of the State of Delaware, without giving effect to principles of
conflicts of laws, and applicable federal law.
(l) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective as
of the date of its adoption by the Board, subject to stockholder approval prior
to the commencement of the Initial Public Offering, and shall continue in effect
until terminated by the Board.
-15-
EXHIBIT 10.2
LANDCARE USA, INC.
1998 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. PURPOSE. The purpose of this 1998 Non-Employee Directors' Stock Plan
(the "Plan") of LandCARE USA, Inc., a Delaware corporation (the "Company"), is
to advance the interests of the Company and its stockholders by providing a
means to attract and retain highly qualified persons to serve as non-employee
directors of the Company and to enable such persons to acquire or increase a
proprietary interest in the Company, thereby promoting a closer identity of
interests between such persons and the Company's stockholders.
2. DEFINITIONS. In addition to terms defined elsewhere in the Plan, the
following are defined terms under the Plan:
(a) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(b) "Deferred Share" means a credit to a Participant's deferral account
under Section 7 which represents the right to receive one Share upon settlement
of the deferral account. Deferral accounts, and Deferred Shares credited
thereto, are maintained solely as bookkeeping entries by the Company evidencing
unfunded obligations of the Company.
(c) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
References to any provision of the Exchange Act shall be deemed to include rules
thereunder and successor provisions and rules thereto.
(d) "Fair Market Value" of a Share on a given date mean the last sales
price or, if last sales information is generally unavailable, the average of the
closing bid and asked prices per Share on such date (or, if there was no trading
or quotation in the stock on such date, on the next preceding date on which
there was trading or quotation) as reported in the WALL STREET JOURNAL;
PROVIDED, HOWEVER, that the "Fair Market Value" of a Share subject to Options
granted effective on the date on which the Company commences an Initial Public
Offering shall be the price of the shares so issued and sold, as set forth in
the first final prospectus used in such Initial Public Offering.
(e) "Initial Public Offering" means an initial public offering of shares
in a firm commitment underwriting registered with the Securities and Exchange
Commission in compliance with the provisions of the Securities Act of 1933, as
amended.
<PAGE>
(f) "Option" means the right, granted to a director under Section 6, to
purchase a specified number of Shares at the specified exercise price for a
specified period of time under the Plan. All Options will be non-qualified stock
options.
(g) "Participant" means a person who, as a non-employee director of the
Company, has been granted an Option or Deferred Shares which remain outstanding
or who has elected to be paid fees in the form of Shares or Deferred Shares
under the Plan.
(h) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(i) "Share" means a share of common stock, $.01 par value, of the Company
and such other securities as may be substituted for such Share or such other
securities pursuant to Section 8.
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as
provided in Section 8, the total number of Shares reserved and available for
issuance under the Plan is 250,000. Such Shares may be authorized but unissued
Shares, treasury Shares, or Shares acquired in the market for the account of the
Participant. For purposes of the Plan, Shares that may be purchased upon
exercise of an Option or delivered in settlement of Deferred Shares will not be
considered to be available after such Option has been granted or Deferred Share
credited, except for purposes of issuance in connection with such Option or
Deferred Share; PROVIDED, HOWEVER, that, if an Option expires for any reason
without having been exercised in full, the Shares subject to the unexercised
portion of such Option will again be available for issuance under the Plan.
4. ADMINISTRATION OF THE PLAN. The Plan will be administered by the Board
of Directors of the Company; PROVIDED, HOWEVER, that any action by the Board
relating to the Plan will be taken only if, in addition to any other required
vote, such action is approved by the affirmative vote of a majority of the
directors.
5. ELIGIBILITY.Each director of the Company who, on any date on which an
Option is to be granted under Section 6 or on which fees are to be paid which
could be received in the form of Shares or deferred in the form of Deferred
Shares under Section 7, is not an employee of the Company or any subsidiary of
the Company will be eligible, at such date, to be granted an Option under
Section 6 or receive fees in the form of Shares or defer fees in the form of
Deferred Shares under Section 7. No person other than those specified in this
Section 5 will be eligible to participate in the Plan.
6. OPTIONS. An Option to purchase 10,000 Shares, subject to adjustment as
provided in Section 8, will be automatically granted, (i) at the consummation of
the Initial Public
-2-
<PAGE>
Offering, to each person who is serving as a director of the Company at that
time or who becomes a director of the Company at that time and who is eligible
under Section 5 at that time, and thereafter (ii) at the effective date of
initial election to the Board of Directors, to each person so elected who is
eligible under Section 5 at that date. In addition, an Option to purchase 5,000
Shares, subject to adjustment as provided in Section 8, will be automatically
granted, at the close of business of each annual meeting of stockholders of the
Company, to each member of the Board of Directors who is eligible under Section
5 at the close of business of such annual meeting. Notwithstanding the
foregoing, any person who was automatically granted an Option to purchase 10,000
Shares at the effective date of initial election to the Board of Directors shall
not be automatically granted an Option to purchase 5,000 shares at the first
annual meeting of stockholders following such initial election if such annual
meeting takes place within three months of the effective date of such person's
initial election to the Board of Directors.
(a) EXERCISE PRICE. The exercise price per Share purchasable upon exercise
of an Option will be equal to 100% of the Fair Market Value of a Share on the
date of grant of the Option.
(b) OPTION EXPIRATION.A Participant's Option will expire at the earlier of
(i) 10 years after the date of grant or (ii) one year after the date the
Participant ceases to serve as a director of the Company for any reason.
(c) EXERCISABILITY. Each Option may be exercised commencing immediately
upon its grant.
(d) METHOD OF EXERCISE. A Participant may exercise an Option, in whole or
in part, at such time as it is exercisable and prior to its expiration, by
giving written notice of exercise to the Secretary of the Company, specifying
the Option to be exercised and the number of Shares to be purchased, and paying
in full the exercise price in cash (including by check) or by surrender of
Shares already owned by the Participant having a Fair Market Value at the time
of exercise equal to the exercise price, or by a combination of cash and Shares.
7. RECEIPT OF SHARES OR DEFERRED SHARES IN LIEU OF FEES. Each
director of the Company may elect to be paid fees, in his or her capacity as a
director (including annual retainer fees for service on the Board, fees for
service on a Board committee, fees for service as chairman of a Board committee,
and any other fees paid to directors) in the form of Shares or Deferred Shares
in lieu of cash payment of such fees, if such director is eligible to do so
under Section 5 at the date any such fee is otherwise payable. If so elected,
payment of fees in the form of Shares or Deferred Shares shall be made in
accordance with this Section 7.
(a) ELECTIONS. Each director who elects to be paid fees for a given
calendar year in the form of Shares or to defer such payment of fees in the form
of Deferred Shares for such
-3-
<PAGE>
year must file an irrevocable written election with the Secretary of the Company
no later than December 31 of the year preceding such calendar year; PROVIDED,
HOWEVER, that any newly elected or appointed director may file an election for
any year not later than 30 days after the date such person first became a
director, and a director may file an election for the year in which the Plan
became effective not later than 30 days after the date of effectiveness. An
election by a director shall be deemed to be continuing and therefore applicable
to subsequent Plan years unless the director revokes or changes such election by
filing a new election form by the due date for such form specified in this
Section 7(a). The election must specify the following:
(i) A percentage of fees to be received in the form of Shares or
deferred in the form of Deferred Shares under the Plan; and
(ii) In the case of a deferral, the period or periods during which
settlement of Deferred Shares will be deferred (subject to such
limitations as may be specified by counsel to the Company).
Certain elections may not result in receipt of Shares or deferral of fees
as Deferred Shares.
(b) PAYMENT OF FEES IN THE FORM OF SHARES. At any date on which fees
are payable to a Participant who has elected to receive such fees in the form of
Shares, the Company will issue to such Participant, or to a designated third
party for the account of such Participant, a number of Shares having an
aggregate Fair Market Value at that date equal to the fees, or as nearly as
possible equal to the fees (but in no event greater than the fees), that would
have been payable at such date but for the Participant's election to receive
Shares in lieu thereof. If the Shares are to be credited to an account
maintained by the Participant and to the extent reasonably practicable without
requiring the actual issuance of fractional Shares, the Company shall cause
fractional Shares to be credited to the Participant's account. If fractional
Shares are not so credited, any part of the Participant's fees not paid in the
form of whole Shares will be payable in cash to the Participant (either paid
separately or included in a subsequent payment of fees, including a subsequent
payment of fees subject to an election under this Section 7).
(c) DEFERRAL OF FEES IN THE FORM OF DEFERRED SHARES. The Company
will establish a deferral account for each Participant who elects to defer fees
in the form of Deferred Shares under this Section 7. At any date on which fees
are payable to a Participant who has elected to defer fees in the form of
Deferred Shares, the Company will credit such Participant's deferral account
with a number of Deferred Shares equal to the number of Shares having an
aggregate Fair Market Value at that date equal to the fees that otherwise would
have been payable at such date but for the Participant's election to defer
receipt of such fees in the form of Deferred Shares. The amount of Deferred
Shares so credited shall include fractional Shares calculated to at least three
decimal places.
-4-
<PAGE>
(d) CREDITING OF DIVIDEND EQUIVALENTS. Whenever dividends are paid or
distributions made with respect to Shares, a Participant to whom Deferred Shares
are then credited in a deferral account shall be entitled to receive, as
dividend equivalents, an amount equal in value to the amount of the dividend
paid or property distributed on a single Share multiplied by the number of
Deferred Shares (including any fractional Share) credited to his or her deferral
account as of the record date for such dividend or distribution. Such dividend
equivalents shall be credited to the Participant's deferral account as a number
of Deferred Shares determined by dividing the aggregate value of such dividend
equivalents by the Fair Market Value of a Share at the payment date of the
dividend or distribution.
(e) SETTLEMENT OF DEFERRED SHARES.The Company will settle the
Participant's deferral account by delivering to the Participant (or his or her
beneficiary) a number of Shares equal to the number of whole Deferred Shares
then credited to his or her deferral account (or a specified portion in the
event of any partial settlement), together with cash in lieu of any fractional
Shares remaining at a time that less than one whole Deferred Share is credited
to such deferral account. Such settlement shall be made within 30 days of the
Participant's resignation from the Board of Directors of the Company.
(f) NONFORFEITABILITY.The interest of each Participant in any fees paid in
the form of Shares or Deferred Shares (and any deferral account relating
thereto) at all times will be nonforfeitable.
8. ADJUSTMENT PROVISIONS.
(a) CORPORATE TRANSACTIONS AND EVENTS. In the event any dividend or
other distribution (whether in the form of cash, Shares or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, exchange of Shares or other
securities of the Company, extraordinary dividend (whether in the form of cash,
Shares, or other property), liquidation, dissolution, or other similar corporate
transaction or event affects the Shares such that an adjustment is appropriate
in order to prevent dilution or enlargement of each Participant's rights under
the Plan, then an adjustment shall be made, in a manner that is proportionate to
the change to the Shares and otherwise equitable, in (i) the number and kind of
Shares remaining reserved and available for issuance under Section 3, (ii) the
number and kind of Shares to be subject to each automatic grant of an Option
under Section 6, (iii) the number and kind of Shares issuable upon exercise of
outstanding Options, and/or the exercise price per Share thereof (provided that
no fractional Shares will be issued upon exercise of any Option), (iv) the kind
of Shares to be issued in lieu of fees under Section 7, and (v) the number and
kind of Shares to be issued upon settlement of Deferred Shares under Section 7.
In addition, the Board of Directors is authorized to make such adjustments in
recognition of unusual or non-recurring events (including, without limitation,
events described in the preceding sentence) affecting the Company or any
-5-
<PAGE>
subsidiary or the financial statements of the Company or any subsidiary, or in
response to changes in applicable laws, regulations or accounting principles.
The foregoing notwithstanding, no adjustment may be made hereunder except as
will be necessary to maintain the proportionate interest of the Participant
under the Plan and to preserve, without exceeding, the value of outstanding
Options and potential grants of Options and the value of outstanding Deferred
Shares.
(b) INSUFFICIENT NUMBER OF SHARES.If at any date an insufficient number of
Shares are available under the Plan for the automatic grant of Options or the
receipt of fees in the form of Shares or deferral of fees in the form of
Deferred Shares at that date, Options will first be automatically granted
proportionately to each eligible director, to the extent Shares are then
available (provided that no fractional Shares will be issued upon exercise of
any Option) and otherwise as provided under Section 6, and then, if any Shares
remain available, fees shall be paid in the form of Shares or deferred in the
form of Deferred Shares proportionately among directors then eligible to
participate to the extent Shares are then available and otherwise as provided
under Section 7.
9. CHANGES TO THE PLAN. The Board of Directors may amend, alter, suspend,
discontinue, or terminate the Plan or authority to grant Options or pay fees in
the form of Shares or Deferred Shares under the Plan without the consent of
stockholders or Participants, except that any amendment or alteration will be
subject to the approval of the Company's stockholders at or before the next
annual meeting of stockholders for which the record date is after the date of
such Board action if such stockholder approval is required by any federal or
state law or regulation or the rules of any stock exchange or automated
quotation system as then in effect, and the Board may otherwise determine to
submit other such amendments or alterations to stockholders for approval;
PROVIDED, HOWEVER, that, without the consent of an affected Participant, no such
action may materially impair the rights of such Participant with respect to any
previously granted Option or any previous payment of fees in the form of Shares
or Deferred Shares.
10. GENERAL PROVISIONS.
(a) AGREEMENTS. Options, Deferred Shares, and any other right or
obligation under the Plan may be evidenced by agreements or other documents
executed by the Company and the Participant incorporating the terms and
conditions set forth in the Plan, together with such other terms and conditions
not inconsistent with the Plan, as the Board of Directors may from time to time
approve.
(b) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company will not
be obligated to issue or deliver Shares in connection with any Option, in
payment of any directors' fees, or in settlement of Deferred Shares in a
transaction subject to the registration requirements of the Securities Act of
1933, as amended, or any other federal or state securities law, any requirement
under any listing agreement between the Company and any stock exchange or
automated quotation
-6-
<PAGE>
system, or any other law, regulation, or contractual obligation of the Company,
until the Company is satisfied that such laws, regulations, and other
obligations of the Company have been complied with in full. Certificates
representing Shares issued under the Plan will be subject to such stop-transfer
orders and other restrictions as may be applicable under such laws, regulations,
and other obligations of the Company, including any requirement that a legend or
legends be placed thereon.
(c) LIMITATIONS ON TRANSFERABILITY. Options, Deferred Shares, and any
other right under the Plan will not be transferable by a Participant except by
will or the laws of descent and distribution (or to a designated beneficiary in
the event of a Participant's death), and will be exercisable during the lifetime
of the Participant only by such Participant or his or her guardian or legal
representative; PROVIDED, HOWEVER, that Options and Deferred Shares (and rights
relating thereto) may be transferred to one or more trusts or other
beneficiaries during the lifetime of the Participant for purposes of the
Participant's estate planning or at the Participant's death, and such
transferees may exercise rights thereunder in accordance with the terms thereof,
but only if and to the extent then permitted under Rule 16b-3 and consistent
with the registration of the offer and sale of Shares related thereto on Form
S-8, Form S-3, or such other registration form of the Securities and Exchange
Commission as may then be filed and effective with respect to the Plan. The
Company may rely upon the beneficiary designation last filed in accordance with
this Section 10(c). Options, Deferred Shares, and other rights under the Plan
may not be pledged, mortgaged, hypothecated, or otherwise encumbered, and shall
not be subject to the claims of creditors of any Participant.
(d) NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in the Plan or
any agreement hereunder will confer upon any Participant any right to continue
to serve as a director of the Company.
(e) NO STOCKHOLDER RIGHTS CONFERRED. Nothing contained in the Plan
or any agreement hereunder will confer upon any Participant (or any person or
entity claiming rights by or through a Participant) any rights of a stockholder
of the Company unless and until Shares are in fact issued to such Participant
(or person) or, in the case of an Option, such Option is validly exercised in
accordance with Section 6.
(f) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board of Directors nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other compensatory arrangements for directors as it may deem
desirable.
(g) GOVERNING LAW. The validity, construction, and effect of the Plan and
any agreement hereunder will be determined in accordance with the laws of the
State of Delaware, without giving effect to principles of conflicts of laws, and
applicable federal law.
-7-
<PAGE>
11. STOCKHOLDER APPROVAL, EFFECTIVE DATE, AND PLAN TERMINATION. The
Plan will be effective as of the date of its adoption by the Board, subject to
stockholder approval prior to the commencement of the Initial Public Offering,
and, unless earlier terminated by action of the Board of Directors, shall
terminate at such time as no Shares remain available for issuance under the Plan
and the Company and Participants have no further rights or obligations under the
Plan.
-8-
EXHIBIT 10.3
AGREEMENT AND PLAN OF ORGANIZATION
dated as of March 17, 1998
by and among
LANDCARE USA, INC.
ARTEKA ACQUISITION CORP.
ARTEKA NATURAL ACQUISITION CORP.
ARTEKA NURSERIES ACQUISITION CORP.
(each a subsidiary of LandCARE USA, Inc.)
ARTEKA CORPORATION
ARTEKA NATURAL GREEN CORPORATION
ARTEKA NURSERIES, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................5
1.3 Certificate of Incorporation, By-laws; Board of Directors and
Officers of Surviving Corporation................................5
1.4 Certain Information With Respect to the Capital Stock of the
Company, LandCARE and Newco......................................6
1.5 Effect of Merger.................................................6
2. CONVERSION OF STOCK....................................................7
2.1 Manner of Conversion.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 Due Organization.................................................9
5.2 Authorization...................................................10
5.3 Capital Stock of the Company....................................10
5.4 Transactions in Capital Stock, Organization Accounting..........10
5.5 No Bonus Shares.................................................10
5.6 Subsidiaries....................................................11
5.7 Predecessor Status; etc.........................................11
5.8 Spin-off by the Company.........................................11
5.9 Financial Statements............................................11
5.10 Liabilities and Obligations.....................................11
5.11 Accounts and Notes Receivable...................................12
5.12 Permits and Intangibles.........................................12
5.13 Environmental Matters...........................................12
5.14 Personal Property...............................................13
5.15 Significant Customers; Material Contracts and Commitments.......13
5.16 Real Property...................................................14
5.17 Insurance.......................................................15
5.18 Compensation; Employment Agreements; Organized Labor Matters....15
-i-
<PAGE>
5.19 Employee Plans..................................................16
5.20 Compliance with ERISA...........................................16
5.21 Conformity with Law; Litigation.................................17
5.22 Taxes...........................................................17
5.23 No Violations; No Consents Required, Etc.......................18
5.24 Absence of Changes..............................................19
5.25 Deposit Accounts; Powers of Attorney............................20
5.26 Validity of Obligations.........................................20
5.27 Relations with Governments......................................20
5.28 Disclosure......................................................21
5.29 [Intentionally Omitted].........................................21
5.30 No Interests In Other Businesses................................21
5.31 Authority; Ownership............................................21
5.32 Preemptive Rights...............................................22
5.33 No Intention to Dispose of LandCARE Stock.......................22
6. REPRESENTATIONS OF LANDCARE AND NEWCO.................................22
6.1 Due Organization................................................22
6.2 Authorization...................................................22
6.3 Capital Stock of LandCARE and Newco.............................22
6.4 Transactions in Capital Stock, Organization Accounting..........23
6.5 Subsidiaries....................................................23
6.6 Financial Statements............................................23
6.7 Liabilities and Obligations.....................................23
6.8 Conformity with Law; Litigation.................................23
6.9 No Violations...................................................24
6.10 Validity of Obligations.........................................24
6.11 LandCARE Stock..................................................25
6.12 Other Agreements; No Side Agreements............................25
6.13 Business; Real Property; Material Agreements....................25
6.14 Taxes...........................................................25
6.15 Absence of Changes..............................................26
6.16 Disclosure......................................................27
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 Access and Cooperation; Due Diligence...........................27
7.2 Conduct of Business Pending Closing.............................28
7.3 Prohibited Activities...........................................28
7.4 No Shop.........................................................30
7.5 Notice to Bargaining Agents.....................................30
7.6 Agreements......................................................30
-ii-
<PAGE>
7.7 Notification of Certain Matters.................................30
7.8 Amendment of Schedules..........................................31
7.9 Cooperation in Preparation of Registration Statement............32
7.10 Final Financial Statements......................................32
7.11 Further Assurances..............................................32
7.12 Authorized Capital..............................................32
7.13 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott-Rodino Act").......................33
7.14 Stockholders of LandCARE........................................33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY...............................................................33
8.1 Representations and Warranties; Performance of Obligations......33
8.2 Satisfaction....................................................34
8.3 No Litigation...................................................34
8.4 Opinion of Counsel..............................................34
8.5 Registration Statement..........................................34
8.6 Consents and Approvals..........................................34
8.7 Good Standing Certificates......................................35
8.8 No Material Adverse Change......................................35
8.9 Closing of IPO..................................................35
8.10 Secretary's Certificate.........................................35
8.11 Employment Agreements...........................................35
8.12 Tax Matters.....................................................35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO
35
9.1 Representations and Warranties; Performance of Obligations......36
9.2 No Litigation...................................................36
9.3 Secretary's Certificate.........................................36
9.4 No Material Adverse Effect......................................36
9.5 Stockholders' Release...........................................36
9.6 Satisfaction....................................................37
9.7 Termination of Related Party Agreements.........................37
9.8 Opinion of Counsel..............................................37
9.9 Consents and Approvals..........................................37
9.10 Good Standing Certificates......................................37
9.11 Registration Statement..........................................37
9.12 Employment Agreements...........................................37
9.13 Closing of IPO..................................................37
9.14 FIRPTA Certificate..............................................37
-iii-
<PAGE>
9.15 Environmental Reviews...........................................38
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING..............38
10.1 Release From Guarantees; Repayment of Certain Obligations.......38
10.2 Preservation of Tax and Accounting Treatment....................38
10.3 Preparation and Filing of Tax Returns...........................38
10.4 Directors.......................................................39
11. INDEMNIFICATION.......................................................39
11.1 General Indemnification by the Stockholders.....................39
11.2 Indemnification by LandCARE.....................................40
11.3 Third Person Claims.............................................41
11.4 Exclusive Remedy................................................42
11.5 Limitations on Indemnification..................................42
12. TERMINATION OF AGREEMENT..............................................43
12.1 Termination.....................................................43
12.2 Liabilities in Event of Termination.............................44
13. NONCOMPETITION........................................................44
13.1 Prohibited Activities...........................................44
13.2 Damages.........................................................45
13.3 Reasonable Restraint............................................45
13.4 Severability; Reformation.......................................45
13.5 Independent Covenant............................................45
13.6 Materiality.....................................................46
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................46
14.1 Stockholders....................................................46
14.2 LandCARE and Newco..............................................46
14.3 Damages.........................................................47
14.4 Survival........................................................47
15. TRANSFER RESTRICTIONS.................................................47
15.1 Transfer Restrictions...........................................47
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................48
16.1 Compliance with Law.............................................48
16.2 Economic Risk; Sophistication...................................48
-iv-
<PAGE>
17. REGISTRATION RIGHTS...................................................49
17.1 Piggyback Registration Rights...................................49
17.2 Demand Registration Rights......................................50
17.3 Registration Procedures.........................................51
17.4 Indemnification.................................................52
17.5 Underwriting Agreement..........................................53
17.6 Rule 144 Reporting..............................................53
18. GENERAL...............................................................53
18.1 Cooperation.....................................................53
18.2 Successors and Assigns..........................................54
18.3 Entire Agreement................................................54
18.4 Counterparts....................................................54
18.5 Brokers and Agents..............................................54
18.6 Expenses........................................................54
18.7 Notices.........................................................55
18.8 Governing Law...................................................56
18.9 Survival of Representations and Warranties......................56
18.10 Exercise of Rights and Remedies.................................56
18.11 Time............................................................56
18.12 Reformation and Severability....................................56
18.13 Remedies Cumulative.............................................56
18.14 Captions........................................................57
18.15 AMENDMENTS AND WAIVERS..........................................57
-v-
<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Benefit Plans (the Benefit Plans Schedule)
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.30 No Interests in Other Businesses
5.31 Authority; Ownership
6.4 Capital Stock etc.
6.5 Subsidiaries
6.7 Liabilities
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 OtherAgreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
March 17, 1998, by and among LandCARE USA, Inc., a Delaware corporation
("LandCARE"), Arteka Acquisition Corp., Arteka Natural Acquisition Corp. and
Arteka Nurseries Acquisition Corp., each of which is a Delaware corporation
(herein collectively referred to as "Newco" except as the contest otherwise
indicates), Arteka Corporation, Arteka Natural Green Corporation and Arteka
Nurseries, Inc., each of which is a Minnesota corporation (herein collectively
referred to as the "Company" except as the context otherwise indicates), and the
stockholders identified on the signature pages hereof (the "Stockholders"). The
Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, each Newco is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on or
about March 6, 1998 solely for the purpose of completing the transactions
set forth herein, and each is a wholly-owned subsidiary of LandCARE, a
corporation organized and existing under the laws of the State of
Delaware;
WHEREAS, the respective Boards of Directors of each Newco and each
Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the Constituent Corporations and their respective Stockholders that each
Newco merge with and into the Company identified herein pursuant to this
Agreement and the applicable provisions of the laws of the States of
Delaware and the State of Incorporation (as defined below);
WHEREAS, LandCARE is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional landscaping and related
services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "LandCARE Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of LandCARE, each of the Other Founding Companies and each of
the subsidiaries of LandCARE that are parties to the Other Agreements have
approved and adopted the LandCARE Plan of Organization as an integrated
plan pursuant to which the Stockholders and the stockholders of each of
the Other Founding Companies will transfer the capital stock of each of
the Founding Companies (as defined herein) to LandCARE and the
stockholders of each of the
-1-
<PAGE>
Other Founding Companies will acquire the stock of LandCARE (but not cash
or other property) as a tax-free transfer of property under Section 351 of
the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the LandCARE Plan of Organization
in order to transfer the capital stock of the Company to LandCARE;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means each Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by LandCARE prior to the Funding
and Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to each Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
-2-
<PAGE>
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the March 12, 1998 draft of the
Registration Statement, and any corrections thereto and supplemental information
delivered by LandCARE to the Company for delivery to the Stockholders prior to
the time this Agreement is delivered to LandCARE.
"Effective Time of the Merger" shall mean the time as of which each Merger
becomes effective, which shall occur concurrently on the Funding and
Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
(a) Arteka Corporation, a Minnesota corporation, as well as its
affiliates Arteka Natural Green Corporation, a Minnesota corporation and
Arteka Nurseries, Inc., a Minnesota corporation;
(b) D. R. Church Landscape Co., Inc., an Illinois corporation;
(c) Desert Care Landscaping, Inc., an Arizona corporation;
(d) Four Seasons Landscape and Maintenance, Inc., a California
corporation;
(e) Ground Control Landscaping, Inc., a Florida corporation;
(f) Southern Tree & Landscape Co., Inc., a North Carolina
corporation; and
(g) Trees, Inc., a Nevada corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of LandCARE Stock pursuant to the
Registration Statement described herein.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means each merger of each Newco with and into the Company
identified herein pursuant to this Agreement and the applicable provisions of
the laws of the State of Delaware and the laws of the State of Incorporation;
Arteka Acquisition Corp. shall merge with and into Arteka Corporation; Arteka
Natural Acquisition Corp. shall merge with and into Arteka Natural Green
Corporation; and Arteka Nurseries Acquisition Corp. shall merge with and into
Arteka Nurseries, Inc.
"LandCARE" has the meaning set forth in the first paragraph of this
Agreement.
-3-
<PAGE>
"LandCARE Charter Documents" has the meaning set forth in Section 6.1.
"LandCARE Stock" means the common stock, par value $.01 per share, of
LandCARE.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of the
relevant Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by LandCARE and the Underwriters
of the public offering price of the shares of LandCARE Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of LandCARE Stock to be issued
in the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"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 (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Minnesota.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at
-4-
<PAGE>
the time any determination is being made, owned, directly or indirectly, by such
Person and its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to LandCARE at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
each Newco shall be merged with and into the respective Company as set forth
herein in accordance with the Articles of Merger, the separate existence of such
Newco shall cease, the respective Company shall be the surviving party in the
Merger and such Company is sometimes hereinafter referred to as the Surviving
Corporation. Each Merger will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the respective Company then
in effect shall be the Certificate of Incorporation of the respective Surviving
Corporation until changed as provided by law;
(ii) the By-laws of the relevant Newco then in effect shall become
the By-laws of the respective Surviving Corporation; and subsequent to the
Effective Time of the Merger, such By-laws shall be the By-laws of the
respective Surviving Corporation until they shall thereafter be
-5-
<PAGE>
duly amended (and such By-laws shall be amended from time to time, if necessary,
to comply with applicable state law);
(iii) the Board of Directors of the respective Surviving Corporation
shall consist of the persons who are on the Board of Directors of the respective
Company immediately prior to the Effective Time of the Merger, provided that
William Murdy or another officer of LandCARE shall become an additional director
of each Surviving Corporation effective as of the Effective Time of the Merger,
and the number of directors constituting the entire Board of Directors of each
Company shall be increased, if necessary, to accommodate the addition of such
additional director; the Board of Directors of each Surviving Corporation shall
hold office subject to the provisions of the laws of the State of Incorporation
and of the Certificate of Incorporation and By-laws of such Surviving
Corporation; and
(iv) the officers of each Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the respective Surviving
Corporation in the same capacity or capacities, and effective upon the Effective
Time of the Merger William Fiedler and another officer of LandCARE shall each
become an additional Vice President and Assistant Secretary of each Surviving
Corporation, such officers to serve, subject to the provisions of the
Certificate of Incorporation and By-laws of the Surviving Corporation, until
their respective successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
LANDCARE AND NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of each
Company, LandCARE and each Newco as of the date of this Agreement are as
follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of each Company is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of LandCARE will consist of 100,000,000 shares of
LandCARE Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, 5,000,000 shares of preferred stock, $.01
par value, of which no shares will be issued and outstanding, and 3,000,000
shares of Restricted Voting Common Stock, $.01 par value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as otherwise set
forth in the Registration Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of each Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
each Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of
-6-
<PAGE>
Delaware (the "Delaware GCL") and the law of the State of Incorporation. Except
as herein specifically set forth, the identity, existence, purposes, powers,
franchises, privileges, rights and immunities of the respective Company shall
continue unaffected and unimpaired by the Merger and the corporate franchises,
existence and rights of the relevant Newco shall be merged with and into the
Company as set forth herein, and such Company, as the Surviving Corporation,
shall be fully vested therewith. At the Effective Time of the Merger, the
separate existence of each Newco shall cease and, in accordance with the terms
of this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public, as well as of a private,
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to such Company and such
Newco shall be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of such Company and such
Newco; and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the State of Incorporation vested in such Company
and such Newco, shall not revert or be in any way impaired by reason of the
Merger. Except as otherwise provided herein, the Surviving Corporation shall
thenceforth be responsible and liable for all the liabilities and obligations of
such Company and such Newco and any claim existing, or action or proceeding
pending, by or against such Company or such Newco may be prosecuted as if the
Merger had not taken place, or the respective Surviving Corporation may be
substituted in their place. Neither the rights of creditors nor any liens upon
the property of any Company or any Newco shall be impaired by the respective
Merger, and all debts, liabilities and duties of each Company and each Newco
shall attach to the respective Surviving Corporation, and may be enforced
against such Surviving Corporation to the same extent as if said debts,
liabilities and duties had been incurred or contracted by such Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of each Company ("Company Stock") and (ii) Newco
Stock, issued and outstanding immediately prior to the Effective Time of the
Merger, respectively, into shares of (x) LandCARE Stock and cash and (y) common
stock of the respective Surviving Corporation, respectively, shall be as
follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
deemed to represent (1) the right to receive the number of shares of LandCARE
Stock set forth on the relevant portion of Annex I hereto with respect to such
holder and (2) the right to receive the amount of cash set forth on the relevant
portion of Annex I hereto with respect to such holder;
-7-
<PAGE>
(ii) all shares of Company Stock that are held by each Company as
treasury stock shall be canceled and retired and no shares of LandCARE Stock or
other consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the respective
Merger and without any action on the part of LandCARE, automatically be
converted into one fully paid and non-assessable share of common stock of the
respective Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the respective Surviving Corporation
immediately after the Effective Time of the Merger.
All LandCARE Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
LandCARE Stock by reason of the provisions of the Certificate of Incorporation
of LandCARE or as otherwise provided by the Delaware GCL. All LandCARE Stock
received by the Stockholders shall be issued and delivered to the Stockholders
free and clear of any liens, claims or encumbrances of any kind or nature. All
voting rights of such LandCARE 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. At the Effective Time of the Merger,
LandCARE shall have no class of capital stock issued and outstanding other than
the LandCARE Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of each Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of LandCARE Stock and the amounts of cash described on the
relevant portion of Annex I hereto, said cash to be payable by certified check
or wire transfer.
3.2 The Stockholders shall deliver to LandCARE at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
Stockholders, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholders' expense,
affixed and canceled. The Stockholders agree promptly to cure any deficiencies
with respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the respective Merger (including the execution of the
Articles of Merger which shall be delivered to LandCARE for filing with the
appropriate authorities effective on the Funding and Consummation Date) and (ii)
effect the conversion and delivery of shares referred to in Section 3 hereof;
provided,
-8-
<PAGE>
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
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 Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and (z) the closing with respect to the IPO shall
occur and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as 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 the parties if (a)
the underwriting agreement in respect of the IPO is terminated pursuant to the
terms of such underwriting agreement, or (b) the conditions set forth in
Sections 8.5 and 8.9 hereof are not being satisfied as of the Funding and
Consummation Date. This Agreement shall also in any event automatically
terminate if the Funding and Consummation Date has not occurred within 15
business days following the Closing Date.
Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders jointly and severally represents and warrants
that all of the representations and warranties in this Section 5 are true at the
date of this Agreement and, subject to Section 7.8 hereof, shall be true at the
time of Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
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 5.22, and the representations
and warranties set forth in Section 5.31 hereof shall survive perpetually. For
purposes of this Section 5, the term "Company" shall mean and refer to the
Company and all of its Subsidiaries, if any, and shall mean all three Companies,
taken as a whole, unless the context indicates or requires otherwise. For
purposes of this Section 5, the phrase "knowledge of the Stockholders" shall
mean the actual knowledge of the Stockholders after due inquiry of the
appropriate management personnel employed by the Company.
5.1 DUE ORGANIZATION. Each Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. Each
-9-
<PAGE>
Company is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, except (i) as set forth on
Schedule 5.1 or (ii) where the failure to be so authorized or qualified would
not have a material adverse effect on the business, operations, properties,
assets or condition (financial or otherwise), of the Company taken as a whole
(as used herein with respect to the Company, or with respect to any other
Person, a "Material Adverse Effect"). Schedule 5.1 sets forth a list of all
jurisdictions in which each Company is authorized or qualified to do business.
True, complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company (the "Charter Documents"), and (ii) the
stock records of each Company, are all attached to Schedule 5.1. Each Company
has delivered complete and correct copies of all minutes of meetings, written
consents and other evidence, if any, of deliberations of or actions taken by the
Company's Board of Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of each Company executing this
Agreement have the authority to enter into and bind such Company to the terms of
this Agreement and (ii) each Company has the full legal right, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of each Company and the most
recent resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of each
Company is as set forth on Annex II, and all of the issued and outstanding
shares of the capital stock of each Company are owned by the Stockholders in the
amounts set forth in Annex II. All of the issued and outstanding shares of the
capital stock of each 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 each Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the LandCARE Plan of Organization.
-10-
<PAGE>
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the LandCARE Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
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 all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the balance sheets of the Company as of the dates shown thereon and
the related statements of operations, stockholder's equity and cash flows for
the periods shown thereon, together with the related notes and schedules (such
balance sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules being referred to herein as the
"Financial Statements"). The Financial Statements have been prepared from the
books and records of the Company as of the dates and for the periods covered
thereby. The books of account of the Company have been kept accurately in the
ordinary course of business, the transactions recorded therein represent bona
fide transactions, and the revenues, expenses, assets and liabilities of the
Company have been properly recorded therein all material respects.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and 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 and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
knowledge of the Stockholders, except as set forth on Schedule 5.10, since the
Balance Sheet Date the Company has not incurred any material liabilities of any
kind,
-11-
<PAGE>
character or 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 LandCARE on Schedule 5.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed, a good faith and
reasonable estimate of the maximum amount which the Company reasonably expects
will be payable and the amount, if any, accrued or reserved for each such
potential liability on the Company's Financial Statements; in the case of any
such liability for which no estimate has been provided, the estimate for
purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list 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, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to LandCARE an accurate list and summary description
(which is set forth on Schedule 5.12) of all such Licenses, and of any
trademarks, trade names, patents, patent applications and copyrights owned or
held by the Company or by any of its employees if used or held for use by the
Company in the conduct of its business (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property owned by any employees of the Company will be assigned or licensed to
the Company for no additional consideration. To the knowledge of the
Stockholders, the Licenses and other rights listed on Schedules 5.12 and 5.13
are valid, and the Company has not received any notice that any Person intends
to cancel, terminate or not renew any such License or other right. The Company
has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to it or any of its
properties,
-12-
<PAGE>
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, Hazardous Materials
and Hazardous Substances (as such terms are defined in any applicable
Environmental Law), as well as petroleum and petroleum products (collectively
"Hazardous Materials"), (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 Materials, a list of all of which
permits and approvals is set forth on Schedule 5.13, and has reported to the
appropriate authorities, to the extent required by all Environmental Laws, all
past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders, there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could reasonably be expected to lead to any claim against the Company, LandCARE
or Newco 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, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act or comparable state or local statutes or
regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to LandCARE an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the Company included in "property" or "plant, property and
equipment" or any similar category on the balance sheet of the Company as of the
Balance Sheet Date, (y) all other tangible personal property owned by the
Company with an individual fair market value (in the reasonable judgment of the
Stockholders; it being understood that the Stockholders are not obtaining
appraisals of any such property in connection with the preparation of Schedule
5.14) in excess of $25,000 (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date and (z) all material leases and agreements in
respect of personal property, including, in the case of each of (x), (y) and
(z), (1) true, complete and correct copies of all such leases and (2) an
indication as to which assets are currently owned, or were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as
set forth on Schedule 5.14, (i) all material 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 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted and (iii) all leases and agreements included on Schedule 5.14
are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.15) of all customers
-13-
<PAGE>
(persons or entities) representing 1% or more of the Company's annual revenues
for the year ended December 31, 1997; provided, however, that Schedule 5.15 need
not set forth more than the Company's 25 largest customers during such period.
Except to the extent set forth on Schedule 5.15, none of such customers have
canceled or substantially reduced or, to the knowledge of the Stockholders, 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 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to LandCARE. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the Company during
any 12-month period. All of the Material Contracts are in full force and effect
and constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in substantially the form of Annex VI hereto (or with terms substantially
similar to those of Annex VI) at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affilliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in
substantially the form of Annex VI hereto (or with terms substantially similar
to those of Annex VI) will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good and insurable title to any real
property owned by it that is not shown on Schedule 5.16 as property intended to
be sold or distributed prior to the Closing Date, subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
-14-
<PAGE>
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to LandCARE (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the Company,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the Company,
listing all employment agreements with such officers, directors and key
employees and the rate of compensation (and the portions thereof attributable to
salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided
to LandCARE true, complete and correct copies of any employment agreements for
persons listed on Schedule 5.18. Since the Balance Sheet Date, there have been
no material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not 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) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, 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.
-15-
<PAGE>
5.19 EMPLOYEE PLANS. The Stockholders have delivered to LandCARE an
accurate schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all
employee benefit plans of the Company, including all employment agreements and
other agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule. Except as set forth on the Benefit Plans
Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions of employment of any of the Company's or any
Subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any
-16-
<PAGE>
plan listed in the Benefit Plans Schedule prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA. No plan listed in the Benefit
Plans Schedule 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. Except as
set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited to, any
liability to any multiemployer plan or the PBGC under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty, or being subject to
any statutory lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the knowledge of the Stockholders,
there is no basis for any such claim, action, suit or proceeding. The Company
has conducted and is now conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations, including all such orders and other governmental
approvals set forth on Schedules 5.12 and 5.13, except where any such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except
-17-
<PAGE>
as set forth on Schedule 5.22, there are no examinations in progress or claims
pending against it for federal, state and other Taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Tax due from the Company for any period ended before the date
hereof, including interest and penalties (whether or not shown on any Return)
has been paid. The amounts shown as accruals for taxes on the Company Financial
Statements are sufficient for the payment of all Taxes (including penalties and
interest) for all periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income tax returns and franchise tax returns of the Company for their last
three (3) fiscal years, or such shorter period of time as any of them shall have
existed, are attached hereto as Schedule 5.22 or have otherwise been delivered
to LandCARE. The Company has disclosed to LandCARE when its taxable year ends.
The Company uses the accrual method of accounting for income tax purposes, and
the Company's methods of accounting have not changed in the past five years. The
Company is not an investment company as defined in Section 351(e)(1) of the
Code. The Company is not and has not during the last five years been a party to
any tax sharing agreement or agreement of similar effect. The Company is not and
has not during the last five years been a member of any consolidated group.
Except as described on Schedule 5.22, the Company has not received, been denied,
or applied for any private letter ruling during the last five years.
The Stockholders of Arteka Nurseries, Inc. made a valid election under the
provisions of Subchapter S of the Code. The Stockholders of Arteka Nurseries,
Inc. shall pay, and they hereby indemnify Arteka Nurseries, Inc. and LandCARE
against all income taxes payable for all periods ending on or prior to the
Funding and Consummation Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially 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 material violation or breach of 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 5.23, 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 material right or benefit. Except as set forth on
Schedule 5.23, none of the Material Documents prohibits the use or publication
by the Company, LandCARE or Newco 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, LandCARE, Newco or any Other Founding Company.
-18-
<PAGE>
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty 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 by
the Company 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 sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including, without
limitation, the Stockholders and their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii)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;
(ix) 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;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
-19-
<PAGE>
(xiii) any contract entered into or commitment incurred involving
any liability or commitment to make any capital expenditures, except in the
normal course of business (consistent with past practice) or involving an amount
not in excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 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 and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
LandCARE an accurate schedule (which is set forth on Schedule 5.25) as of the
date of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the
-20-
<PAGE>
Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of LandCARE utilized in
connection with the IPO, the Stockholders become aware of any fact or
circumstance which would affect the accuracy of a representation or warranty of
the Stockholders in this Agreement in any material respect, the Stockholders
shall immediately give notice of such fact or circumstance to LandCARE. Subject
to the provisions of Section 7.8, such notification shall not relieve either the
Company or the Stockholders of their respective obligations under this
Agreement.
(b) 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 the 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; (ii)
that neither LandCARE or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company, the
Stockholders or any other person affiliated or associated with the Company for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or to occur at all; and (iii) that the decision of
Stockholders to enter into this Agreement, or to vote in favor of or consent to
the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to LandCARE or the prospective IPO.
Notwithstanding the foregoing, LandCARE has agreed and herein acknowledges its
agreement to use its reasonable efforts to consummate the LandCARE Plan of
Organization and IPO as contemplated hereby.
5.29 [INTENTIONALLY OMITTED]
5.30 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.30, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.31 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
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
-21-
<PAGE>
5.32 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.
5.33 NO INTENTION TO DISPOSE OF LANDCARE STOCK. No Stockholder is under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of LandCARE Stock to be received as described in Section 3.1 of this
Agreement.
6. REPRESENTATIONS OF LANDCARE AND NEWCO
LandCARE and Newco jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and, subject to Section 7.8 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 twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 6.14
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 6.14.
6.1 DUE ORGANIZATION. LandCARE and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. LandCARE and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, 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 By-laws of LandCARE (the "LandCARE Charter Documents") have
been or will be filed as exhibits to the Registration Statement, and copies
thereof and copies of the Certificate of Incorporation and Bylaws of Newco will
be provided to the Stockholders promptly upon request.
6.2 AUTHORIZATION. (i) The respective representatives of LandCARE and
Newco executing this Agreement have the authority to enter into and bind
LandCARE and Newco to the terms of this Agreement and (ii) LandCARE and Newco
have the full legal right, power and authority to enter into this Agreement and
consummate the Merger. All corporate acts and other proceedings required to have
been taken by LandCARE and Newco to authorize the execution, delivery and
performance of this Agreement and the consummation of the Merger have been duly
and properly taken.
6.3 CAPITAL STOCK OF LANDCARE AND NEWCO. The authorized capital stock of
LandCARE and Newco is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of Newco are owned
by LandCARE. All of the issued and outstanding shares of the capital stock of
LandCARE and Newco have been duly authorized and validly issued, are fully paid
and nonassessable, and further, such shares were offered, issued, sold and
delivered by LandCARE and Newco in compliance with all applicable state and
federal laws concerning the
-22-
<PAGE>
issuance of securities. Further, none of such shares were issued in violation of
the preemptive rights of any past or present stockholder of LandCARE or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
LandCARE or Newco to issue any of their respective authorized but unissued
capital stock; and (ii) neither LandCARE nor Newco has any 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. Complete and accurate copies of all stock
option or stock purchase plans and a list of all outstanding options, warrants
or other rights to acquire shares of the stock of LandCARE will be provided to
the Stockholders promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. LandCARE has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other newly incorporated Subsidiaries that have conducted
no business and have been created solely to effectuate the business of LandCARE.
Except as set forth in the preceding sentence or set forth on Schedule 6.5
hereto, neither LandCARE nor any Subsidiary of LandCARE presently owns, of
record or beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither LandCARE nor Newco,
directly or indirectly, is a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The historical financial statements of LandCARE
included in the Draft Registration Statement (the "LandCARE Financial
Statements") have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the period indicated (except
as noted thereon), and present fairly in all material respects the financial
position of LandCARE as of the date and for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither LandCARE nor any
Subsidiary of LandCARE has any material liabilities, contingent or otherwise,
except as set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither LandCARE nor
any Subsidiary of LandCARE is in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
any of them which would have a Material Adverse Effect, (b) there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
LandCARE or Newco, threatened against or affecting, LandCARE or any Subsidiary
of LandCARE, at law or in equity, or
-23-
<PAGE>
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
any of them, and (c) no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by LandCARE or Newco. LandCARE and its
Subsidiaries have conducted and are conducting their respective businesses in
substantial compliance with the requirements, standards, criteria and conditions
set forth in applicable Federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations and are not in
violation of any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. LandCARE is not in violation of any LandCARE Charter
Document, and no Subsidiary of LandCARE is in violation of its Certificate of
Incorporation or Bylaws. None of LandCARE, Newco, or, to the knowledge of
LandCARE and Newco, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit to which LandCARE or any Subsidiary of
LandCARE is a party, or by which LandCARE or any Subsidiary of LandCARE, or any
of their respective properties, are bound (collectively, the "LandCARE
Documents"); and (a) the rights and benefits of LandCARE and any Subsidiary of
LandCARE under the LandCARE Documents will not be adversely affected by the
transactions contemplated hereby and (b) the execution and delivery of this
Agreement by LandCARE and Newco and the performance of their obligations
hereunder do not, and the consummation of the transactions contemplated hereby
and compliance with the terms hereof will not, conflict with, or result in any
violation or default (with or without notice or lapse of time, or both), under
or give rise to a right of termination, cancellation, or acceleration of any
obligation or to loss of a material benefit under, or result in the creation of
any lien upon any of the assets of LandCARE or any Subsidiary of LandCARE under,
any provision of (i) the Certificate of Incorporation or Bylaws of LandCARE or
the comparable governing instruments of any Subsidiary of LandCARE, (ii) any
note, bond, mortgage, indenture or deed of trust or any license, lease,
contract, commitment, agreement or arrangement to which LandCARE and any
Subsidiary of LandCARE is a party or by which any of their respective properties
or assets are bound or (iii) any judgment, order, decree or law, ordinance, rule
or regulation, applicable to LandCARE or any Subsidiary of LandCARE or their
respective properties or assets. The execution of this Agreement and the Other
Agreements and the performance of the obligations hereunder and thereunder and
the consummation of the transactions contemplated by the LandCARE Plan of
Organization will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the LandCARE Documents or the
LandCARE Charter Documents. Except as contemplated hereby or described in the
Registration Statement or on Schedule 6.9 hereto, none of the LandCARE 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 by the
LandCARE Plan of Organization in order to remain in full force and effect and
consummation of the transactions contemplated thereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by LandCARE and Newco and the performance of the transactions contemplated
herein have been duly and validly authorized by the respective Boards of
Directors of LandCARE and Newco and this Agreement has
-24-
<PAGE>
been duly and validly authorized by all necessary corporate action and is a
legal, valid and binding obligation of LandCARE and Newco.
6.11 LANDCARE STOCK. At the time of issuance thereof and delivery to the
Stockholders, the LandCARE Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of LandCARE,
fully paid and nonassessable, and with the exception of restrictions upon resale
set forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
LandCARE Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. Except as set forth above, the LandCARE Stock
issued and delivered to the Stockholders shall at the time of such issuance and
delivery be free and clear of any liens, security interests, claims or
encumbrances of any kind or character. The shares of LandCARE Stock to be issued
to the Stockholders pursuant to this Agreement will not be registered under the
1933 Act except as provided in Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except as described on Schedule
6.12 hereto, each of the Other Agreements is substantially similar to this
Agreement. Neither LandCARE nor Newco has entered or will enter into any
agreement with any of the Other Founding Companies or any of the stockholders of
the Other Founding Companies other than the Other Agreements and the agreements
contemplated by each of the Other Agreements, including the employment
agreements and leases referred to herein or entered into in connection with the
transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. LandCARE was formed in
October 1997 and has conducted only limited operations since that time. Neither
LandCARE nor any Subsidiary thereof has conducted any material business since
the date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither LandCARE nor any Subsidiary of LandCARE owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement other than the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES.LandCARE and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against LandCARE or any Subsidiary
thereof for federal, state and other Taxes (including penalties and interest)
for any such period and no notice of any claim for Taxes, whether pending or
threatened, has been received. All Taxes which LandCARE or any Subsidiary of
LandCARE has been required to collect or withhold have been duly and timely
collected and withheld and have been set aside in accounts for such purposes, or
have been duly and timely paid to the proper governmental authority. All Tax,
including interest and penalties (whether or not shown on any tax return) owed
by LandCARE, any member of an affiliated or consolidated group which includes or
included LandCARE, or with respect to any payment made or deemed made by
LandCARE herein has been paid. The amounts shown as
-25-
<PAGE>
accruals for taxes on LandCARE Financial Statements are sufficient for the
payment of all taxes of the kinds indicated (including penalties and interest)
for all fiscal periods ended on or before that date. Neither LandCARE nor any
Subsidiary thereof has entered into any tax sharing agreement or similar
arrangement. Neither LandCARE nor any Subsidiary thereof is an investment
company as defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of LandCARE or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of LandCARE
or Newco;
(iii) any change in the authorized capital of LandCARE or Newco or
their outstanding securities or any change in their 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 LandCARE or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of LandCARE or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to LandCARE or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of LandCARE or any Subsidiary thereof or requiring consent of any party
to the transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of LandCARE or
any Subsidiary of LandCARE;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which LandCARE or any Subsidiary of
LandCARE is a party;
(x) any transaction by LandCARE or any Subsidiary of LandCARE
outside the ordinary course of its business;
-26-
<PAGE>
(xi) any other distribution of property or assets by LandCARE or any
Subsidiary of LandCARE other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with the representations and warranties of
LandCARE and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
LandCARE by the Stockholders, the offering and issuance of shares of LandCARE
Stock to the Stockholders and to the stockholders of the Other Founding
Companies pursuant to this Agreement and to the Other Agreements have been made
in compliance with all applicable federal and state securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 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 LandCARE access to all of the
Company's sites, properties, books and records and will furnish LandCARE with
such additional financial and operating data and other information as to the
business and properties of the Company as LandCARE may from time to time
reasonably request. The Company will cooperate with LandCARE and its
representatives, auditors and counsel in the preparation of any documents or
other materials which may be required in connection with any documents or
materials required by this Agreement. LandCARE, Newco, the Stockholders and the
Company will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to the Other Founding Companies as confidential in accordance with
the provisions of Section 14 hereof. In addition, LandCARE will cause each of
the Other Founding Companies to enter into a provision similar to this Section
7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, LandCARE will afford to the officers and authorized representatives of the
Company access to all of LandCARE's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the business and properties of
LandCARE and Newco as the Company may from time to time reasonably request.
LandCARE and Newco will cooperate with the Company, its representatives,
auditors and counsel in the preparation of any documents or other material which
may be required in connection with any documents or materials required by this
Agreement. The Company will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Section 14 hereof.
-27-
<PAGE>
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to 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 all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar governmental
authorities applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
LandCARE (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of LandCARE 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.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of LandCARE, which consent will not be
unreasonably withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
-28-
<PAGE>
(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 in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(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
$25,000 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 and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
-29-
<PAGE>
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the 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 for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than LandCARE, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 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 LandCARE on Schedule 7.5 with proof that any required notice has been
sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by LandCARE or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to LandCARE. Such termination agreements are listed on Schedule 7.6
and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to LandCARE 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 failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. LandCARE and Newco 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 LandCARE or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of LandCARE or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it
-30-
<PAGE>
hereunder. The delivery of any notice pursuant to this Section 7.7 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to Section
7.8, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless LandCARE
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 LandCARE or Newco 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 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 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, LandCARE shall give the Company notice promptly
after it has knowledge thereof. If LandCARE and a majority of the Founding
Companies (other than the Founding Company seeking to amend or supplement a
Schedule) consent to such amendment or supplement, which consent shall have been
deemed given by LandCARE or any Founding Company if no response is received
within 24 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 12.1(iv) hereof. In the event that the Company
seeks to amend or supplement a Schedule pursuant to this Section 7.8, and
LandCARE 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 12.1(i) hereof. In the event that LandCARE or
Newco seeks to amend or supplement a Schedule pursuant to this Section 7.8 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 12.1(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 7.8. No amendment of or supplement to a
-31-
<PAGE>
Schedule shall be made later than 24 hours prior to the anticipated
effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to LandCARE and the
Underwriters all of the information concerning the Company and the Stockholders
reasonably requested by LandCARE or the Underwriters for inclusion in, and will
cooperate with LandCARE and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements of the Company, 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 LandCARE if at any time during the period in which a prospectus relating
to the IPO is required to be delivered under the Securities 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. 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 under
which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and LandCARE 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 ending not later
than 15 days prior to the Funding and Consummation Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
Company for all such fiscal quarters, 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. Such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein). Except as noted in such financial statements, all of
such financial statements will present fairly the results of operations of the
Company for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
LandCARE 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
-32-
<PAGE>
to register the LandCARE Stock and any changes necessary or advisable in order
to permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by LandCARE and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by LandCARE. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
7.14 STOCKHOLDERS OF LANDCARE. Promptly after a request by the Company,
LandCARE will deliver to the Company a list of the stockholders of LandCARE as
of the date of this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions.
Subject to Section 12 hereof, 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 8.1, 8.5, 8.8, 8.9 and
8.12. As of the Closing Date or subject to Section 12 hereof, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been satisfied,
the Stockholders (acting in unison) shall have the right to terminate this
Agreement, or in the alternative, waive any condition not so satisfied. Any act
or action of the Stockholders in consummating the Closing or delivering
certificates representing Company Stock as of the Funding and Consummation Date
shall constitute a waiver of any conditions not so satisfied. However, no such
waiver shall be deemed to affect the survival of the representations and
warranties of LandCARE and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of LandCARE and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of
-33-
<PAGE>
the Closing Date and the Funding and Consummation Date as though such
representations and warranties had been made as of that time; all of the terms,
covenants and conditions of this Agreement to be complied with and performed by
LandCARE and Newco 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, respectively, and signed by the
President or any Vice President of LandCARE shall have been delivered to the
Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform LandCARE in writing prior to the effectiveness of the
Registration Statement of the existence of an untrue statement of a material
fact or the omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger 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.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for LandCARE, dated the Closing Date, in the form annexed hereto as
Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of LandCARE Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger 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 Company deems it
inadvisable to proceed with the transactions hereunder.
-34-
<PAGE>
8.7 GOOD STANDING CERTIFICATES. LandCARE and Newco each 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 LandCARE or Newco is authorized to do business,
showing that each of LandCARE and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
LandCARE and Newco, respectively, for all periods prior to the Closing have been
filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to LandCARE or Newco which has had or is reasonably likely
to have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of LandCARE and of Newco, certifying the truth and correctness of attached
copies of the LandCARE's and Newco's respective Certificates of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the boards of directors and, if required, the Stockholders of
LandCARE and Newco approving LandCARE's and Newco's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
under the caption relating to the Company shall have been afforded the
opportunity to enter into an Employment Agreement substantially in the form of
Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the LandCARE Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for LandCARE Stock (but not cash or other property) pursuant to the
LandCARE Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO
The obligations of LandCARE and Newco 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 LandCARE and
Newco 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 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and
-35-
<PAGE>
Consummation Date, if any such conditions have not been satisfied, LandCARE and
Newco shall have the right to terminate this Agreement, or waive any such
condition, but no such waiver shall be deemed to affect the survival of the
representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, 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; 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 shall
have delivered to LandCARE certificates dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of LandCARE as a result of which the
management of LandCARE (acting in good faith) deems it inadvisable to proceed
with the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. LandCARE 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.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to
LandCARE an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Funding and Consummation 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 5.10 and 5.15 as being claims of or
obligations to the Stockholders, and (y) continuing obligations to Stockholders
relating to their employment by the Company. In the event that the Funding and
Consummation Date does not occur, then the release instrument referenced herein
shall be void and of no further force or effect.
-36-
<PAGE>
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to LandCARE.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by LandCARE, all existing agreements between
the Company and the Stockholders (and entities controlled by the Stockholders)
other than real property leases shall have been canceled effective prior to or
as of the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. LandCARE shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
LandCARE 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 LandCARE, in each state
in which the Company is authorized to do business, showing the Company is in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
each shall enter into an employment agreement substantially in the form of Annex
V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to LandCARE
a certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
-37-
<PAGE>
9.15 ENVIRONMENTAL REVIEWS. LandCARE shall have received a report from an
independent environmental consultant retained by LandCARE at its expense to
conduct an environmental review of the Company's owned and leased sites, and
such report shall not disclose any environmental condition that, in LandCARE's
reasonable judgment, either (i) could be expected to have a Material Adverse
Effect on the Company, or (ii) poses any risk of a substantial liability to the
Company.
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. LandCARE
shall use reasonable efforts, including offering its own guarantee, to have the
Stockholders and their spouses released from any and all guarantees of the
Company's indebtedness identified on Schedule 10.1. In the event that LandCARE
cannot obtain such releases from the lenders of any such guaranteed indebtedness
identified on Schedule 10.1 on or prior to 120 days subsequent to the Funding
and Consummation Date, LandCARE shall promptly pay off or otherwise refinance or
retire such indebtedness. LandCARE shall indemnify the Stockholders against, and
shall promptly reimburse the Stockholders for, any amounts which the
Stockholders are obligated to pay under any such guarantees listed on Schedule
10.1, and shall be subrogated to any rights of the Stockholders accruing as a
result of any such payments by the Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, LandCARE shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the LandCARE Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit LandCARE to review all such
Tax Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
-38-
<PAGE>
(ii) LandCARE shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
(iv) Each of the Company, Newco, LandCARE and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of LandCARE, as and to
the extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, LandCARE and Newco each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they jointly and severally will
indemnify, defend, protect and hold harmless LandCARE, Newco, and, subsequent to
the Funding and Consummation Date, the Company and the Surviving Corporation at
all times, from and after the date of this Agreement until the Expiration Date
(provided that for purposes of Section 11.1(iii) below, the Expiration Date
shall be the date on which the applicable statute of limitations expires), from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of
-39-
<PAGE>
investigation) incurred by LandCARE, Newco, the Company or the Surviving
Corporation as a result of or arising from (i) any breach of the representations
and warranties of the Stockholders or the Company set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the Stockholders or the Company under this
Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement of a material fact relating to the Company or
the Stockholders, and provided to LandCARE or its counsel by the Company or the
Stockholders (but in the case of the Stockholders, only if such statement was
provided in writing) which is contained in the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to the Company or the Stockholders
required to be stated therein or necessary to make the statements therein not
misleading, provided, however, that such indemnity shall not inure to the
benefit of LandCARE, Newco, the Company or the Surviving Corporation 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
Company or the Stockholders provided, in writing, corrected information to
LandCARE for inclusion in the final prospectus, and such information was not so
included or the final prospectus was not properly delivered, and provided
further, that no Stockholder shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
Stockholder.
LandCARE and Newco acknowledge and agree that other than the
representations and warranties of the Company or the Stockholders specifically
contained in this Agreement, there are no representations or warranties of the
Company or the Stockholders, either express or implied, with respect to the
transactions contemplated by this Agreement, the Company or its assets,
liabilities and business.
LandCARE and Newco further acknowledge and agree that, should the Funding
and Consummation Date occur, their sole and exclusive remedy with respect to any
and all claims relating to this Agreement and the transactions contemplated in
this Agreement, shall be pursuant to the indemnification provisions set forth in
this Section 11. LandCARE and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY LANDCARE. LandCARE covenants and agrees that it
will indemnify, defend, protect and hold harmless the Stockholders and, prior to
the Funding and Consummation Date, the Company, at all times from and after the
date of this Agreement until the
-40-
<PAGE>
Expiration Date (provided that for purposes of Section 11.2(iv) below, the
Expiration Date shall be the date on which the applicable statute of limitations
expires), from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the Stockholders or the Company as a result of or
arising from (i) any breach by LandCARE or Newco of their representations and
warranties set forth herein or on the schedules or certificates attached hereto,
(ii) any breach of any agreement on the part of LandCARE or Newco under this
Agreement, (iii) any liabilities which the Stockholders may incur due to
LandCARE's or Newco's failure to be responsible for the liabilities and
obligations of the Company as provided in Section 1 hereof (except to the extent
that LandCARE or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) 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 LandCARE, Newco 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 LandCARE or Newco or any of the Other
Founding Companies required to be stated therein or necessary to make the
statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by Indemnifying Party, provided that if counsel to the
Indemnifying Party shall have a conflict of interest that prevents counsel for
the Indemnifying Party from representing 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. After the
-41-
<PAGE>
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall 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.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall 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
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. LandCARE, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that,
-42-
<PAGE>
the aggregate of all claims which such persons may have against such the
Stockholders shall exceed the greater of (a) 1.0% of the sum of (i) the cash
paid to Stockholders plus (ii) the value of the LandCARE Stock delivered to
Stockholders (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold").
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the LandCARE Stock received by a Stockholder, LandCARE
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such Stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of LandCARE and
the Company;
(ii) by the Company or by LandCARE if the transactions contemplated
by this Agreement to take place at the Closing shall not have been consummated
by September 30, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party (including, in the case of the
Company, any such failure of the Stockholders) 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 Closing Date;
(iii) by the Company or by LandCARE if a material breach or default
shall be made by the other party (including, in the case of LandCARE's right to
terminate, any such material breach or default by the Stockholders) in the
observance or in the due and timely performance of any of the covenants or
agreements contained herein, and the curing of such default shall not have been
made on or before the Funding and Consummation Date, or by the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or waived as of
the Closing Date or the Funding and Consummation Date, as applicable, or by
LandCARE, if the conditions set forth in Section 9 hereof
-43-
<PAGE>
have not been satisfied or waived as of the Closing Date or the Funding and
Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if (a) the underwriting agreement relating to
the IPO is terminated in accordance with its terms, or (b) the conditions set
forth in Sections 8.5 and 8.9 hereof are not being satisfied as of the Funding
and Consummation Date.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 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.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will 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 or Persons:
(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
landscaping business or operation or related services business in direct
competition with LandCARE or any of the Subsidiaries thereof, within 100 miles
of where the Company conducted business prior to the Funding and Consummation
Date or within the one-year period prior to the Funding and Consummation Date
(the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of LandCARE or any Subsidiary thereof for the purpose or
with the intent of enticing such employee away from or out of the employ of
LandCARE or any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within one-year prior to the Funding and Consummation Date, a customer of
LandCARE or any Subsidiary thereof, of the Company or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with LandCARE within the Territory;
-44-
<PAGE>
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the landscaping
business or any related services business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by LandCARE or
any Subsidiary thereof or for which, to the actual knowledge of such Stockholder
after due inquiry, LandCARE or any Subsidiary thereof made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) except on behalf of LandCARE or any Subsidiary, disclose
customers, whether in existence or proposed, of the Company to any Person, for
any reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment 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.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
LandCARE as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to LandCARE for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by LandCARE in the event of breach by such Stockholder,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of LandCARE and the
Subsidiaries thereof on the date of the execution of this Agreement and the
current plans of LandCARE and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against LandCARE or any subsidiary thereof, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by LandCARE of
such covenants. The covenants contained in Section 13 shall not be affected by
any
-45-
<PAGE>
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or LandCARE, such as operational policies, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the Other
Founding Companies' and/or LandCARE's respective businesses. The Stockholders
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of LandCARE, (b) following
the Closing, such information may be disclosed by the Stockholders as is
required in the course of performing their duties for LandCARE or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order of
any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Stockholders shall,
if possible, give prior written notice thereof to LandCARE and provide LandCARE
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, LandCARE shall be entitled to an injunction restraining such Stockholders
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting LandCARE from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages. In the event the transactions contemplated by this Agreement are not
consummated, Stockholders shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
Company. Each Stockholder further agrees that in the event the transactions
contemplated herein are not consummated (i) neither the Company nor any
Stockholder can thereafter use any confidential information of the Other
Founding Companies for any purpose and (ii) upon written request of any Other
Founding Company to the Company, the Company and Stockholders will return all
confidential information pertaining to such Other Founding Company to such Other
Founding Company.
14.2 LANDCARE AND NEWCO. LandCARE and Newco recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the Company, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of
-46-
<PAGE>
the Company's business. LandCARE and Newco agree that, prior to the Closing, or
if the Transactions contemplated by this Agreement are not consummated, they
will not disclose such confidential information to any Person for any purpose or
reason whatsoever, except (a) to authorized representatives of the Company, (b)
to counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information is or becomes known to the public generally through no
fault of LandCARE or Newco, (ii) disclosure is required by law or the order of
any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), LandCARE and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party, and (d) to the public to the extent necessary or
advisable in connection with the filing of the Registration Statement and the
IPO and the securities laws applicable thereto and to the operation of LandCARE
as a publicly held entity after the IPO. In the event of a breach or threatened
breach by LandCARE or Newco of the provisions of this Section 14.2, the Company
and the Stockholders shall be entitled to an injunction restraining LandCARE and
Newco from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the Company and the
Stockholders from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by LandCARE, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, the trustees of which so agree), for a period of
two years from the Funding and Consummation Date, except pursuant to Section 17
hereof, none of the Stockholders shall sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint, or otherwise dispose of any shares of
LandCARE Stock received by the Stockholders in the Merger. The certificates
evidencing the LandCARE Stock delivered to the Stockholders pursuant to Section
3 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as LandCARE may deem necessary or
appropriate:
-47-
<PAGE>
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.
LandCARE agrees, however, to use reasonable efforts to implement an arrangement
with a nationally recognized investment banking firm pursuant to which such firm
will facilitate sales by the Stockholders beginning after the date one year
after the Funding and Consummation Date; and in the event such an arrangement is
implemented on terms reasonably satisfactory to LandCARE, LandCARE will waive
the foregoing restriction to the extent reasonably necessary to permit the
Stockholders to participate in such arrangement.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
LandCARE Stock to be delivered to the Stockholders pursuant to this Agreement
have not been and will not be registered under the 1933 Act (except as provided
in Section 17 hereof) and therefore may not be resold without compliance with
the 1933 Act. The LandCARE Stock to be acquired by such Stockholders pursuant to
this Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of LandCARE Stock issued
to such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the LandCARE Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the LandCARE Stock to be acquired pursuant to
this Agreement and can
-48-
<PAGE>
afford to sustain a total loss of such investment and have such knowledge and
experience in financial and business matters that they are capable of evaluating
the merits and risks of the proposed investment in the LandCARE Stock. The
Stockholders party hereto have had an adequate opportunity to ask questions and
receive answers from the officers of LandCARE 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
LandCARE, the plans for the operations of the business of LandCARE, 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.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever LandCARE proposes to register any LandCARE Stock for
its own or others account under the 1933 Act for a public offering, other than
(i) any shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by LandCARE (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, LandCARE shall give each of
the Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, LandCARE shall cause to be included in such registration all of the
LandCARE Stock issued to the Stockholders pursuant to this Agreement (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security which is issued by
LandCARE as) a dividend or other distribution with respect to, or in exchange
for, or in replacement of such LandCARE Stock) which any such Stockholder
requests, provided that LandCARE 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 written opinion of tax counsel to LandCARE or its independent
auditors, jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free organization under Section 351 of the
Code. In addition, if LandCARE is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 17.1 that the number
of shares to be sold by persons other than LandCARE is greater than the number
of such shares which can be offered without adversely affecting the offering,
LandCARE may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by LandCARE after the IPO, such reduction
shall be made first by reducing the number of shares to be sold by persons other
than LandCARE, the Stockholders and the stockholders of the Other Founding
Companies (collectively, the Stockholders and the stockholders of the other
Founding Companies 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.
-49-
<PAGE>
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
LandCARE Stock issued to the Founding Stockholders pursuant to this Agreement
and the Other Agreements which have not been previously registered or sold and
which are not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that LandCARE
file a registration statement under the 1933 Act covering the registration of
the shares of LandCARE Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by LandCARE as) a dividend or other distribution
with respect to, or in exchange for, or in replacement of such LandCARE Stock)
then held by such Founding Stockholders (a "Demand Registration"). Within ten
(10) days of the receipt of such request, LandCARE shall give written notice of
such request to all other Founding Stockholders and shall, as soon as
practicable but in no event later than 45 days after notice from any
Stockholder, file and use its best efforts to cause to become effective a
registration statement covering all such shares. LandCARE shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
the registration statement relating to such Demand Registration current and
effective for not less than 120 days (or such shorter period as is required to
sell all of the shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of LandCARE's disinterested directors (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for up to a 60 day period after the date on
which LandCARE would otherwise be required to make such filing pursuant to the
foregoing paragraph if such directors determine in good faith that the filing of
such a registration statement or the making of any required disclosure in
connection therewith would have a material adverse effect on LandCARE or
interfere with a transaction in which LandCARE is then engaged or is then
pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration LandCARE has fixed plans to file within 60 days after such request
a registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders'
LandCARE Stock shall be initiated under this Section 17.2 until 90 days after
the effective date of such registration unless LandCARE is no longer proceeding
diligently to effect such registration; provided that LandCARE shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by
LandCARE as a consequence of the exercise of its rights under this Section 17.2,
then the period during which such demand registration may be requested by the
Founding Stockholders shall be extended for an equal number of days.
-50-
<PAGE>
17.3 REGISTRATION PROCEDURES. Whenever LandCARE is required to register
shares of LandCARE Stock pursuant to Sections 17.1 and 17.2, LandCARE will, as
expeditiously as possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, LandCARE
will furnish a representative of the Stockholders with copies of all such
documents proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that LandCARE shall not be required
to become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of LandCARE Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
LandCARE are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that LandCARE
is required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, LandCARE will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
-51-
<PAGE>
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by LandCARE.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, LandCARE
shall indemnify, to the extent permitted by law, each Stockholder and each
Person who controls such Stockholder (an "Indemnified Party") against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) arising out of or resulting from
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or associated term
sheet or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as the same are caused by or contained in or omitted
from any information furnished in writing to LandCARE by such Indemnified Party
expressly for use therein or by such Indemnified Party's failure to deliver a
copy of the registration statement or prospectus or any amendment or supplements
thereto after LandCARE has furnished such Indemnified Party with a sufficient
number of copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to LandCARE in writing such information as is
reasonably requested by LandCARE for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, LandCARE, its
directors and officers and each person who controls LandCARE (within the meaning
of the 1933 Act) against any losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses of investigation) resulting
from any untrue or alleged untrue statement of a material fact or any omission
or alleged omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in information so furnished in writing
by such Stockholder specifically for use in preparing the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.4 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without
-52-
<PAGE>
its consent (but such consent shall not be unreasonably withheld). An
indemnifying party who is not entitled or elects not to assume the defense of a
claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party, a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, LandCARE
and each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
LandCARE's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of LandCARE
stock to the public without registration, LandCARE agrees to use its reasonable
efforts to:
(i) make and keep public information regarding LandCARE available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of LandCARE under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted LandCARE Common
Stock, furnish to each Stockholder forthwith upon written request a written
statement by LandCARE as to its compliance with the reporting requirements of
Rule 144 (at any time from and after 90 days following the effective date of the
Registration Statement), and of the 1933 Act and the 1934 Act (any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of LandCARE, and such other reports and documents so
filed as a Stockholder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Stockholder to sell any such shares without
registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, LandCARE and Newco shall
each deliver or cause to be delivered to the other on the Funding and
Consummation Date, and at such
-53-
<PAGE>
other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate with
LandCARE 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.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
LandCARE, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and LandCARE and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and
LandCARE, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the Company shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, LandCARE will pay the fees, expenses and disbursements of
LandCARE 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 LandCARE under this Agreement, including the
fees and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and
any
-54-
<PAGE>
other person or entity retained by LandCARE or by Notre Capital Ventures II,
L.L.C., and the costs of preparing and filing the Registration Statement. Each
Stockholder shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than Transfer Taxes, if
any, imposed by the State of Delaware. Each Stockholder shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or LandCARE, will pay all
taxes due upon receipt of the consideration payable pursuant to Section 3
hereof. The Stockholders acknowledge that the risks of the transactions
contemplated hereby include tax risks, with respect to which the Stockholders
are relying solely on the opinion contemplated by Section 8.12 hereof.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to LandCARE, or Newco, addressed to them at:
LandCARE USA, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II or to the address of the Company set forth below, with copies
to:
Miranda K. Mandel
Neal, Gerber & Eisenberg
Two N. LaSalle Street, 22nd Floor
Chicago, Illinois 60602
-55-
<PAGE>
(c) If to any Company, addressed to it at:
15195 Martin Drive
Eden Prairie, Minnesota 55344
Attention: David K. Luse
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
-56-
<PAGE>
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of LandCARE, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the LandCARE Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving LandCARE Stock in connection with the Merger and each future
holder of such LandCARE Stock.
-57-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
LANDCARE USA, INC.
By:
William Murdy
Chief Executive Officer
ARTEKA ACQUISITION CORP.
By:
William Fiedler
Vice President
ARTEKA NATURAL ACQUISITION CORP.
By:____________________________________
William Fiedler
Vice President
ARTEKA NURSERIESACQUISITION CORP.
By:____________________________________
William Fiedler
Vice President
-58-
<PAGE>
ARTEKA CORPORATION
By:____________________________________
Name:
Title:
ARTEKA NATURAL GREEN CORPORATION
By:____________________________________
Name:
Title:
ARTEKA NURSERIES, INC.
By:____________________________________
Name:
Title:
STOCKHOLDERS:
_________________________________________
David K. Luse
-59-
<PAGE>
_________________________________________
O. Charles Brown as Trustee of the David
Luse Trust for Andrea Luse
_________________________________________
O. Charles Brown as Trustee of the David
Luse Trust for Kiel Luse
_________________________________________
O. Charles Brown as Trustee of the David
Luse Trust for Allison Luse
_________________________________________
O. Charles Brown as Trustee of the David
Luse Trust for Michael Thompson
_________________________________________
Stewart Hanson
_________________________________________
Scott Shanesy
_________________________________________
O. Charles Brown
-60-
<PAGE>
SCHEDULE 6.4
None.
-61-
<PAGE>
SCHEDULE 6.5
None.
-62-
<PAGE>
SCHEDULE 6.7
None.
-63-
<PAGE>
SCHEDULE 6.8
None.
-64-
<PAGE>
SCHEDULE 6.9
None.
-65-
<PAGE>
SCHEDULE 6.12
1. The Agreement with D.R. Church is structured as an exchange agreement rather
than as a merger agreement.
2. The Agreements with Desert Care and Arteka Nurseries provide for S
corporation distributions.
3. The Agreements with Four Seasons and D. R. Church exclude a charitable
remainder trust and an ESOP, respectively, from the normal indemnity provisions.
4. The Agreement with Southern Tree provides for the release from individual
guaranties of a non-stockholder who has guaranteed company debt, and requires
Southern to separate a credit facility now cross guaranteed by Southern and an
affiliate.
5. The Agreement with Desert Care notes that Desert Care has done its accounting
and taxes on a cash basis and provides that LandCARE will indemnify the
Stockholder against up to $450,000 in deferred taxes resulting from Desert
Care's termination of its S corporation election, and provides that the
Stockholder will indemnify Desert Care and LandCARE against deferred income tax
liabilities to the extent they exceed $450,000.
-66-
<PAGE>
SCHEDULE 6.15
None.
-67-
<PAGE>
SCHEDULE 9.12
D. R. Church Landscape Co., Inc. - Bruce A. Church
Desert Care Landscaping, Inc. - Jeff A. Meyer
Ground Control Landscaping, Inc. - Mark S. Yahn
Four Seasons Landscape & Maintenance - James R. Marcus
Trees, Inc. - Linda Benge
Southern Tree and Landscape Companies - Roger Braswell
Arteka Corporation - David Luse
-68-
EXHIBIT 10.4
AGREEMENT AND PLAN OF ORGANIZATION
dated as of March 17, 1998
by and among
LANDCARE USA, INC.
DESERT CARE ACQUISITION CORP.
(a subsidiary of LandCARE USA, Inc.)
DESERT CARE LANDSCAPING, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................5
1.3 Certificate of Incorporation, By-laws; Board of Directors and
Officers of Surviving Corporation................................5
1.4 Certain Information With Respect to the Capital Stock of the
Company, LandCARE and Newco......................................6
1.5 Effect of Merger.................................................6
2. CONVERSION OF STOCK....................................................7
2.1 Manner of Conversion.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 Due Organization.................................................9
5.2 Authorization...................................................10
5.3 Capital Stock of the Company....................................10
5.4 Transactions in Capital Stock, Organization Accounting..........10
5.5 No Bonus Shares.................................................10
5.6 Subsidiaries....................................................10
5.7 Predecessor Status; etc.........................................10
5.8 Spin-off by the Company.........................................11
5.9 Financial Statements............................................11
5.10 Liabilities and Obligations.....................................11
5.11 Accounts and Notes Receivable...................................11
5.12 Permits and Intangibles.........................................12
5.13 Environmental Matters...........................................12
5.14 Personal Property...............................................13
5.15 Significant Customers; Material Contracts and Commitments.......13
5.16 Real Property...................................................14
5.17 Insurance.......................................................14
5.18 Compensation; Employment Agreements; Organized Labor Matters....15
-i-
<PAGE>
5.19 Employee Plans..................................................15
5.20 Compliance with ERISA...........................................16
5.21 Conformity with Law; Litigation.................................17
5.22 Taxes...........................................................17
5.23 No Violations; No Consents Required, Etc.......................18
5.24 Absence of Changes..............................................18
5.25 Deposit Accounts; Powers of Attorney............................20
5.26 Validity of Obligations.........................................20
5.27 Relations with Governments......................................20
5.28 Disclosure......................................................20
5.29 [Intentionally Omitted].........................................21
5.30 No Interests In Other Businesses................................21
5.31 Authority; Ownership............................................21
5.32 Preemptive Rights...............................................21
5.33 No Intention to Dispose of LandCARE Stock.......................21
6. REPRESENTATIONS OF LANDCARE AND NEWCO.................................22
6.1 Due Organization................................................22
6.2 Authorization...................................................22
6.3 Capital Stock of LandCARE and Newco.............................22
6.4 Transactions in Capital Stock, Organization Accounting..........22
6.5 Subsidiaries....................................................23
6.6 Financial Statements............................................23
6.7 Liabilities and Obligations.....................................23
6.8 Conformity with Law; Litigation.................................23
6.9 No Violations...................................................24
6.10 Validity of Obligations.........................................24
6.11 LandCARE Stock..................................................24
6.12 Other Agreements; No Side Agreements............................25
6.13 Business; Real Property; Material Agreements....................25
6.14 Taxes...........................................................25
6.15 Absence of Changes..............................................25
6.16 Disclosure......................................................26
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 Access and Cooperation; Due Diligence...........................27
7.2 Conduct of Business Pending Closing.............................27
7.3 Prohibited Activities...........................................28
7.4 No Shop.........................................................29
7.5 Notice to Bargaining Agents.....................................30
7.6 Agreements......................................................30
-ii-
<PAGE>
7.7 Notification of Certain Matters.................................30
7.8 Amendment of Schedules..........................................30
7.9 Cooperation in Preparation of Registration Statement............31
7.10 Final Financial Statements......................................32
7.11 Further Assurances..............................................32
7.12 Authorized Capital..............................................32
7.13 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott-Rodino Act").......................32
7.14 Stockholders of LandCARE........................................33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......33
8.1 Representations and Warranties; Performance of Obligations......33
8.2 Satisfaction....................................................34
8.3 No Litigation...................................................34
8.4 Opinion of Counsel..............................................34
8.5 Registration Statement..........................................34
8.6 Consents and Approvals..........................................34
8.7 Good Standing Certificates......................................34
8.8 No Material Adverse Change......................................35
8.9 Closing of IPO..................................................35
8.10 Secretary's Certificate.........................................35
8.11 Employment Agreements...........................................35
8.12 Tax Matters.....................................................35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO.............35
9.1 Representations and Warranties; Performance of Obligations......35
9.2 No Litigation...................................................36
9.3 Secretary's Certificate.........................................36
9.4 No Material Adverse Effect......................................36
9.5 Stockholders' Release...........................................36
9.6 Satisfaction....................................................36
9.7 Termination of Related Party Agreements.........................36
9.8 Opinion of Counsel..............................................37
9.9 Consents and Approvals..........................................37
9.10 Good Standing Certificates......................................37
9.11 Registration Statement..........................................37
9.12 Employment Agreements...........................................37
9.13 Closing of IPO..................................................37
9.14 FIRPTA Certificate..............................................37
-iii-
<PAGE>
9.15 Environmental Reviews...........................................37
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING..............38
10.1 Release From Guarantees; Repayment of Certain Obligations.......38
10.2 Preservation of Tax and Accounting Treatment....................38
10.3 Preparation and Filing of Tax Returns; Payment of Deferred Tax
Liabilities.....................................................38
10.4 Directors.......................................................39
11. INDEMNIFICATION.......................................................39
11.1 General Indemnification by the Stockholders.....................39
11.2 Indemnification by LandCARE.....................................41
11.3 Third Person Claims.............................................41
11.4 Exclusive Remedy................................................42
11.5 Limitations on Indemnification..................................43
12. TERMINATION OF AGREEMENT..............................................43
12.1 Termination.....................................................43
12.2 Liabilities in Event of Termination.............................44
13. NONCOMPETITION........................................................44
13.1 Prohibited Activities...........................................44
13.2 Damages.........................................................45
13.3 Reasonable Restraint............................................45
13.4 Severability; Reformation.......................................45
13.5 Independent Covenant............................................46
13.6 Materiality.....................................................46
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................46
14.1 Stockholders....................................................46
14.2 LandCARE and Newco..............................................47
14.3 Damages.........................................................47
14.4 Survival........................................................47
15. TRANSFER RESTRICTIONS.................................................47
15.1 Transfer Restrictions...........................................47
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................48
16.1 Compliance with Law.............................................48
16.2 Economic Risk; Sophistication...................................49
-iv-
<PAGE>
17. REGISTRATION RIGHTS...................................................49
17.1 Piggyback Registration Rights...................................49
17.2 Demand Registration Rights......................................50
17.3 Registration Procedures.........................................51
17.4 Indemnification.................................................52
17.5 Underwriting Agreement..........................................53
17.6 Rule 144 Reporting..............................................53
18. GENERAL...............................................................54
18.1 Cooperation.....................................................54
18.2 Successors and Assigns..........................................54
18.3 Entire Agreement................................................54
18.4 Counterparts....................................................54
18.5 Brokers and Agents..............................................54
18.6 Expenses........................................................55
18.7 Notices.........................................................55
18.8 Governing Law...................................................56
18.9 Survival of Representations and Warranties......................56
18.10 Exercise of Rights and Remedies.................................56
18.11 Time............................................................56
18.12 Reformation and Severability....................................56
18.13 Remedies Cumulative.............................................57
18.14 Captions........................................................57
18.15 Amendments and Waivers..........................................57
-v-
<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Benefit Plans (the Benefit Plans Schedule)
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.30 No Interests in Other Businesses
5.31 Authority; Ownership
6.4 Capital Stock etc.
6.5 Subsidiaries
6.7 Liabilities
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 OtherAgreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
March 17, 1998, by and among LandCARE USA, Inc., a Delaware corporation
("LandCARE"), DESERT CARE ACQUISITION CORP., a Delaware corporation ("Newco"),
DESERT CARE LANDSCAPING, INC., an Arizona corporation (the "Company"), and the
stockholders identified on the signature pages hereof (the "Stockholders"). The
Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on or about
March 6, 1998 solely for the purpose of completing the transactions set
forth herein, and is a wholly-owned subsidiary of LandCARE, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective Stockholders that Newco
merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation (as defined below);
WHEREAS, LandCARE is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional landscaping and related
services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "LandCARE Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of LandCARE, each of the Other Founding Companies and each of
the subsidiaries of LandCARE that are parties to the Other Agreements have
approved and adopted the LandCARE Plan of Organization as an integrated
plan pursuant to which the Stockholders and the stockholders of each of
the Other Founding Companies will transfer the capital stock of each of
the Founding Companies (as defined herein) to LandCARE and the
stockholders of each of the Other Founding Companies will acquire the
stock of LandCARE (but not cash or other property) as a tax-free transfer
of property under Section 351 of the Code;
-1-
<PAGE>
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the LandCARE Plan of Organization
in order to transfer the capital stock of the Company to LandCARE;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by LandCARE prior to the Funding
and Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
-2-
<PAGE>
"Draft Registration Statement" means the March 12, 1998 draft of the
Registration Statement, and any corrections thereto and supplemental information
delivered by LandCARE to the Company for delivery to the Stockholders prior to
the time this Agreement is delivered to LandCARE.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
(a) Arteka Corporation, a Minnesota corporation, as well as its
affiliates Arteka Natural Green Corporation, a Minnesota corporation and
Arteka Nurseries, Inc., a Minnesota corporation;
(b) D. R. Church Landscape Co., Inc., an Illinois corporation;
(c) Desert Care Landscaping, Inc., an Arizona corporation;
(d) Four Seasons Landscape and Maintenance, Inc., a California
corporation;
(e) Ground Control Landscaping, Inc., a Florida corporation;
(f) Southern Tree & Landscape Co., Inc., a North Carolina
corporation; and
(g) Trees, Inc., a Nevada corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of LandCARE Stock pursuant to the
Registration Statement described herein.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"LandCARE" has the meaning set forth in the first paragraph of this
Agreement.
"LandCARE Charter Documents" has the meaning set forth in Section 6.1.
"LandCARE Stock" means the common stock, par value $.01 per share, of
LandCARE.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
-3-
<PAGE>
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by LandCARE and the Underwriters
of the public offering price of the shares of LandCARE Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of LandCARE Stock to be issued
in the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"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 (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Arizona.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
-4-
<PAGE>
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to LandCARE at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, the Company shall be the
surviving party in the Merger and the Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the Merger,
such By-laws shall be the By-laws of the Surviving Corporation until they shall
thereafter be duly amended (and such Bylaws shall be amended from time to time,
if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that William
Murdy or another officer of LandCARE shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the Company
shall be
-5-
<PAGE>
increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger William Fiedler and another officer of LandCARE shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
LANDCARE AND NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, LandCARE and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of LandCARE will consist of 100,000,000 shares of
LandCARE Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, 5,000,000 shares of preferred stock, $.01
par value, of which no shares will be issued and outstanding, and 3,000,000
shares of Restricted Voting Common Stock, $.01 par value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as otherwise set
forth in the Registration Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred (100)
shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on
-6-
<PAGE>
whatever account, including subscriptions to shares, and all taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the Company and Newco
shall be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Company and Newco;
and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the State of Incorporation vested in the Company
and Newco, shall not revert or be in any way impaired by reason of the Merger.
Except as otherwise provided herein, the Surviving Corporation shall thenceforth
be responsible and liable for all the liabilities and obligations of the Company
and Newco and any claim existing, or action or proceeding pending, by or against
the Company or Newco may be prosecuted as if the Merger had not taken place, or
the Surviving Corporation may be substituted in their place. Neither the rights
of creditors nor any liens upon the property of the Company or Newco shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Newco shall attach to the Surviving Corporation, and may be enforced against
such Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) LandCARE Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
deemed to represent (1) the right to receive the number of shares of LandCARE
Stock set forth on Annex I hereto with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to such
holder;
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of LandCARE Stock or
other consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of LandCARE, automatically be converted into one
fully paid and non-assessable share of common stock of the Surviving Corporation
which shall constitute all of the issued and outstanding shares of common stock
of the Surviving Corporation immediately after the Effective Time of the Merger.
-7-
<PAGE>
All LandCARE Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
LandCARE Stock by reason of the provisions of the Certificate of Incorporation
of LandCARE or as otherwise provided by the Delaware GCL. All LandCARE Stock
received by the Stockholders shall be issued and delivered to the Stockholders
free and clear of any liens, claims or encumbrances of any kind or nature. All
voting rights of such LandCARE 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. At the Effective Time of the Merger,
LandCARE shall have no class of capital stock issued and outstanding other than
the LandCARE Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of LandCARE Stock and the amounts of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to LandCARE at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
Stockholders, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholders' expense,
affixed and canceled. The Stockholders agree promptly to cure any deficiencies
with respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to LandCARE for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
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 Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and
-8-
<PAGE>
(z) the closing with respect to the IPO shall occur and be completed. The date
on which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as 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 the parties if (a) the underwriting agreement in respect
of the IPO is terminated pursuant to the terms of such underwriting agreement,
or (b) the conditions set forth in Sections 8.5 and 8.9 hereof are not being
satisfied as of the Funding and Consummation Date. This Agreement shall also in
any event automatically terminate if the Funding and Consummation Date has not
occurred within 15 business days following the Closing Date.
Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders jointly and severally represents and warrants
that all of the representations and warranties in this Section 5 are true at the
date of this Agreement and, subject to Section 7.8 hereof, shall be true at the
time of Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
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 5.22, and the representations
and warranties set forth in Section 5.31 hereof shall survive perpetually. For
purposes of this Section 5, the term "Company" shall mean and refer to the
Company and all of its Subsidiaries, if any. For purposes of this Section 5, the
phrase "knowledge of the Stockholders" shall mean the actual knowledge of the
Stockholders after due inquiry of the appropriate management personnel employed
by the Company.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
-9-
<PAGE>
5.2 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 this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and 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 Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the LandCARE Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the LandCARE Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
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 all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
-10-
<PAGE>
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the balance sheets of the Company as of the dates shown thereon and
the related statements of operations, stockholder's equity and cash flows for
the periods shown thereon, together with the related notes and schedules (such
balance sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules being referred to herein as the
"Financial Statements"). The Financial Statements have been prepared from the
books and records of the Company as of the dates and for the periods covered
thereby. The books of account of the Company have been kept accurately in the
ordinary course of business, the transactions recorded therein represent bona
fide transactions, and the revenues, expenses, assets and liabilities of the
Company have been properly recorded therein all material respects.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and 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 and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
knowledge of the Stockholders, except as set forth on Schedule 5.10, since the
Balance Sheet Date the Company has not incurred any material liabilities of any
kind, character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to LandCARE on Schedule 5.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed, a good faith and
reasonable estimate of the maximum amount which the Company reasonably expects
will be payable and the amount, if any, accrued or reserved for each such
potential liability on the Company's Financial Statements; in the case of any
such liability for which no estimate has been provided, the estimate for
purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list 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, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are
-11-
<PAGE>
collectible in the amounts shown on Schedule 5.11, net of reserves reflected in
the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to LandCARE an accurate list and summary description
(which is set forth on Schedule 5.12) of all such Licenses, and of any
trademarks, trade names, patents, patent applications and copyrights owned or
held by the Company or by any of its employees if used or held for use by the
Company in the conduct of its business (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property owned by any employees of the Company will be assigned or licensed to
the Company for no additional consideration. To the knowledge of the
Stockholders, the Licenses and other rights listed on Schedules 5.12 and 5.13
are valid, and the Company has not received any notice that any Person intends
to cancel, terminate or not renew any such License or other right. The Company
has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees 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,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (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 Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders, there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which
-12-
<PAGE>
the Company has transported or disposed of Hazardous Materials or arranged for
the transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could reasonably be expected to lead to any claim against the Company, LandCARE
or Newco 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, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act or comparable state or local statutes or
regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to LandCARE an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the Company included in "property" or "plant, property and
equipment" or any similar category on the balance sheet of the Company as of the
Balance Sheet Date, (y) all other tangible personal property owned by the
Company with an individual fair market value (in the reasonable judgment of the
Stockholders; it being understood that the Stockholders are not obtaining
appraisals of any such property in connection with the preparation of Schedule
5.14) in excess of $25,000 (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date and (z) all material leases and agreements in
respect of personal property, including, in the case of each of (x), (y) and
(z), (1) true, complete and correct copies of all such leases and (2) an
indication as to which assets are currently owned, or were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as
set forth on Schedule 5.14, (i) all material 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 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted and (iii) all leases and agreements included on Schedule 5.14
are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.15) of all customers (persons or entities) representing 1% or more of
the Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 25
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, 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 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to LandCARE. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options
-13-
<PAGE>
to purchase land and other contracts which are not terminable on sixty days or
less notice and involve payments by the Company in any twelve-month period in
excess of $25,000. The Company has also indicated on Schedule 5.15 a summary
description of all plans or projects involving the opening of new operations,
expansion of existing operations, the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $25,000 by
the Company during any 12-month period. All of the Material Contracts are in
full force and effect and constitute valid and binding agreements of the parties
(and their successors) thereto in accordance with their respective terms.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in substantially the form of Annex VI hereto (or with terms substantially
similar to those of Annex VI) at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affilliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in
substantially the form of Annex VI hereto (or with terms substantially similar
to those of Annex VI) will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good and insurable title to any real
property owned by it that is not shown on Schedule 5.16 as property intended to
be sold or distributed prior to the Closing Date, subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to LandCARE (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the Company,
(ii) an accurate list of all
-14-
<PAGE>
insurance loss runs or workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the Company is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws, and to the knowledge
of the Stockholders provide adequate coverage against the risks involved in the
Company's business. All of such insurance policies are currently in full force
and effect. Since January 1, 1995, no insurance carried by the Company has been
canceled by the insurer and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the Company,
listing all employment agreements with such officers, directors and key
employees and the rate of compensation (and the portions thereof attributable to
salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided
to LandCARE true, complete and correct copies of any employment agreements for
persons listed on Schedule 5.18. Since the Balance Sheet Date, there have been
no material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not 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) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, 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.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to LandCARE an
accurate schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all
employee benefit plans of the Company, including all employment agreements and
other agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no 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
-15-
<PAGE>
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on the Benefit Plans Schedule.
Except as set forth on the Benefit Plans Schedule, the Company is not required
to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of the Company's or any Subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule 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. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
-16-
<PAGE>
(iv) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited to, any
liability to any multiemployer plan or the PBGC under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty, or being subject to
any statutory lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the knowledge of the Stockholders,
there is no basis for any such claim, action, suit or proceeding. The Company
has conducted and is now conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations, including all such orders and other governmental
approvals set forth on Schedules 5.12 and 5.13, except where any such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against it for federal, state
and other Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any claim for
Taxes, whether pending or threatened, has been received. All Tax due from the
Company for any period ended before the date hereof, including interest and
penalties (whether or not shown on any Return) has been paid. The amounts shown
as accruals for taxes on the Company Financial Statements are sufficient for the
payment of all Taxes (including penalties and interest) for all periods ended on
or before that date. Copies of (i) any tax examinations, (ii) extensions of
statutory limitations and (iii) the federal and local income tax returns and
franchise tax returns of the Company for their last three (3) fiscal years, or
such shorter period of time as any of them shall have existed, are attached
hereto as Schedule 5.22 or have otherwise been delivered to LandCARE. The
Company has disclosed to LandCARE when its taxable year ends. The Company uses
the cash method of accounting for income tax purposes, and the Company's methods
of accounting have not changed in the past five years. The Company is not an
investment company as defined in Section 351(e)(1) of the Code. The Company is
not and has not during the last five years been a party to any tax sharing
agreement or agreement of similar effect. The Company is not and has not during
the last five years been a member of any consolidated
-17-
<PAGE>
group. Except as described on Schedule 5.22, the Company has not received, been
denied, or applied for any private letter ruling during the last five years.
The Stockholders made a valid election under the provisions of Subchapter
S of the Code and the Company has not, within the past five years, been taxed
under the provisions of Subchapter C of the Code. The Stockholders shall pay,
and they hereby indemnify LandCARE, the Company and Newco against, all income
taxes payable for all periods ending on or prior to the Funding and Consummation
Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially 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 material violation or breach of 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 5.23, 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 material right or benefit. Except as set forth on
Schedule 5.23, none of the Material Documents prohibits the use or publication
by the Company, LandCARE or Newco 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, LandCARE, Newco or any Other Founding Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty 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 by
the Company of any options, warrants, calls, conversion rights or commitments;
-18-
<PAGE>
(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 sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including, without
limitation, the Stockholders and their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii)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;
(ix) 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;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii)any contract entered into or commitment incurred involving any
liability or commitment to make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 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 and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's,
-19-
<PAGE>
employees' or other like liens arising in the ordinary course of business, or
(3) liens set forth on Schedule 5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
LandCARE an accurate schedule (which is set forth on Schedule 5.25) as of the
date of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of LandCARE utilized in
connection with the IPO, the Stockholders become aware of any fact or
circumstance which would affect the accuracy of a representation or warranty of
the Stockholders in this Agreement in any material respect, the Stockholders
shall immediately give notice of such fact or circumstance to LandCARE. Subject
to the
-20-
<PAGE>
provisions of Section 7.8, such notification shall not relieve either the
Company or the Stockholders of their respective obligations under this
Agreement.
(b) 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 the 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; (ii)
that neither LandCARE or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company, the
Stockholders or any other person affiliated or associated with the Company for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or to occur at all; and (iii) that the decision of
Stockholders to enter into this Agreement, or to vote in favor of or consent to
the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to LandCARE or the prospective IPO.
Notwithstanding the foregoing, LandCARE has agreed and herein acknowledges its
agreement to use its reasonable efforts to consummate the LandCARE Plan of
Organization and IPO as contemplated hereby.
5.29 [INTENTIONALLY OMITTED]
5.30 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.30, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.31 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
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.32 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.
5.33 NO INTENTION TO DISPOSE OF LANDCARE STOCK. No Stockholder is under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of LandCARE Stock to be received as described in Section 3.1 of this
Agreement.
-21-
<PAGE>
6. REPRESENTATIONS OF LANDCARE AND NEWCO
LandCARE and Newco jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and, subject to Section 7.8 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 twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 6.14
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 6.14.
6.1 DUE ORGANIZATION. LandCARE and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. LandCARE and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, 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 By-laws of LandCARE (the "LandCARE Charter Documents") have
been or will be filed as exhibits to the Registration Statement, and copies
thereof and copies of the Certificate of Incorporation and Bylaws of Newco will
be provided to the Stockholders promptly upon request.
6.2 AUTHORIZATION. (i) The respective representatives of LandCARE and
Newco executing this Agreement have the authority to enter into and bind
LandCARE and Newco to the terms of this Agreement and (ii) LandCARE and Newco
have the full legal right, power and authority to enter into this Agreement and
consummate the Merger. All corporate acts and other proceedings required to have
been taken by LandCARE and Newco to authorize the execution, delivery and
performance of this Agreement and the consummation of the Merger have been duly
and properly taken.
6.3 CAPITAL STOCK OF LANDCARE AND NEWCO. The authorized capital stock of
LandCARE and Newco is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of Newco are owned
by LandCARE. All of the issued and outstanding shares of the capital stock of
LandCARE and Newco have been duly authorized and validly issued, are fully paid
and nonassessable, and further, such shares were offered, issued, sold and
delivered by LandCARE and Newco in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such shares
were issued in violation of the preemptive rights of any past or present
stockholder of LandCARE or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
LandCARE or Newco to issue any of their respective authorized but unissued
capital stock; and (ii) neither LandCARE nor Newco has any obligation
(contingent or
-22-
<PAGE>
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. Complete and accurate copies of all stock option or stock
purchase plans and a list of all outstanding options, warrants or other rights
to acquire shares of the stock of LandCARE will be provided to the Stockholders
promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. LandCARE has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other newly incorporated Subsidiaries that have conducted
no business and have been created solely to effectuate the business of LandCARE.
Except as set forth in the preceding sentence or set forth on Schedule 6.5
hereto, neither LandCARE nor any Subsidiary of LandCARE presently owns, of
record or beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither LandCARE nor Newco,
directly or indirectly, is a participant in any joint venture, partnership or
other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The historical financial statements of LandCARE
included in the Draft Registration Statement (the "LandCARE Financial
Statements") have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the period indicated (except
as noted thereon), and present fairly in all material respects the financial
position of LandCARE as of the date and for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither LandCARE nor any
Subsidiary of LandCARE has any material liabilities, contingent or otherwise,
except as set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither LandCARE nor
any Subsidiary of LandCARE is in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
any of them which would have a Material Adverse Effect, (b) there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
LandCARE or Newco, threatened against or affecting, LandCARE or any Subsidiary
of LandCARE, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any of them, and (c) no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received by LandCARE or Newco. LandCARE and its Subsidiaries have conducted and
are conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
-23-
<PAGE>
6.9 NO VIOLATIONS. LandCARE is not in violation of any LandCARE Charter
Document, and no Subsidiary of LandCARE is in violation of its Certificate of
Incorporation or Bylaws. None of LandCARE, Newco, or, to the knowledge of
LandCARE and Newco, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit to which LandCARE or any Subsidiary of
LandCARE is a party, or by which LandCARE or any Subsidiary of LandCARE, or any
of their respective properties, are bound (collectively, the "LandCARE
Documents"); and (a) the rights and benefits of LandCARE and any Subsidiary of
LandCARE under the LandCARE Documents will not be adversely affected by the
transactions contemplated hereby and (b) the execution and delivery of this
Agreement by LandCARE and Newco and the performance of their obligations
hereunder do not, and the consummation of the transactions contemplated hereby
and compliance with the terms hereof will not, conflict with, or result in any
violation or default (with or without notice or lapse of time, or both), under
or give rise to a right of termination, cancellation, or acceleration of any
obligation or to loss of a material benefit under, or result in the creation of
any lien upon any of the assets of LandCARE or any Subsidiary of LandCARE under,
any provision of (i) the Certificate of Incorporation or Bylaws of LandCARE or
the comparable governing instruments of any Subsidiary of LandCARE, (ii) any
note, bond, mortgage, indenture or deed of trust or any license, lease,
contract, commitment, agreement or arrangement to which LandCARE and any
Subsidiary of LandCARE is a party or by which any of their respective properties
or assets are bound or (iii) any judgment, order, decree or law, ordinance, rule
or regulation, applicable to LandCARE or any Subsidiary of LandCARE or their
respective properties or assets. The execution of this Agreement and the Other
Agreements and the performance of the obligations hereunder and thereunder and
the consummation of the transactions contemplated by the LandCARE Plan of
Organization will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the LandCARE Documents or the
LandCARE Charter Documents. Except as contemplated hereby or described in the
Registration Statement or on Schedule 6.9 hereto, none of the LandCARE 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 by the
LandCARE Plan of Organization in order to remain in full force and effect and
consummation of the transactions contemplated thereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by LandCARE and Newco and the performance of the transactions contemplated
herein have been duly and validly authorized by the respective Boards of
Directors of LandCARE and Newco and this Agreement has been duly and validly
authorized by all necessary corporate action and is a legal, valid and binding
obligation of LandCARE and Newco.
6.11 LANDCARE STOCK. At the time of issuance thereof and delivery to the
Stockholders, the LandCARE Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of LandCARE,
fully paid and nonassessable, and with the exception of restrictions upon resale
set forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
LandCARE Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. Except as set forth above,
-24-
<PAGE>
the LandCARE Stock issued and delivered to the Stockholders shall at the time of
such issuance and delivery be free and clear of any liens, security interests,
claims or encumbrances of any kind or character. The shares of LandCARE Stock to
be issued to the Stockholders pursuant to this Agreement will not be registered
under the 1933 Act except as provided in Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except as described on Schedule
6.12 hereto, each of the Other Agreements is substantially similar to this
Agreement. Neither LandCARE nor Newco has entered or will enter into any
agreement with any of the Other Founding Companies or any of the stockholders of
the Other Founding Companies other than the Other Agreements and the agreements
contemplated by each of the Other Agreements, including the employment
agreements and leases referred to herein or entered into in connection with the
transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. LandCARE was formed in
October 1997 and has conducted only limited operations since that time. Neither
LandCARE nor any Subsidiary thereof has conducted any material business since
the date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither LandCARE nor any Subsidiary of LandCARE owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement other than the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES.LandCARE and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against LandCARE or any Subsidiary
thereof for federal, state and other Taxes (including penalties and interest)
for any such period and no notice of any claim for Taxes, whether pending or
threatened, has been received. All Taxes which LandCARE or any Subsidiary of
LandCARE has been required to collect or withhold have been duly and timely
collected and withheld and have been set aside in accounts for such purposes, or
have been duly and timely paid to the proper governmental authority. All Tax,
including interest and penalties (whether or not shown on any tax return) owed
by LandCARE, any member of an affiliated or consolidated group which includes or
included LandCARE, or with respect to any payment made or deemed made by
LandCARE herein has been paid. The amounts shown as accruals for taxes on
LandCARE Financial Statements are sufficient for the payment of all taxes of the
kinds indicated (including penalties and interest) for all fiscal periods ended
on or before that date. Neither LandCARE nor any Subsidiary thereof has entered
into any tax sharing agreement or similar arrangement. Neither LandCARE nor any
Subsidiary thereof is an investment company as defined in Section 351(e)(1) of
the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
-25-
<PAGE>
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of LandCARE or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of LandCARE
or Newco;
(iii) any change in the authorized capital of LandCARE or Newco or
their outstanding securities or any change in their 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 LandCARE or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of LandCARE or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to LandCARE or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of LandCARE or any Subsidiary thereof or requiring consent of any party
to the transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of LandCARE or
any Subsidiary of LandCARE;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which LandCARE or any Subsidiary of
LandCARE is a party;
(x) any transaction by LandCARE or any Subsidiary of LandCARE
outside the ordinary course of its business;
(xi) any other distribution of property or assets by LandCARE or any
Subsidiary of LandCARE other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with the representations and warranties of
LandCARE and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information
-26-
<PAGE>
furnished by the Company or the Stockholders or the Other Founding Companies or
the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
LandCARE by the Stockholders, the offering and issuance of shares of LandCARE
Stock to the Stockholders and to the stockholders of the Other Founding
Companies pursuant to this Agreement and to the Other Agreements have been made
in compliance with all applicable federal and state securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 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 LandCARE access to all of the
Company's sites, properties, books and records and will furnish LandCARE with
such additional financial and operating data and other information as to the
business and properties of the Company as LandCARE may from time to time
reasonably request. The Company will cooperate with LandCARE and its
representatives, auditors and counsel in the preparation of any documents or
other materials which may be required in connection with any documents or
materials required by this Agreement. LandCARE, Newco, the Stockholders and the
Company will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to the Other Founding Companies as confidential in accordance with
the provisions of Section 14 hereof. In addition, LandCARE will cause each of
the Other Founding Companies to enter into a provision similar to this Section
7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, LandCARE will afford to the officers and authorized representatives of the
Company access to all of LandCARE's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the business and properties of
LandCARE and Newco as the Company may from time to time reasonably request.
LandCARE and Newco will cooperate with the Company, its representatives,
auditors and counsel in the preparation of any documents or other material which
may be required in connection with any documents or materials required by this
Agreement. The Company will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
-27-
<PAGE>
(ii) use its reasonable efforts to 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 all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar governmental
authorities applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
LandCARE (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of LandCARE 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.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of LandCARE, which consent will not be
unreasonably withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) 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;
-28-
<PAGE>
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(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
$25,000 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 and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the 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 for,
-29-
<PAGE>
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than LandCARE, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 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 LandCARE on Schedule 7.5 with proof that any required notice has been
sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by LandCARE or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to LandCARE. Such termination agreements are listed on Schedule 7.6
and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to LandCARE 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 failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. LandCARE and Newco 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 LandCARE or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of LandCARE or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 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
-30-
<PAGE>
continuing obligation until 24 hours prior to the anticipated effectiveness of
the Registration Statement to supplement or amend promptly the Schedules hereto
with respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Schedules, provided however, that supplements and amendments to
Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the
Closing Date, unless such Schedule is to be amended to reflect an event
occurring other than in the ordinary course of business. Notwithstanding the
foregoing sentence, no amendment or supplement to a Schedule prepared by the
Company that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect may be made unless LandCARE 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 LandCARE or Newco 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 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 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, LandCARE shall give the Company notice promptly
after it has knowledge thereof. If LandCARE and a majority of the Founding
Companies (other than the Founding Company seeking to amend or supplement a
Schedule) consent to such amendment or supplement, which consent shall have been
deemed given by LandCARE or any Founding Company if no response is received
within 24 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 12.1(iv) hereof. In the event that the Company
seeks to amend or supplement a Schedule pursuant to this Section 7.8, and
LandCARE 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 12.1(i) hereof. In the event that LandCARE or
Newco seeks to amend or supplement a Schedule pursuant to this Section 7.8 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 12.1(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 7.8. No amendment of or supplement to a Schedule shall be made
later than 24 hours prior to the anticipated effectiveness of the Registration
Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to LandCARE and the
Underwriters all of the information concerning the Company and the Stockholders
reasonably requested by LandCARE or the Underwriters for inclusion in, and will
cooperate with LandCARE and the Underwriters in the
-31-
<PAGE>
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements of the Company, 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 LandCARE if at any time during the period in which a
prospectus relating to the IPO is required to be delivered under the Securities
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. 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 under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and LandCARE 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 ending not later
than 15 days prior to the Funding and Consummation Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
Company for all such fiscal quarters, 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. Such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein). Except as noted in such financial statements, all of
such financial statements will present fairly the results of operations of the
Company for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
LandCARE 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 LandCARE Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best
-32-
<PAGE>
efforts to comply with the Hart-Scott-Rodino Act, and (ii) such compliance by
the Stockholders and the Company shall be deemed a condition precedent in
addition to the conditions precedent set forth in Section 9 of this Agreement,
and such compliance by LandCARE and Newco shall be deemed a condition precedent
in addition to the conditions precedent set forth in Section 8 of this
Agreement. If filings under the Hart-Scott-Rodino Act are required, the costs
and expenses thereof (including legal fees and costs and filing fees) shall be
borne by LandCARE. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF LANDCARE. Promptly after a request by the Company,
LandCARE will deliver to the Company a list of the stockholders of LandCARE as
of the date of this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions.
Subject to Section 12 hereof, 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 8.1, 8.5, 8.8, 8.9 and
8.12. As of the Closing Date or subject to Section 12 hereof, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been satisfied,
the Stockholders (acting in unison) shall have the right to terminate this
Agreement, or in the alternative, waive any condition not so satisfied. Any act
or action of the Stockholders in consummating the Closing or delivering
certificates representing Company Stock as of the Funding and Consummation Date
shall constitute a waiver of any conditions not so satisfied. However, no such
waiver shall be deemed to affect the survival of the representations and
warranties of LandCARE and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of LandCARE and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by LandCARE and Newco 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, respectively, and
signed by the President or any Vice President of LandCARE shall have been
delivered to the Stockholders.
-33-
<PAGE>
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform LandCARE in writing prior to the effectiveness of the
Registration Statement of the existence of an untrue statement of a material
fact or the omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger 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.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for LandCARE, dated the Closing Date, in the form annexed hereto as
Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of LandCARE Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger 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 Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. LandCARE and Newco each 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 LandCARE or Newco is authorized to do business,
showing that each of LandCARE and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
LandCARE and Newco, respectively, for all periods prior to the Closing have been
filed and paid.
-34-
<PAGE>
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to LandCARE or Newco which has had or is reasonably likely
to have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of LandCARE and of Newco, certifying the truth and correctness of attached
copies of the LandCARE's and Newco's respective Certificates of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the boards of directors and, if required, the Stockholders of
LandCARE and Newco approving LandCARE's and Newco's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
under the caption relating to the Company shall have been afforded the
opportunity to enter into an Employment Agreement substantially in the form of
Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the LandCARE Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for LandCARE Stock (but not cash or other property) pursuant to the
LandCARE Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO
The obligations of LandCARE and Newco 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 LandCARE and
Newco 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 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, LandCARE and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, shall
be true and correct in all material
-35-
<PAGE>
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; 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 shall have delivered to LandCARE certificates dated the Closing
Date and the Funding and Consummation Date, respectively, and signed by them to
such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of LandCARE as a result of which the
management of LandCARE (acting in good faith) deems it inadvisable to proceed
with the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. LandCARE 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.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to
LandCARE an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Funding and Consummation 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 5.10 and 5.15 as being claims of or
obligations to the Stockholders, and (y) continuing obligations to Stockholders
relating to their employment by the Company. In the event that the Funding and
Consummation Date does not occur, then the release instrument referenced herein
shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to LandCARE.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by LandCARE, all existing agreements between
the Company and the Stockholders (and entities controlled by the Stockholders)
other than real property leases shall have been canceled effective prior to or
as of the Closing Date, and all real property leases between the
-36-
<PAGE>
Company and the Stockholders (and any entity controlled by the Stockholders)
shall have been amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. LandCARE shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
LandCARE 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 LandCARE, in each state
in which the Company is authorized to do business, showing the Company is in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
each shall enter into an employment agreement substantially in the form of Annex
V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to LandCARE
a certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. LandCARE shall have received a report from an
independent environmental consultant retained by LandCARE at its expense to
conduct an environmental review of the Company's owned and leased sites, and
such report shall not disclose any environmental condition that, in LandCARE's
reasonable judgment, either (i) could be expected to have a Material Adverse
Effect on the Company, or (ii) poses any risk of a substantial liability to the
Company.
-37-
<PAGE>
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. LandCARE
shall use reasonable efforts, including offering its own guarantee, to have the
Stockholders and their spouses released from any and all guarantees of the
Company's indebtedness identified on Schedule 10.1. In the event that LandCARE
cannot obtain such releases from the lenders of any such guaranteed indebtedness
identified on Schedule 10.1 on or prior to 120 days subsequent to the Funding
and Consummation Date, LandCARE shall promptly pay off or otherwise refinance or
retire such indebtedness. LandCARE shall indemnify the Stockholders against, and
shall promptly reimburse the Stockholders for, any amounts which the
Stockholders are obligated to pay under any such guarantees listed on Schedule
10.1, and shall be subrogated to any rights of the Stockholders accruing as a
result of any such payments by the Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, LandCARE shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the LandCARE Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF DEFERRED TAX
LIABILITIES.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit LandCARE to review all such
Tax Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due. All such Tax Returns shall be prepared in the same manner as Tax Returns
have previously been prepared with respect to the Company, including using the
cash method of accounting for income tax purposes.
(ii) LandCARE shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
-38-
<PAGE>
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
(iv) Each of the Company, Newco, LandCARE and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
(v) The parties acknowledge that the Company will incur deferred tax
liabilities resulting from the revocation of the Company's S corporation
election following the Merger. It is agreed that, notwithstanding any other
provisions in this Agreement to the contrary, the Company and LandCARE shall
pay, and shall indemnify the Stockholders against, up to $450,000 of deferred
tax liabilities resulting from the change in the Company's tax status from an S
corporation to a C corporation following the Merger, and the Stockholders shall
pay, and shall indemnify the Company and LandCARE against, all such deferred tax
liabilities to the extent they exceed $450,000.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of LandCARE, as and to
the extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, LandCARE and Newco each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they jointly and severally will
indemnify, defend, protect and hold harmless LandCARE, Newco, and, subsequent to
the Funding and Consummation Date, the Company and the Surviving Corporation at
all times, from and after the date of this Agreement until the Expiration Date
(provided that for purposes of Section 11.1(iii) below, the Expiration Date
shall
-39-
<PAGE>
be the date on which the applicable statute of limitations expires), from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by LandCARE,
Newco, the Company or the Surviving Corporation as a result of or arising from
(i) any breach of the representations and warranties of the Stockholders or the
Company set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the part of the
Stockholders or the Company under this Agreement, or (iii) any liability under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Company or the Stockholders, and provided to
LandCARE or its counsel by the Company or the Stockholders (but in the case of
the Stockholders, only if such statement was provided in writing) which is
contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
such indemnity shall not inure to the benefit of LandCARE, Newco, the Company or
the Surviving Corporation 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 Company or the Stockholders provided, in
writing, corrected information to LandCARE for inclusion in the final
prospectus, and such information was not so included or the final prospectus was
not properly delivered, and provided further, that no Stockholder shall be
liable for any indemnification obligation pursuant to this Section 11.1 to the
extent attributable to a breach of any representation, warranty or agreement
made herein individually by any other Stockholder.
LandCARE and Newco acknowledge and agree that other than the
representations and warranties of the Company or the Stockholders specifically
contained in this Agreement, there are no representations or warranties of the
Company or the Stockholders, either express or implied, with respect to the
transactions contemplated by this Agreement, the Company or its assets,
liabilities and business.
LandCARE and Newco further acknowledge and agree that, should the Funding
and Consummation Date occur, their sole and exclusive remedy with respect to any
and all claims relating to this Agreement and the transactions contemplated in
this Agreement, shall be pursuant to the indemnification provisions set forth in
this Section 11. LandCARE and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
-40-
<PAGE>
11.2 INDEMNIFICATION BY LANDCARE. LandCARE covenants and agrees that it
will indemnify, defend, protect and hold harmless the Stockholders and, prior to
the Funding and Consummation Date, the Company, at all times from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by LandCARE or Newco
of their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
LandCARE or Newco under this Agreement, (iii) any liabilities which the
Stockholders may incur due to LandCARE's or Newco's failure to be responsible
for the liabilities and obligations of the Company as provided in Section 1
hereof (except to the extent that LandCARE or Newco has claims against the
Stockholders by reason of such liabilities); or (iv) 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 LandCARE, Newco 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
LandCARE or Newco or any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by Indemnifying Party, provided that if counsel to the
Indemnifying Party shall have a conflict of interest that prevents counsel for
the
-41-
<PAGE>
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. After the Indemnifying Party has
notified the Indemnified Party of its intention to undertake to defend or settle
any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
If the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
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.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall 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
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
-42-
<PAGE>
11.5 LIMITATIONS ON INDEMNIFICATION. LandCARE, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the LandCARE Stock delivered to Stockholders (calculated
as provided in this Section 11.5) or (b) $50,000 (the "Indemnification
Threshold").
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the LandCARE Stock received by a Stockholder, LandCARE
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such Stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of LandCARE and the
Company;
(ii) by the Company or by LandCARE if the transactions contemplated
by this Agreement to take place at the Closing shall not have been consummated
by September 30, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party (including, in the case of the
Company, any such failure of the Stockholders) 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 Closing Date;
(iii) by the Company or by LandCARE if a material breach or default
shall be made by the other party (including, in the case of LandCARE's right to
terminate, any such material breach or default by the Stockholders) in the
observance or in the due and timely performance of any of the covenants or
agreements contained herein, and the curing of such default shall not have been
made
-43-
<PAGE>
on or before the Funding and Consummation Date, or by the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or waived as of
the Closing Date or the Funding and Consummation Date, as applicable, or by
LandCARE, if the conditions set forth in Section 9 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation Date,
as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if (a) the underwriting agreement relating to
the IPO is terminated in accordance with its terms, or (b) the conditions set
forth in Sections 8.5 and 8.9 hereof are not being satisfied as of the Funding
and Consummation Date.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 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.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will 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 or Persons:
(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
landscaping business or operation or related services business in direct
competition with LandCARE or any of the Subsidiaries thereof, within 100 miles
of where the Company conducted business prior to the Funding and Consummation
Date or within the one-year period prior to the Funding and Consummation Date
(the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of LandCARE or any Subsidiary thereof for the purpose or
with the intent of enticing such employee away from or out of the employ of
LandCARE or any Subsidiary thereof;
-44-
<PAGE>
(iii) call upon any Person which is, at that time, or which has
been, within one-year prior to the Funding and Consummation Date, a customer of
LandCARE or any Subsidiary thereof, of the Company or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with LandCARE within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the landscaping
business or any related services business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by LandCARE or
any Subsidiary thereof or for which, to the actual knowledge of such Stockholder
after due inquiry, LandCARE or any Subsidiary thereof made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) except on behalf of LandCARE or any Subsidiary, disclose
customers, whether in existence or proposed, of the Company to any Person, for
any reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment 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.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
LandCARE as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to LandCARE for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by LandCARE in the event of breach by such Stockholder,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of LandCARE and the
Subsidiaries thereof on the date of the execution of this Agreement and the
current plans of LandCARE and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
-45-
<PAGE>
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against LandCARE or any subsidiary thereof, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by LandCARE of
such covenants. The covenants contained in Section 13 shall not be affected by
any breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or LandCARE, such as operational policies, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the Other
Founding Companies' and/or LandCARE's respective businesses. The Stockholders
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of LandCARE, (b) following
the Closing, such information may be disclosed by the Stockholders as is
required in the course of performing their duties for LandCARE or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order of
any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Stockholders shall,
if possible, give prior written notice thereof to LandCARE and provide LandCARE
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, LandCARE shall be entitled to an injunction restraining such Stockholders
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting LandCARE from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages. In the event the transactions contemplated by this Agreement are not
consummated, Stockholders shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
Company. Each Stockholder further agrees that in the event the transactions
contemplated herein are not consummated (i) neither the Company nor any
Stockholder can thereafter use any confidential information of the Other
Founding Companies for any purpose and (ii) upon written request of any Other
Founding Company to the Company, the Company and
-46-
<PAGE>
Stockholders will return all confidential information pertaining to such Other
Founding Company to such Other Founding Company.
14.2 LANDCARE AND NEWCO. LandCARE and Newco recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the Company, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's business.
LandCARE and Newco agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not disclose such
confidential information to any Person for any purpose or reason whatsoever,
except (a) to authorized representatives of the Company, (b) to counsel and
other advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.2, (c) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information is or becomes known to the public generally through no fault of
LandCARE or Newco, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), LandCARE and Newco shall, if
possible, give prior written notice thereof to the Company and the Stockholders
and provide the Company and the Stockholders with the opportunity to contest
such disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, and (d) to the public to the extent necessary or advisable in
connection with the filing of the Registration Statement and the IPO and the
securities laws applicable thereto and to the operation of LandCARE as a
publicly held entity after the IPO. In the event of a breach or threatened
breach by LandCARE or Newco of the provisions of this Section 14.2, the Company
and the Stockholders shall be entitled to an injunction restraining LandCARE and
Newco from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the Company and the
Stockholders from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by LandCARE, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, the trustees of which so agree), for
-47-
<PAGE>
a period of two years from the Funding and Consummation Date, except pursuant to
Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of LandCARE Stock received by the Stockholders in the Merger. The
certificates evidencing the LandCARE Stock delivered to the Stockholders
pursuant to Section 3 of this Agreement will bear a legend substantially in the
form set forth below and containing such other information as LandCARE 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.
LandCARE agrees, however, to use reasonable efforts to implement an arrangement
with a nationally recognized investment banking firm pursuant to which such firm
will facilitate sales by the Stockholders beginning after the date one year
after the Funding and Consummation Date; and in the event such an arrangement is
implemented on terms reasonably satisfactory to LandCARE, LandCARE will waive
the foregoing restriction to the extent reasonably necessary to permit the
Stockholders to participate in such arrangement.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
LandCARE Stock to be delivered to the Stockholders pursuant to this Agreement
have not been and will not be registered under the 1933 Act (except as provided
in Section 17 hereof) and therefore may not be resold without compliance with
the 1933 Act. The LandCARE Stock to be acquired by such Stockholders pursuant to
this Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of LandCARE Stock issued
to such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the LandCARE Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
-48-
<PAGE>
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the LandCARE Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
LandCARE Stock. The Stockholders party hereto have had an adequate opportunity
to ask questions and receive answers from the officers of LandCARE 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 LandCARE, the plans for the operations of the business
of LandCARE, 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.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever LandCARE proposes to register any LandCARE Stock for
its own or others account under the 1933 Act for a public offering, other than
(i) any shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by LandCARE (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, LandCARE shall give each of
the Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, LandCARE shall cause to be included in such registration all of the
LandCARE Stock issued to the Stockholders pursuant to this Agreement (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security which is issued by
LandCARE as) a dividend or other distribution with respect to, or in exchange
for, or in replacement of such LandCARE Stock) which any such Stockholder
requests, provided that LandCARE 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 written opinion of tax counsel to LandCARE or its independent
auditors, jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free organization under Section 351 of the
Code. In addition, if LandCARE is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 17.1 that the number
of shares to be sold by persons other than LandCARE is greater than the number
of such shares which can be offered without adversely affecting the offering,
LandCARE may reduce pro rata the number of shares offered for the accounts
-49-
<PAGE>
of such persons (based upon the number of shares proposed to be sold by each
such person) to a number deemed satisfactory by such managing underwriter,
provided, that, for each such offering made by LandCARE after the IPO, such
reduction shall be made first by reducing the number of shares to be sold by
persons other than LandCARE, the Stockholders and the stockholders of the Other
Founding Companies (collectively, the Stockholders and the stockholders of the
other Founding Companies 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.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
LandCARE Stock issued to the Founding Stockholders pursuant to this Agreement
and the Other Agreements which have not been previously registered or sold and
which are not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that LandCARE
file a registration statement under the 1933 Act covering the registration of
the shares of LandCARE Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by LandCARE as) a dividend or other distribution
with respect to, or in exchange for, or in replacement of such LandCARE Stock)
then held by such Founding Stockholders (a "Demand Registration"). Within ten
(10) days of the receipt of such request, LandCARE shall give written notice of
such request to all other Founding Stockholders and shall, as soon as
practicable but in no event later than 45 days after notice from any
Stockholder, file and use its best efforts to cause to become effective a
registration statement covering all such shares. LandCARE shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
the registration statement relating to such Demand Registration current and
effective for not less than 120 days (or such shorter period as is required to
sell all of the shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of LandCARE's disinterested directors (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for up to a 60 day period after the date on
which LandCARE would otherwise be required to make such filing pursuant to the
foregoing paragraph if such directors determine in good faith that the filing of
such a registration statement or the making of any required disclosure in
connection therewith would have a material adverse effect on LandCARE or
interfere with a transaction in which LandCARE is then engaged or is then
pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration LandCARE has fixed plans to file within 60 days after such request
a registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders'
LandCARE Stock shall be initiated under this Section 17.2 until 90 days after
the effective date of such registration unless LandCARE is no longer proceeding
diligently to effect
-50-
<PAGE>
such registration; provided that LandCARE shall provide the Founding
Stockholders the right to participate in such public offering pursuant to, and
subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by
LandCARE as a consequence of the exercise of its rights under this Section 17.2,
then the period during which such demand registration may be requested by the
Founding Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever LandCARE is required to register
shares of LandCARE Stock pursuant to Sections 17.1 and 17.2, LandCARE will, as
expeditiously as possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, LandCARE
will furnish a representative of the Stockholders with copies of all such
documents proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that LandCARE shall not be required
to become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of LandCARE Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
LandCARE are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that LandCARE
is required to keep the registration statement effective of the happening of any
event as a result of which the prospectus
-51-
<PAGE>
included in such registration statement, together with any associated term
sheet, contains an untrue statement of a material fact or omits any fact
necessary to make the statement therein not misleading, and, at the request of
such Stockholder, LandCARE will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of the covered
shares, such prospectus will not contain an untrue statement of material fact or
omit to state any fact necessary to make the statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by LandCARE.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, LandCARE
shall indemnify, to the extent permitted by law, each Stockholder and each
Person who controls such Stockholder (an "Indemnified Party") against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) arising out of or resulting from
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or associated term
sheet or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as the same are caused by or contained in or omitted
from any information furnished in writing to LandCARE by such Indemnified Party
expressly for use therein or by such Indemnified Party's failure to deliver a
copy of the registration statement or prospectus or any amendment or supplements
thereto after LandCARE has furnished such Indemnified Party with a sufficient
number of copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to LandCARE in writing such information as is
reasonably requested by LandCARE for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, LandCARE, its
directors and officers and each person who controls LandCARE (within the meaning
of the 1933 Act) against any losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses of investigation) resulting
from any untrue or alleged untrue statement of a material fact or any omission
or alleged omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in information so furnished in writing
by such Stockholder specifically for use in preparing the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.4 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
-52-
<PAGE>
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, LandCARE
and each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
LandCARE's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of LandCARE
stock to the public without registration, LandCARE agrees to use its reasonable
efforts to:
(i) make and keep public information regarding LandCARE available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of LandCARE under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted LandCARE Common
Stock, furnish to each Stockholder forthwith upon written request a written
statement by LandCARE as to its compliance with the reporting requirements of
Rule 144 (at any time from and after 90 days following the effective date of the
Registration Statement), and of the 1933 Act and the 1934 Act (any time after it
has become subject to such reporting requirements), a copy of the most recent
-53-
<PAGE>
annual or quarterly report of LandCARE, and such other reports and documents so
filed as a Stockholder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Stockholder to sell any such shares without
registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, LandCARE and Newco 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 will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the Company cooperate with LandCARE 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.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
LandCARE, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and LandCARE and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and
LandCARE, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the Company shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for
-54-
<PAGE>
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, LandCARE will pay the fees, expenses and disbursements of
LandCARE 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 LandCARE under this Agreement, including the
fees and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and
any other person or entity retained by LandCARE or by Notre Capital Ventures II,
L.L.C., and the costs of preparing and filing the Registration Statement. Each
Stockholder shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than Transfer Taxes, if
any, imposed by the State of Delaware. Each Stockholder shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or LandCARE, will pay all
taxes due upon receipt of the consideration payable pursuant to Section 3
hereof. The Stockholders acknowledge that the risks of the transactions
contemplated hereby include tax risks, with respect to which the Stockholders
are relying solely on the opinion contemplated by Section 8.12 hereof.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to LandCARE, or Newco, addressed to them at:
LandCARE USA, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
-55-
<PAGE>
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II or to the address of the Company set forth below, with copies
to:
Miranda K. Mandel
Neal, Gerber & Eisenberg
Two N. LaSalle Street, 22nd Floor
Chicago, Illinois 60602
(c) If to the Company, addressed to it at:
Desert Care Landscaping, Inc.
6143 South 32nd Street
Phoenix, Arizona 85040
Attention: Jeff A. Meyer
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such
-56-
<PAGE>
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.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of LandCARE, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the LandCARE Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving LandCARE Stock in connection with the Merger and each future
holder of such LandCARE Stock.
-57-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
LANDCARE USA, INC.
By:
William Murdy
Chief Executive Officer
DESERT CARE ACQUISITION CORP.
By:
William Fiedler
Vice President
-58-
<PAGE>
DESERT CARE LANDSCAPING, INC.
By:
Name:
Title:
STOCKHOLDERS:
____________________________________
Jeff A. Meyer
____________________________________
Alison Meyer
____________________________________
Vincent J. Rector
____________________________________
Marcus A. Rector
-59-
<PAGE>
SCHEDULE 6.4
None.
-60-
<PAGE>
SCHEDULE 6.5
None.
-61-
<PAGE>
SCHEDULE 6.7
None.
-62-
<PAGE>
SCHEDULE 6.8
None.
-63-
<PAGE>
SCHEDULE 6.9
None.
-64-
<PAGE>
SCHEDULE 6.12
1. The Agreement with D.R. Church is structured as an exchange agreement rather
than as a merger agreement.
2. The Agreements with Desert Care and Arteka Nurseries provide for S
corporation distributions.
3. The Agreements with Four Seasons and D. R. Church exclude a charitable
remainder trust and an ESOP, respectively, from the normal indemnity provisions.
4. The Agreement with Southern Tree provides for the release from individual
guaranties of a non-stockholder who has guaranteed company debt, and requires
Southern to separate a credit facility now cross guaranteed by Southern and an
affiliate.
5. TheAgreement with Desert Care notes that Desert Care has done its accounting
and taxes on a cash basis and provides that LandCARE will indemnify the
Stockholder against up to $450,000 in deferred taxes resulting from Desert
Care's termination of its S corporation election, and provides that the
Stockholder will indemnify Desert Care and LandCARE against deferred income tax
liabilities to the extent they exceed $450,000.
-65-
<PAGE>
SCHEDULE 6.15
None.
-66-
<PAGE>
SCHEDULE 9.12
D. R. Church Landscape Co., Inc. - Bruce A. Church
Desert Care Landscaping, Inc. - Jeff A. Meyer
Ground Control Landscaping, Inc. - Mark S. Yahn
Four Seasons Landscape & Maintenance - James R. Marcus
Trees, Inc. - Linda Benge
Southern Tree and Landscape Companies - Roger Braswell
Arteka Corporation - David Luse
-67-
EXHIBIT 10.5
AGREEMENT AND PLAN OF ORGANIZATION
dated as of March 17, 1998
by and among
LANDCARE USA, INC.
D. R. CHURCH LANDSCAPE CO., INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
PAGE
RECITALS.....................................................................1
1. CERTAIN INFORMATION....................................................4
1.1 Certain Information With Respect to the Capital Stock of the
Company and LandCARE.............................................5
2. EXCHANGE...............................................................5
2.1 Agreement to Effect Exchange.....................................5
3. DELIVERY OF CONSIDERATION..............................................5
4. CLOSING................................................................6
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................6
5.1 Due Organization.................................................7
5.2 Authorization....................................................7
5.3 Capital Stock of the Company.....................................7
5.4 Transactions in Capital Stock, Organization Accounting...........8
5.5 No Bonus Shares..................................................8
5.6 Subsidiaries.....................................................8
5.7 Predecessor Status; etc..........................................8
5.8 Spin-off by the Company..........................................8
5.9 Financial Statements.............................................8
5.10 Liabilities and Obligations......................................9
5.11 Accounts and Notes Receivable....................................9
5.12 Permits and Intangibles..........................................9
5.13 Environmental Matters...........................................10
5.14 Personal Property...............................................11
5.15 Significant Customers; Material Contracts and Commitments.......11
5.16 Real Property...................................................12
5.17 Insurance.......................................................12
5.18 Compensation; Employment Agreements; Organized Labor Matters....13
5.19 Employee Plans..................................................13
5.20 Compliance with ERISA...........................................14
5.21 Conformity with Law; Litigation.................................15
5.22 Taxes...........................................................15
5.23 No Violations; No Consents Required, Etc.......................16
-i-
<PAGE>
5.24 Absence of Changes..............................................16
5.25 Deposit Accounts; Powers of Attorney............................18
5.26 Validity of Obligations.........................................18
5.27 Relations with Governments......................................18
5.28 Disclosure......................................................19
5.29 [Intentionally Omitted].........................................19
5.30 No Interests In Other Businesses................................19
5.31 Authority; Ownership............................................19
5.32 Preemptive Rights...............................................20
5.33 No Intention to Dispose of LandCARE Stock.......................20
6. REPRESENTATIONS OF LANDCARE...........................................20
6.1 Due Organization................................................20
6.2 Authorization...................................................20
6.3 Capital Stock of LandCARE.......................................20
6.4 Transactions in Capital Stock, Organization Accounting..........21
6.5 Subsidiaries....................................................21
6.6 Financial Statements............................................21
6.7 Liabilities and Obligations.....................................21
6.8 Conformity with Law; Litigation.................................21
6.9 No Violations...................................................22
6.10 Validity of Obligations.........................................22
6.11 LandCARE Stock..................................................23
6.12 Other Agreements; No Side Agreements............................23
6.13 Business; Real Property; Material Agreements....................23
6.14 Taxes...........................................................23
6.15 Absence of Changes..............................................24
6.16 Disclosure......................................................25
7. COVENANTS PRIOR TO CLOSING............................................25
7.1 Access and Cooperation; Due Diligence...........................25
7.2 Conduct of Business Pending Closing.............................26
7.3 Prohibited Activities...........................................27
7.4 No Shop.........................................................28
7.5 Notice to Bargaining Agents.....................................28
7.6 Agreements......................................................28
7.7 Notification of Certain Matters.................................28
7.8 Amendment of Schedules..........................................29
7.9 Cooperation in Preparation of Registration Statement............30
7.10 Final Financial Statements......................................30
7.11 Further Assurances..............................................31
-ii-
<PAGE>
7.12 Authorized Capital..............................................31
7.13 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott-Rodino Act").......................31
7.14 Stockholders of LandCARE........................................31
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......31
8.1 Representations and Warranties; Performance of Obligations......32
8.2 Satisfaction....................................................32
8.3 No Litigation...................................................32
8.4 Opinion of Counsel..............................................33
8.5 Registration Statement..........................................33
8.6 Consents and Approvals..........................................33
8.7 Good Standing Certificates......................................33
8.8 No Material Adverse Change......................................33
8.9 Closing of IPO..................................................33
8.10 Secretary's Certificate.........................................33
8.11 Employment Agreements...........................................33
8.12 Tax Matters.....................................................34
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE.......................34
9.1 Representations and Warranties; Performance of Obligations......34
9.2 No Litigation...................................................34
9.3 Secretary's Certificate.........................................34
9.4 No Material Adverse Effect......................................35
9.5 Stockholders' Release...........................................35
9.6 Satisfaction....................................................35
9.7 Termination of Related Party Agreements.........................35
9.8 Opinion of Counsel..............................................35
9.9 Consents and Approvals..........................................35
9.10 Good Standing Certificates......................................35
9.11 Registration Statement..........................................36
9.12 Employment Agreements...........................................36
9.13 Closing of IPO..................................................36
9.14 FIRPTA Certificate..............................................36
9.15 Environmental Reviews...........................................36
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING..............36
10.1 Release From Guarantees; Repayment of Certain Obligations.......36
10.2 Preservation of Tax and Accounting Treatment....................37
-iii-
<PAGE>
10.3 Preparation and Filing of Tax Returns...........................37
10.4 Directors.......................................................38
11. INDEMNIFICATION.......................................................38
11.1 General Indemnification by the Stockholders.....................38
11.2 Indemnification by LandCARE.....................................39
11.3 Third Person Claims.............................................40
11.4 Exclusive Remedy................................................41
11.5 Limitations on Indemnification..................................41
12. TERMINATION OF AGREEMENT..............................................42
12.1 Termination.....................................................42
12.2 Liabilities in Event of Termination.............................43
13. NONCOMPETITION........................................................43
13.1 Prohibited Activities...........................................43
13.2 Damages.........................................................44
13.3 Reasonable Restraint............................................44
13.4 Severability; Reformation.......................................44
13.5 Independent Covenant............................................44
13.6 Materiality.....................................................44
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................44
14.1 Stockholders....................................................45
14.2 LandCARE........................................................45
14.3 Damages.........................................................46
14.4 Survival........................................................46
15. TRANSFER RESTRICTIONS.................................................46
15.1 Transfer Restrictions...........................................46
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................47
16.1 Compliance with Law.............................................47
16.2 Economic Risk; Sophistication...................................47
17. REGISTRATION RIGHTS...................................................48
17.1 Piggyback Registration Rights...................................48
17.2 Demand Registration Rights......................................49
17.3 Registration Procedures.........................................50
17.4 Indemnification.................................................51
17.5 Underwriting Agreement..........................................52
-iv-
<PAGE>
17.6 Rule 144 Reporting..............................................52
18. GENERAL...............................................................53
18.1 Cooperation.....................................................53
18.2 Successors and Assigns..........................................53
18.3 Entire Agreement................................................53
18.4 Counterparts....................................................54
18.5 Brokers and Agents..............................................54
18.6 Expenses........................................................54
18.7 Notices.........................................................54
18.8 Governing Law...................................................55
18.9 Survival of Representations and Warranties......................55
18.10 Exercise of Rights and Remedies.................................55
18.11 Time............................................................56
18.12 Reformation and Severability....................................56
18.13 Remedies Cumulative.............................................56
18.14 Captions........................................................56
18.15 Amendments and Waivers..........................................56
18.16 Special Provisions..............................................56
-v-
<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Benefit Plans (the Benefit Plans Schedule)
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.30 No Interests in Other Businesses
5.31 Authority; Ownership
6.4 Capital Stock etc.
6.5 Subsidiaries
6.7 Liabilities
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 OtherAgreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
March 17, 1998, by and among LandCARE USA, Inc., a Delaware corporation
("LandCARE"), D.R. Church Landscape Co., Inc., an Illinois corporation (the
"Company"), and the stockholders identified on the signature pages hereof (the
"Stockholders"). The Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, the Stockholders desire to exchange all of the outstanding
shares of capital stock of the Company for shares of LandCARE Common Stock
(as defined herein) and cash, all on the terms and subject to the
conditions set forth herein; and
WHEREAS, LandCARE is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional landscaping and related
services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "LandCARE Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of LandCARE, each of the Other Founding Companies and each of
the subsidiaries of LandCARE that are parties to the Other Agreements have
approved and adopted the LandCARE Plan of Organization as an integrated
plan pursuant to which the Stockholders and the stockholders of each of
the Other Founding Companies will transfer the capital stock of each of
the Founding Companies (as defined herein) to LandCARE and the
stockholders of each of the Other Founding Companies will acquire the
stock of LandCARE (but not cash or other property) as a tax-free transfer
of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the LandCARE Plan of Organization
in order to transfer the capital stock of the Company to LandCARE;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
-1-
<PAGE>
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means each of the Delaware companies created for
purposes of effecting the acquisitions of some or all of the Other Founding
Companies and wholly-owned by LandCARE prior to the Funding and Consummation
Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Balance Sheet Date" shall mean December 31, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Draft Registration Statement" means the March 12, 1998 draft of the
Registration Statement, and any corrections thereto and supplemental information
delivered by LandCARE to the Company for delivery to the Stockholders prior to
the time this Agreement is delivered to LandCARE.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
(a) Arteka Corporation, a Minnesota corporation, as well as its
affiliates Arteka Natural Green Corporation, a Minnesota corporation and
Arteka Nurseries, Inc., a Minnesota corporation;
(b) D. R. Church Landscape Co., Inc., an Illinois corporation;
(c) Desert Care Landscaping, Inc., an Arizona corporation;
(d) Four Seasons Landscape and Maintenance, Inc., a California
corporation;
(e) Ground Control Landscaping, Inc., a Florida corporation;
-2-
<PAGE>
(f) Southern Tree & Landscape Co., Inc., a North Carolina
corporation; and
(g) Trees, Inc., a Nevada corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of LandCARE Stock pursuant to the
Registration Statement described herein.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"LandCARE" has the meaning set forth in the first paragraph of this
Agreement.
"LandCARE Charter Documents" has the meaning set forth in Section 6.1.
"LandCARE Stock" means the common stock, par value $.01 per share, of
LandCARE.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by LandCARE and the Underwriters
of the public offering price of the shares of LandCARE Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of LandCARE Stock to be issued
in the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"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 (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
-3-
<PAGE>
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Illinois.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" means the Company after the Exchange.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. CERTAIN INFORMATION
1.1 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY
AND LANDCARE. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company and
LandCARE as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Annex II hereto; and
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of LandCARE will consist of 100,000,000 shares of
LandCARE Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, 5,000,000 shares of preferred stock, $.01
par value, of which no shares will be issued and outstanding, and 3,000,000
shares of
-4-
<PAGE>
Restricted Voting Common Stock, $.01 par value (the "Restricted Common Stock"),
all of which will be issued and outstanding except as otherwise set forth in the
Registration Statement.
2. EXCHANGE
2.1 AGREEMENT TO EFFECT EXCHANGE. As of the Closing, each Stockholder
shall exchange (the "Exchange") all of the shares of Company Stock held by such
Stockholder for (1) the right to receive the number of shares of LandCARE Stock
set forth on Annex I hereto with respect to such holder and (2) the right to
receive the amount of cash set forth on Annex I hereto with respect to such
holder, provided, however, that such consideration shall not be delivered to the
Stockholders until the Funding and Consummation Date, as described in Section 3
below. All LandCARE Stock received by the Stockholders pursuant to this
Agreement shall, except for restrictions on resale or transfer described in
Sections 15 and 16 hereof, have the same rights as all the other shares of
outstanding LandCARE Stock by reason of the provisions of the Certificate of
Incorporation of LandCARE or as otherwise provided by the Delaware GCL. All
LandCARE Stock received by the Stockholders shall be issued and delivered to the
Stockholders free and clear of any liens, claims or encumbrances of any kind or
nature. All voting rights of such LandCARE 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.
3. DELIVERY OF CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of LandCARE Stock and the amounts of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to LandCARE at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
Stockholders, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholders' expense,
affixed and canceled. The Stockholders agree promptly to cure any deficiencies
with respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Exchange and (ii) effect the delivery of shares
referred to in Section 3 hereof; provided, that such actions shall not include
the actual completion of the Exchange or the delivery of the shares and funds
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Funding and Consummation Date as herein provided. In the event that there is
no Funding and Consummation
-5-
<PAGE>
Date and this Agreement automatically terminates as provided in this Section 4,
the Exchange shall not be consummated. 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 Bracewell & Patterson, L.L.P., South
Tower Pennzoil Place, 711 Louisiana, Suite 2900, Houston, Texas 77002. On the
Funding and Consummation Date (x) all transactions contemplated by this
Agreement, including the delivery of shares and the delivery of funds in the
amount and in the manner provided in Section 3 hereof and (y) the closing with
respect to the IPO shall occur and be completed. The date on which the actions
described in the preceding clauses (x) and (y) occurs shall be referred to as
the "Funding and Consummation Date." During the period from the Closing Date to
the Funding and Consummation Date, this Agreement may only be terminated by the
parties if (a) the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement, or (b) the conditions set
forth in Sections 8.5 and 8.9 hereof are not being satisfied as of the Funding
and Consummation Date. This Agreement shall also in any event automatically
terminate if the Funding and Consummation Date has not occurred within 15
business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders jointly and severally represents and warrants
that all of the representations and warranties in this Section 5 are true at the
date of this Agreement and, subject to Section 7.8 hereof, shall be true at the
time of Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
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 5.22, and the representations
and warranties set forth in Section 5.31 hereof shall survive perpetually. For
purposes of this Section 5, the term "Company" shall mean and refer to the
Company and all of its Subsidiaries, if any. For purposes of this Section 5, the
phrase "knowledge of the Stockholders" shall mean the actual knowledge of the
Stockholders after due inquiry of the appropriate management personnel employed
by the Company.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and
-6-
<PAGE>
correct copies of (i) the Certificate of Incorporation and By-laws, each as
amended, of the Company (the "Charter Documents"), and (ii) the stock records of
the Company, are all attached to Schedule 5.1. The Company has delivered
complete and correct copies of all minutes of meetings, written consents and
other evidence, if any, of deliberations of or actions taken by the Company's
Board of Directors and stockholders during the last five years.
5.2 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 this Agreement. The most recent resolutions adopted by
the Board of Directors of the Company and the most recent resolutions adopted by
the Stockholders approve this Agreement and the transactions contemplated hereby
in all respects, and copies of all such resolutions, certified by the Secretary
or an Assistant Secretary of the Company as being in full force and effect on
the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and 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 Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Exchange and/or the LandCARE Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Exchange or the LandCARE Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
-7-
<PAGE>
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 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 all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the balance sheets of the Company as of the dates shown thereon and
the related statements of operations, stockholder's equity and cash flows for
the periods shown thereon, together with the related notes and schedules (such
balance sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules being referred to herein as the
"Financial Statements"). The Financial Statements have been prepared from the
books and records of the Company as of the dates and for the periods covered
thereby. The books of account of the Company have been kept accurately in the
ordinary course of business, the transactions recorded therein represent bona
fide transactions, and the revenues, expenses, assets and liabilities of the
Company have been properly recorded therein all material respects.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and 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 and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
knowledge of the Stockholders, except as set forth on Schedule 5.10, since the
Balance Sheet Date the Company has not incurred any material liabilities of any
kind, character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to LandCARE on Schedule 5.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed, a good faith and
reasonable estimate of the maximum amount which the Company reasonably expects
will be payable and the amount, if any, accrued or reserved for each such
potential liability on the Company's Financial Statements; in the case of any
such liability for which no estimate has been provided, the estimate for
purposes of this Agreement shall be deemed to be zero.
-8-
<PAGE>
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list 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, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to LandCARE an accurate list and summary description
(which is set forth on Schedule 5.12) of all such Licenses, and of any
trademarks, trade names, patents, patent applications and copyrights owned or
held by the Company or by any of its employees if used or held for use by the
Company in the conduct of its business (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property owned by any employees of the Company will be assigned or licensed to
the Company for no additional consideration. To the knowledge of the
Stockholders, the Licenses and other rights listed on Schedules 5.12 and 5.13
are valid, and the Company has not received any notice that any Person intends
to cancel, terminate or not renew any such License or other right. The Company
has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees 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,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (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 Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and
-9-
<PAGE>
operated by the Company where Hazardous Materials have been treated, stored,
disposed of or otherwise handled, (iii) to the knowledge of the Stockholders,
there have been no releases or threats of releases (as these terms are defined
in Environmental Laws) of any Hazardous Materials at, from, in or on any
property owned or operated by the Company except as permitted by Environmental
Laws, and (iv) to the knowledge of the Stockholders, there is no on-site or
off-site location to which the Company has transported or disposed of Hazardous
Materials or arranged for the transportation of Hazardous Materials which is the
subject of any Federal, state, local or foreign enforcement action or any other
investigation which could reasonably be expected to lead to any claim against
the Company or LandCARE 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, the Resource Conservation and Recovery Act,
the Hazardous Materials Transportation Act or comparable state or local statutes
or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to LandCARE an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the Company included in "property" or "plant, property and
equipment" or any similar category on the balance sheet of the Company as of the
Balance Sheet Date, (y) all other tangible personal property owned by the
Company with an individual fair market value (in the reasonable judgment of the
Stockholders; it being understood that the Stockholders are not obtaining
appraisals of any such property in connection with the preparation of Schedule
5.14) in excess of $25,000 (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date and (z) all material leases and agreements in
respect of personal property, including, in the case of each of (x), (y) and
(z), (1) true, complete and correct copies of all such leases and (2) an
indication as to which assets are currently owned, or were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as
set forth on Schedule 5.14, (i) all material 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 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted and (iii) all leases and agreements included on Schedule 5.14
are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.15) of all customers (persons or entities) representing 1% or more of
the Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 25
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, 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 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed
-10-
<PAGE>
on Schedules 5.10, 5.14 or 5.16, (a) in existence as of the Balance Sheet Date
and (b) entered into since the Balance Sheet Date, and in each case has
delivered true, complete and correct copies of such agreements to LandCARE. For
purposes of this Agreement, the term "Material Contracts" includes contracts
between the Company and significant customers (as described above), joint
venture or partnership agreements, contracts with any labor organization,
strategic alliances, options to purchase land and other contracts which are not
terminable on sixty days or less notice and involve payments by the Company in
any twelve-month period in excess of $25,000. The Company has also indicated on
Schedule 5.15 a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $25,000 by the Company during any 12-month period. All of the
Material Contracts are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in substantially the form of Annex VI hereto (or with terms substantially
similar to those of Annex VI) at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affilliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in
substantially the form of Annex VI hereto (or with terms substantially similar
to those of Annex VI) will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good and insurable title to any real
property owned by it that is not shown on Schedule 5.16 as property intended to
be sold or distributed prior to the Closing Date, subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all
-11-
<PAGE>
of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to LandCARE (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the Company,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the Company,
listing all employment agreements with such officers, directors and key
employees and the rate of compensation (and the portions thereof attributable to
salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided
to LandCARE true, complete and correct copies of any employment agreements for
persons listed on Schedule 5.18. Since the Balance Sheet Date, there have been
no material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not 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) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, 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.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to LandCARE an
accurate schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all
employee benefit plans of the Company, including all employment agreements and
other agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any
-12-
<PAGE>
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA. The
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on the Benefit Plans Schedule.
Except as set forth on the Benefit Plans Schedule, the Company is not required
to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of the Company's or any Subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule 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. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
-13-
<PAGE>
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited to, any
liability to any multiemployer plan or the PBGC under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty, or being subject to
any statutory lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the knowledge of the Stockholders,
there is no basis for any such claim, action, suit or proceeding. The Company
has conducted and is now conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations, including all such orders and other governmental
approvals set forth on Schedules 5.12 and 5.13, except where any such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against it for federal, state
and other Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any claim for
Taxes, whether pending or threatened, has been received. All Tax due from the
Company for any period ended before the date hereof, including interest and
penalties (whether or not shown on any Return) has been paid. The amounts shown
as accruals for taxes on the Company Financial Statements are sufficient for the
payment of all Taxes (including penalties and interest) for all periods ended on
or before that date. Copies of (i) any tax examinations, (ii) extensions of
statutory limitations and (iii) the federal and local income tax returns and
franchise tax returns of the Company for their last three (3) fiscal years, or
such shorter period of time as any of them shall have existed, are attached
hereto as Schedule 5.22
-14-
<PAGE>
or have otherwise been delivered to LandCARE. The Company has disclosed to
LandCARE when its taxable year ends. The Company uses the accrual method of
accounting for income tax purposes, and the Company's methods of accounting have
not changed in the past five years. The Company is not an investment company as
defined in Section 351(e)(1) of the Code. The Company is not and has not during
the last five years been a party to any tax sharing agreement or agreement of
similar effect. The Company is not and has not during the last five years been a
member of any consolidated group. Except as described on Schedule 5.22, the
Company has not received, been denied, or applied for any private letter ruling
during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially 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 material violation or breach of 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 5.23, 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 material right or benefit. Except as set forth on
Schedule 5.23, none of the Material Documents prohibits the use or publication
by the Company or LandCARE 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 or LandCARE or any Other Founding Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty 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 by
the Company of any options, warrants, calls, conversion rights or commitments;
-15-
<PAGE>
(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 sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including, without
limitation, the Stockholders and their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii)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;
(ix) 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;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii)any contract entered into or commitment incurred involving any
liability or commitment to make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 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 and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's,
-16-
<PAGE>
employees' or other like liens arising in the ordinary course of business, or
(3) liens set forth on Schedule 5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
LandCARE an accurate schedule (which is set forth on Schedule 5.25) as of the
date of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of LandCARE utilized in
connection with the IPO, the Stockholders become aware of any fact or
circumstance which would affect the accuracy of a representation or warranty of
the Stockholders in this Agreement in any material respect, the Stockholders
shall immediately give notice of such fact or circumstance to LandCARE. Subject
to the
-17-
<PAGE>
provisions of Section 7.8, such notification shall not relieve either the
Company or the Stockholders of their respective obligations under this
Agreement.
(b) 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 the 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; (ii)
that neither LandCARE or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company, the
Stockholders or any other person affiliated or associated with the Company for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or to occur at all; and (iii) that the decision of
Stockholders to enter into this Agreement, or to vote in favor of or consent to
the proposed Exchange, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to LandCARE or the prospective IPO.
Notwithstanding the foregoing, LandCARE has agreed and herein acknowledges its
agreement to use its reasonable efforts to consummate the LandCARE Plan of
Organization and IPO as contemplated hereby.
5.29 [INTENTIONALLY OMITTED]
5.30 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.30, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.31 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
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.32 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.
5.33 NO INTENTION TO DISPOSE OF LANDCARE STOCK. No Stockholder is under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of LandCARE Stock to be received as described in Section 3.1 of this
Agreement.
-18-
<PAGE>
6. REPRESENTATIONS OF LANDCARE
LandCARE represents and warrants that all of the following representations
and warranties in this Section 6 are true at the date of this Agreement and,
subject to Section 7.8 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 twelve months
(the last day of such period being the "Expiration Date"), except that the
warranties and representations set forth in Section 6.14 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 6.14.
6.1 DUE ORGANIZATION. LandCARE is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted. LandCARE is qualified to do business and is in good
standing in each jurisdiction in which the nature of its business makes such
qualification necessary, 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 By-laws of LandCARE (the
"LandCARE Charter Documents") have been or will be filed as exhibits to the
Registration Statement.
6.2 AUTHORIZATION. (i) The representatives of LandCARE executing this
Agreement have the authority to enter into and bind LandCARE to the terms of
this Agreement and (ii) LandCARE has the full legal right, power and authority
to enter into this Agreement and consummate the Exchange. All corporate acts and
other proceedings required to have been taken by LandCARE to authorize the
execution, delivery and performance of this Agreement and the consummation of
the Exchange have been duly and properly taken.
6.3 CAPITAL STOCK OF LANDCARE. The authorized capital stock of LandCARE is
as set forth in Sections 1.4. All of the issued and outstanding shares of the
capital stock of LandCARE have been duly authorized and validly issued, are
fully paid and nonassessable, and further, such shares were offered, issued,
sold and delivered by LandCARE in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such shares
were issued in violation of the preemptive rights of any past or present
stockholder of LandCARE.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
LandCARE to issue any of its authorized but unissued capital stock; and (ii)
LandCARE 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. Complete and
accurate copies of all stock option or stock purchase plans and a list of all
outstanding options, warrants or other rights to acquire shares of the stock of
LandCARE will be provided to the Stockholders promptly upon request.
-19-
<PAGE>
6.5 SUBSIDIARIES. LandCARE has no Subsidiaries except for each of the
companies identified as "Newco" in each of the Other Agreements and other newly
incorporated Subsidiaries that have conducted no business and have been created
solely to effectuate the business of LandCARE. Except as set forth in the
preceding sentence or set forth on Schedule 6.5 hereto, neither LandCARE nor any
Subsidiary of LandCARE presently owns, of record or beneficially, or controls,
directly or indirectly, any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, association or business
entity, and LandCARE is not, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The historical financial statements of LandCARE
included in the Draft Registration Statement (the "LandCARE Financial
Statements") have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the period indicated (except
as noted thereon), and present fairly in all material respects the financial
position of LandCARE as of the date and for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither LandCARE nor any
Subsidiary of LandCARE has any material liabilities, contingent or otherwise,
except as set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither LandCARE nor
any Subsidiary of LandCARE is in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
any of them which would have a Material Adverse Effect, (b) there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
LandCARE, threatened against or affecting, LandCARE or any Subsidiary of
LandCARE, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any of them, and (c) no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received by LandCARE. LandCARE and its Subsidiaries have conducted and are
conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. LandCARE is not in violation of any LandCARE Charter
Document, and no Subsidiary of LandCARE is in violation of its Certificate of
Incorporation or Bylaws. None of LandCARE, or, to the knowledge of LandCARE, any
other party thereto, is in default under any lease, instrument, agreement,
license, or permit to which LandCARE or any Subsidiary of LandCARE is a party,
or by which LandCARE or any Subsidiary of LandCARE, or any of their respective
properties, are bound (collectively, the "LandCARE Documents"); and (a) the
rights and benefits of LandCARE and any Subsidiary of LandCARE under the
LandCARE Documents will not be adversely affected by the
-20-
<PAGE>
transactions contemplated hereby and (b) the execution and delivery of this
Agreement by LandCARE and the performance of its obligations hereunder do not,
and the consummation of the transactions contemplated hereby and compliance with
the terms hereof will not, conflict with, or result in any violation or default
(with or without notice or lapse of time, or both), under or give rise to a
right of termination, cancellation, or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the assets of LandCARE or any Subsidiary of LandCARE under, any provision of (i)
the Certificate of Incorporation or Bylaws of LandCARE or the comparable
governing instruments of any Subsidiary of LandCARE, (ii) any note, bond,
mortgage, indenture or deed of trust or any license, lease, contract,
commitment, agreement or arrangement to which LandCARE and any Subsidiary of
LandCARE is a party or by which any of their respective properties or assets are
bound or (iii) any judgment, order, decree or law, ordinance, rule or
regulation, applicable to LandCARE or any Subsidiary of LandCARE or their
respective properties or assets. The execution of this Agreement and the Other
Agreements and the performance of the obligations hereunder and thereunder and
the consummation of the transactions contemplated by the LandCARE Plan of
Organization will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the LandCARE Documents or the
LandCARE Charter Documents. Except as contemplated hereby or described in the
Registration Statement or on Schedule 6.9 hereto, none of the LandCARE 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 by the
LandCARE Plan of Organization in order to remain in full force and effect and
consummation of the transactions contemplated thereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by LandCARE and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of LandCARE and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of LandCARE.
6.11 LANDCARE STOCK. At the time of issuance thereof and delivery to the
Stockholders, the LandCARE Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of LandCARE,
fully paid and nonassessable, and with the exception of restrictions upon resale
set forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
LandCARE Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. Except as set forth above, the LandCARE Stock
issued and delivered to the Stockholders shall at the time of such issuance and
delivery be free and clear of any liens, security interests, claims or
encumbrances of any kind or character. The shares of LandCARE Stock to be issued
to the Stockholders pursuant to this Agreement will not be registered under the
1933 Act except as provided in Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except as described on Schedule
6.12 hereto, each of the Other Agreements is substantially similar to this
Agreement. LandCARE has not entered and will not enter into any agreement with
any of the Other Founding Companies or any of
-21-
<PAGE>
the stockholders of the Other Founding Companies other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. LandCARE was formed in
October 1997 and has conducted only limited operations since that time. Neither
LandCARE nor any Subsidiary thereof has conducted any material business since
the date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither LandCARE nor any Subsidiary of LandCARE owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement other than the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES.LandCARE and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against LandCARE or any Subsidiary
thereof for federal, state and other Taxes (including penalties and interest)
for any such period and no notice of any claim for Taxes, whether pending or
threatened, has been received. All Taxes which LandCARE or any Subsidiary of
LandCARE has been required to collect or withhold have been duly and timely
collected and withheld and have been set aside in accounts for such purposes, or
have been duly and timely paid to the proper governmental authority. All Tax,
including interest and penalties (whether or not shown on any tax return) owed
by LandCARE, any member of an affiliated or consolidated group which includes or
included LandCARE, or with respect to any payment made or deemed made by
LandCARE herein has been paid. The amounts shown as accruals for taxes on
LandCARE Financial Statements are sufficient for the payment of all taxes of the
kinds indicated (including penalties and interest) for all fiscal periods ended
on or before that date. Neither LandCARE nor any Subsidiary thereof has entered
into any tax sharing agreement or similar arrangement. Neither LandCARE nor any
Subsidiary thereof is an investment company as defined in Section 351(e)(1) of
the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of LandCARE;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
LandCARE;
-22-
<PAGE>
(iii) any change in the authorized capital of LandCARE 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 LandCARE;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of LandCARE or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to LandCARE or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of LandCARE or any Subsidiary thereof or requiring consent of any party
to the transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of LandCARE or
any Subsidiary of LandCARE;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which LandCARE or any Subsidiary of
LandCARE is a party;
(x) any transaction by LandCARE or any Subsidiary of LandCARE
outside the ordinary course of its business;
(xi) any other distribution of property or assets by LandCARE or any
Subsidiary of LandCARE other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with the representations and warranties of
LandCARE set forth in this Agreement, does not contain an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted in
reliance upon information furnished by the Company or the Stockholders or the
Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
LandCARE by the Stockholders, the offering and issuance of shares of LandCARE
Stock to the Stockholders and
-23-
<PAGE>
to the stockholders of the Other Founding Companies pursuant to this Agreement
and to the Other Agreements have been made in compliance with all applicable
federal and state securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 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 LandCARE access to all of the
Company's sites, properties, books and records and will furnish LandCARE with
such additional financial and operating data and other information as to the
business and properties of the Company as LandCARE may from time to time
reasonably request. The Company will cooperate with LandCARE and its
representatives, auditors and counsel in the preparation of any documents or
other materials which may be required in connection with any documents or
materials required by this Agreement. LandCARE, the Stockholders and the Company
will treat all information obtained in connection with the negotiation and
performance of this Agreement or the due diligence investigations conducted with
respect to the Other Founding Companies as confidential in accordance with the
provisions of Section 14 hereof. In addition, LandCARE will cause each of the
Other Founding Companies to enter into a provision similar to this Section 7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, LandCARE will afford to the officers and authorized representatives of the
Company access to all of LandCARE's sites, properties, books and records and
will furnish the Company with such additional financial and operating data and
other information as to the business and properties of LandCARE as the Company
may from time to time reasonably request. LandCARE will cooperate with the
Company, its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to 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 all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
-24-
<PAGE>
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar governmental
authorities applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
LandCARE (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of LandCARE 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.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of LandCARE, which consent will not be
unreasonably withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) 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 in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(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
$25,000 necessary or desirable for the conduct of the businesses
-25-
<PAGE>
of the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in clause (2)
being referred to herein as "Statutory Liens"), or (3) liens set forth on
Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the 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 for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than LandCARE, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective 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.
-26-
<PAGE>
7.5 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 LandCARE on Schedule 7.5 with proof that any required notice has been
sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by LandCARE or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to LandCARE. Such termination agreements are listed on Schedule 7.6
and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to LandCARE 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 failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. LandCARE 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 LandCARE contained herein to be untrue or inaccurate in any material respect
at or prior to the Closing and (ii) any failure of LandCARE to comply with or
satisfy any material covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless LandCARE
and a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided
-27-
<PAGE>
further, that no amendment or supplement to a Schedule prepared by LandCARE 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 8.1 and 9.1 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
7.8. In the event that one of the Other Founding Companies seeks to amend or
supplement a Schedule pursuant to Section 7.8 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,
LandCARE shall give the Company notice promptly after it has knowledge thereof.
If LandCARE and a majority of the Founding Companies (other than the Founding
Company seeking to amend or supplement a Schedule) consent to such amendment or
supplement, which consent shall have been deemed given by LandCARE or any
Founding Company if no response is received within 24 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
12.1(iv) hereof. In the event that the Company seeks to amend or supplement a
Schedule pursuant to this Section 7.8, and LandCARE 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
12.1(i) hereof. In the event that LandCARE seeks to amend or supplement a
Schedule pursuant to this Section 7.8 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 12.1(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 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to LandCARE and the
Underwriters all of the information concerning the Company and the Stockholders
reasonably requested by LandCARE or the Underwriters for inclusion in, and will
cooperate with LandCARE and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements of the Company, 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 LandCARE if at any time during the period in which a prospectus relating
to the IPO is required to be delivered under the Securities 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. 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 under
which they were made, not misleading.
-28-
<PAGE>
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and LandCARE 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 ending not later
than 15 days prior to the Funding and Consummation Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
Company for all such fiscal quarters, 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. Such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein). Except as noted in such financial statements, all of
such financial statements will present fairly the results of operations of the
Company for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
LandCARE 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 LandCARE Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by LandCARE shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of this
Agreement. If filings under the Hart-Scott-Rodino Act are required, the costs
and expenses thereof (including legal fees and costs and filing fees) shall be
borne by LandCARE. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF LANDCARE. Promptly after a request by the Company,
LandCARE will deliver to the Company a list of the stockholders of LandCARE as
of the date of this Agreement.
-29-
<PAGE>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions.
Subject to Section 12 hereof, 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 8.1, 8.5, 8.8, 8.9 and
8.12. As of the Closing Date or subject to Section 12 hereof, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been satisfied,
the Stockholders (acting in unison) shall have the right to terminate this
Agreement, or in the alternative, waive any condition not so satisfied. Any act
or action of the Stockholders in consummating the Closing or delivering
certificates representing Company Stock as of the Funding and Consummation Date
shall constitute a waiver of any conditions not so satisfied. However, no such
waiver shall be deemed to affect the survival of the representations and
warranties of LandCARE contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of LandCARE contained in Section 6, as amended or
supplemented in accordance with Section 7.8, shall be true and correct in all
material respects as of the Closing Date and the Funding and Consummation Date
as though such representations and warranties had been made as of that time; all
of the terms, covenants and conditions of this Agreement to be complied with and
performed by LandCARE 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, respectively, and signed by the
President or any Vice President of LandCARE shall have been delivered to the
Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform LandCARE in writing prior to the effectiveness of the
Registration Statement of the existence of an untrue statement of a material
fact or the omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Exchange or the
-30-
<PAGE>
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.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for LandCARE, dated the Closing Date, in the form annexed hereto as
Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of LandCARE Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Exchange 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 Company deems
it inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. LandCARE 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 LandCARE is authorized to do business, showing that LandCARE is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for LandCARE for all periods prior to the Closing
have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to LandCARE which has had or is reasonably likely to have
a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the Secretary
of LandCARE, certifying the truth and correctness of attached copies of
LandCARE's Certificate of Incorporation (including amendments thereto), By-Laws
(including amendments thereto), and resolutions of the boards of directors and,
if required, the Stockholders of LandCARE approving LandCARE's entering into
this Agreement and the consummation of the transactions contemplated hereby.
-31-
<PAGE>
8.11 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
under the caption relating to the Company shall have been afforded the
opportunity to enter into an Employment Agreement substantially in the form of
Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the LandCARE Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for LandCARE Stock (but not cash or other property) pursuant to the
LandCARE Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE
The obligations of LandCARE 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 LandCARE
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 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, LandCARE shall have the right to terminate
this Agreement, or waive any such condition, but no such waiver shall be deemed
to affect the survival of the representations and warranties contained in
Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, 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; 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 shall
have delivered to LandCARE certificates dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Exchange or the IPO and no governmental agency or body shall
have taken any other action or made any request of LandCARE as a result of which
the management of LandCARE (acting in good faith) deems it inadvisable to
proceed with the transactions hereunder.
-32-
<PAGE>
9.3 SECRETARY'S CERTIFICATE. LandCARE 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.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to
LandCARE an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Funding and Consummation 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 5.10 and 5.15 as being claims of or
obligations to the Stockholders, and (y) continuing obligations to Stockholders
relating to their employment by the Company. In the event that the Funding and
Consummation Date does not occur, then the release instrument referenced herein
shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to LandCARE.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by LandCARE, all existing agreements between
the Company and the Stockholders (and entities controlled by the Stockholders)
other than real property leases shall have been canceled effective prior to or
as of the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. LandCARE shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
LandCARE a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the
-33-
<PAGE>
appropriate governmental authority in the Company's state of incorporation and,
unless waived by LandCARE, in each state in which the Company is authorized to
do business, showing the Company is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
the Company for all periods prior to the Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
each shall enter into an employment agreement substantially in the form of Annex
V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to LandCARE
a certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. LandCARE shall have received a report from an
independent environmental consultant retained by LandCARE at its expense to
conduct an environmental review of the Company's owned and leased sites, and
such report shall not disclose any environmental condition that, in LandCARE's
reasonable judgment, either (i) could be expected to have a Material Adverse
Effect on the Company, or (ii) poses any risk of a substantial liability to the
Company.
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. LandCARE
shall use reasonable efforts, including offering its own guarantee, to have the
Stockholders and their spouses released from any and all guarantees of the
Company's indebtedness identified on Schedule 10.1. In the event that LandCARE
cannot obtain such releases from the lenders of any such guaranteed indebtedness
identified on Schedule 10.1 on or prior to 120 days subsequent to the Funding
and Consummation Date, LandCARE shall promptly pay off or otherwise refinance or
retire such indebtedness. LandCARE shall indemnify the Stockholders against, and
shall promptly reimburse the Stockholders for, any amounts which the
Stockholders are obligated to pay under any such guarantees listed on Schedule
10.1, and shall be subrogated to any rights of the Stockholders accruing as a
result of any such payments by the Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, LandCARE shall
-34-
<PAGE>
not and shall not permit any of its subsidiaries to undertake any act that would
jeopardize the tax-free status of the organization, including without
limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the LandCARE Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit LandCARE to review all such
Tax Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) LandCARE shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
(iv) Each of the Company, LandCARE and each Stockholder shall comply
with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
-35-
<PAGE>
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of LandCARE, as and to
the extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders and LandCARE each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they jointly and severally will
indemnify, defend, protect and hold harmless LandCARE, and, subsequent to the
Funding and Consummation Date, the Company and the Surviving Corporation at all
times, from and after the date of this Agreement until the Expiration Date
(provided that for purposes of Section 11.1(iii) below, the Expiration Date
shall be the date on which the applicable statute of limitations expires), from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by LandCARE, the Company or the Surviving Corporation as a result of or
arising from (i) any breach of the representations and warranties of the
Stockholders or the Company set forth herein or on the schedules or certificates
delivered in connection herewith, (ii) any breach of any agreement on the part
of the Stockholders or the Company under this Agreement, or (iii) any liability
under the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Company or the Stockholders, and provided to
LandCARE or its counsel by the Company or the Stockholders (but in the case of
the Stockholders, only if such statement was provided in writing) which is
contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
such indemnity shall not inure to the benefit of LandCARE, the Company or the
Surviving Corporation 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 Company or the Stockholders provided, in
writing, corrected information to LandCARE for inclusion in the final
prospectus, and such information was not so included or the final prospectus was
not properly delivered, and provided further, that no Stockholder shall be
liable for any indemnification obligation pursuant to this Section 11.1 to the
extent attributable to a breach of any representation, warranty or agreement
made herein individually by any other Stockholder.
LandCARE acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations
-36-
<PAGE>
or warranties of the Company or the Stockholders, either express or implied,
with respect to the transactions contemplated by this Agreement, the Company or
its assets, liabilities and business.
LandCARE further acknowledges and agrees that, should the Funding and
Consummation Date occur, its sole and exclusive remedy with respect to any and
all claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. LandCARE hereby waives, from and after the Funding and Consummation
Date, to the fullest extent permitted under applicable law, any and all rights,
claims and causes of action they or any indemnified person may have against any
Stockholder relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY LANDCARE. LandCARE covenants and agrees that it
will indemnify, defend, protect and hold harmless the Stockholders and, prior to
the Funding and Consummation Date, the Company, at all times from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by LandCARE of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
LandCARE under this Agreement, (iii) any liabilities which the Stockholders may
incur due to LandCARE's failure to be responsible for the liabilities and
obligations of the Company as provided in Section 1 hereof (except to the extent
that LandCARE has claims against the Stockholders by reason of such
liabilities); or (iv) 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 LandCARE, 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 LandCARE or any of the Other Founding Companies required to be
stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the
-37-
<PAGE>
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any proceeding
without the written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by Indemnifying Party, provided that if counsel to the
Indemnifying Party shall have a conflict of interest that prevents counsel for
the Indemnifying Party from representing 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. After the Indemnifying Party has
notified the Indemnified Party of its intention to undertake to defend or settle
any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
If the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
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.
-38-
<PAGE>
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall 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
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. LandCARE, the Surviving Corporation
and the other persons or entities indemnified pursuant to Section 11.1 shall not
assert any claim for indemnification hereunder against the Stockholders until
such time as, and solely to the extent that, the aggregate of all claims which
such persons may have against such the Stockholders shall exceed the greater of
(a) 1.0% of the sum of (i) the cash paid to Stockholders plus (ii) the value of
the LandCARE Stock delivered to Stockholders (calculated as provided in this
Section 11.5) or (b) $50,000 (the "Indemnification Threshold").
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Exchange. For purposes of
calculating the value of the LandCARE Stock received by a Stockholder, LandCARE
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such Stockholder in connection with the Exchange, valued as
described immediately above, but shall also have the right to satisfy any such
obligation in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of LandCARE and the
Company;
-39-
<PAGE>
(ii) by the Company or by LandCARE if the transactions contemplated
by this Agreement to take place at the Closing shall not have been consummated
by September 30, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party (including, in the case of the
Company, any such failure of the Stockholders) 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 Closing Date;
(iii) by the Company or by LandCARE if a material breach or default
shall be made by the other party (including, in the case of LandCARE's right to
terminate, any such material breach or default by the Stockholders) in the
observance or in the due and timely performance of any of the covenants or
agreements contained herein, and the curing of such default shall not have been
made on or before the Funding and Consummation Date, or by the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or waived as of
the Closing Date or the Funding and Consummation Date, as applicable, or by
LandCARE, if the conditions set forth in Section 9 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation Date,
as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if (a) the underwriting agreement relating to
the IPO is terminated in accordance with its terms, or (b) the conditions set
forth in Sections 8.5 and 8.9 hereof are not being satisfied as of the Funding
and Consummation Date.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 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.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will 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 or Persons:
-40-
<PAGE>
(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
landscaping business or operation or related services business in direct
competition with LandCARE or any of the Subsidiaries thereof, within 100 miles
of where the Company conducted business prior to the Funding and Consummation
Date or within the one-year period prior to the Funding and Consummation Date
(the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of LandCARE or any Subsidiary thereof for the purpose or
with the intent of enticing such employee away from or out of the employ of
LandCARE or any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within one-year prior to the Funding and Consummation Date, a customer of
LandCARE or any Subsidiary thereof, of the Company or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with LandCARE within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the landscaping
business or any related services business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by LandCARE or
any Subsidiary thereof or for which, to the actual knowledge of such Stockholder
after due inquiry, LandCARE or any Subsidiary thereof made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) except on behalf of LandCARE or any Subsidiary, disclose
customers, whether in existence or proposed, of the Company to any Person, for
any reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment 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.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
LandCARE as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to LandCARE for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by LandCARE in the event of breach by such Stockholder,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and
-41-
<PAGE>
business of LandCARE and the Subsidiaries thereof on the date of the execution
of this Agreement and the current plans of LandCARE and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against LandCARE or any subsidiary thereof, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by LandCARE of
such covenants. The covenants contained in Section 13 shall not be affected by
any breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or LandCARE, such as operational policies, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the Other
Founding Companies' and/or LandCARE's respective businesses. The Stockholders
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of LandCARE, (b) following
the Closing, such information may be disclosed by the Stockholders as is
required in the course of performing their duties for LandCARE or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order of
any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Stockholders shall,
if possible, give prior written notice thereof to LandCARE and provide LandCARE
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, LandCARE shall be entitled to an injunction
-42-
<PAGE>
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
LandCARE from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. In the event the transactions
contemplated by this Agreement are not consummated, Stockholders shall have none
of the above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company. Each Stockholder further agrees that in
the event the transactions contemplated herein are not consummated (i) neither
the Company nor any Stockholder can thereafter use any confidential information
of the Other Founding Companies for any purpose and (ii) upon written request of
any Other Founding Company to the Company, the Company and Stockholders will
return all confidential information pertaining to such Other Founding Company to
such Other Founding Company.
14.2 LANDCARE. LandCARE recognizes and acknowledges that it had in the
past and currently has access to certain confidential information of the
Company, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's business. LandCARE agrees
that, prior to the Closing, or if the Transactions contemplated by this
Agreement are not consummated, they will not disclose such confidential
information to any Person for any purpose or reason whatsoever, except (a) to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such information is or
becomes known to the public generally through no fault of LandCARE, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), LandCARE shall, if possible, give prior written notice thereof
to the Company and the Stockholders and provide the Company and the Stockholders
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, and (d) to the public to the
extent necessary or advisable in connection with the filing of the Registration
Statement and the IPO and the securities laws applicable thereto and to the
operation of LandCARE as a publicly held entity after the IPO. In the event of a
breach or threatened breach by LandCARE of the provisions of this Section 14.2,
the Company and the Stockholders shall be entitled to an injunction restraining
LandCARE from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the Company and the
Stockholders from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
-43-
<PAGE>
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by LandCARE, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, the trustees of which so agree), for a period of
two years from the Funding and Consummation Date, except pursuant to Section 17
hereof, none of the Stockholders shall sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint, or otherwise dispose of any shares of
LandCARE Stock received by the Stockholders in the Exchange. The certificates
evidencing the LandCARE Stock delivered to the Stockholders pursuant to Section
3 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as LandCARE 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.
LandCARE agrees, however, to use reasonable efforts to implement an arrangement
with a nationally recognized investment banking firm pursuant to which such firm
will facilitate sales by the Stockholders beginning after the date one year
after the Funding and Consummation Date; and in the event such an arrangement is
implemented on terms reasonably satisfactory to LandCARE, LandCARE will waive
the foregoing restriction to the extent reasonably necessary to permit the
Stockholders to participate in such arrangement.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
LandCARE Stock to be delivered to the Stockholders pursuant to this Agreement
have not been and will not be registered under the 1933 Act (except as provided
in Section 17 hereof) and therefore may not be resold without compliance with
the 1933 Act. The LandCARE Stock to be acquired by such Stockholders pursuant to
this Agreement is being acquired solely for their own respective accounts,
-44-
<PAGE>
for investment purposes only, and with no present intention of distributing,
selling or otherwise disposing of it in connection with a distribution. The
Stockholders covenant, warrant and represent that none of the shares of LandCARE
Stock issued to such Stockholders will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full compliance
with all of the applicable provisions of the 1933 Act and the rules and
regulations of the SEC. All the LandCARE Stock shall bear the following legend
in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the LandCARE Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
LandCARE Stock. The Stockholders party hereto have had an adequate opportunity
to ask questions and receive answers from the officers of LandCARE 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 LandCARE, the plans for the operations of the business
of LandCARE, 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.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever LandCARE proposes to register any LandCARE Stock for
its own or others account under the 1933 Act for a public offering, other than
(i) any shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by LandCARE (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, LandCARE shall give each of
the Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, LandCARE shall cause to be included in such registration all of the
LandCARE Stock issued to the Stockholders pursuant to this Agreement (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security which is issued by
LandCARE as) a dividend or other distribution with respect to, or in exchange
for, or in replacement of such LandCARE Stock) which any such Stockholder
requests, provided that LandCARE shall have the right to reduce the number of
-45-
<PAGE>
shares included in such registration to the extent that inclusion of such shares
could, in the written opinion of tax counsel to LandCARE or its independent
auditors, jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free organization under Section 351 of the
Code. In addition, if LandCARE is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 17.1 that the number
of shares to be sold by persons other than LandCARE is greater than the number
of such shares which can be offered without adversely affecting the offering,
LandCARE may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by LandCARE after the IPO, such reduction
shall be made first by reducing the number of shares to be sold by persons other
than LandCARE, the Stockholders and the stockholders of the Other Founding
Companies (collectively, the Stockholders and the stockholders of the other
Founding Companies 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.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
LandCARE Stock issued to the Founding Stockholders pursuant to this Agreement
and the Other Agreements which have not been previously registered or sold and
which are not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that LandCARE
file a registration statement under the 1933 Act covering the registration of
the shares of LandCARE Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by LandCARE as) a dividend or other distribution
with respect to, or in exchange for, or in replacement of such LandCARE Stock)
then held by such Founding Stockholders (a "Demand Registration"). Within ten
(10) days of the receipt of such request, LandCARE shall give written notice of
such request to all other Founding Stockholders and shall, as soon as
practicable but in no event later than 45 days after notice from any
Stockholder, file and use its best efforts to cause to become effective a
registration statement covering all such shares. LandCARE shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
the registration statement relating to such Demand Registration current and
effective for not less than 120 days (or such shorter period as is required to
sell all of the shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of LandCARE's disinterested directors (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for up to a 60 day period after the date on
which LandCARE would otherwise be required to make such filing pursuant to the
foregoing paragraph if such directors determine in good faith that the filing of
such a registration statement or the making of any required disclosure in
connection therewith would have a material
-46-
<PAGE>
adverse effect on LandCARE or interfere with a transaction in which LandCARE is
then engaged or is then pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration LandCARE has fixed plans to file within 60 days after such request
a registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders'
LandCARE Stock shall be initiated under this Section 17.2 until 90 days after
the effective date of such registration unless LandCARE is no longer proceeding
diligently to effect such registration; provided that LandCARE shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by
LandCARE as a consequence of the exercise of its rights under this Section 17.2,
then the period during which such demand registration may be requested by the
Founding Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever LandCARE is required to register
shares of LandCARE Stock pursuant to Sections 17.1 and 17.2, LandCARE will, as
expeditiously as possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, LandCARE
will furnish a representative of the Stockholders with copies of all such
documents proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that LandCARE shall not be required
to become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
-47-
<PAGE>
e. Cause all such shares of LandCARE Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
LandCARE are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that LandCARE
is required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, LandCARE will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by LandCARE.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, LandCARE
shall indemnify, to the extent permitted by law, each Stockholder and each
Person who controls such Stockholder (an "Indemnified Party") against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) arising out of or resulting from
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or associated term
sheet or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as the same are caused by or contained in or omitted
from any information furnished in writing to LandCARE by such Indemnified Party
expressly for use therein or by such Indemnified Party's failure to deliver a
copy of the registration statement or prospectus or any amendment or supplements
thereto after LandCARE has furnished such Indemnified Party with a sufficient
number of copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to LandCARE in writing such information as is
reasonably requested by LandCARE for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, LandCARE, its
directors and officers and each person who controls LandCARE (within the meaning
of the 1933 Act) against any losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses of investigation) resulting
from any untrue or alleged untrue statement of a material fact or any omission
or alleged omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto necessary
to
-48-
<PAGE>
make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in information so furnished in writing
by such Stockholder specifically for use in preparing the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.4 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, LandCARE
and each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
LandCARE's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of LandCARE
stock to the public without registration, LandCARE agrees to use its reasonable
efforts to:
(i) make and keep public information regarding LandCARE available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of LandCARE under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
-49-
<PAGE>
(iii) so long as a Stockholder owns any restricted LandCARE Common
Stock, furnish to each Stockholder forthwith upon written request a written
statement by LandCARE as to its compliance with the reporting requirements of
Rule 144 (at any time from and after 90 days following the effective date of the
Registration Statement), and of the 1933 Act and the 1934 Act (any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of LandCARE, and such other reports and documents so
filed as a Stockholder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Stockholder to sell any such shares without
registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders and LandCARE 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 will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Company
cooperate with LandCARE 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.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
LandCARE, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, and LandCARE and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, and LandCARE,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
-50-
<PAGE>
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, LandCARE will pay the fees, expenses and disbursements of
LandCARE 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 LandCARE under this Agreement, including the
fees and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and
any other person or entity retained by LandCARE or by Notre Capital Ventures II,
L.L.C., and the costs of preparing and filing the Registration Statement. Each
Stockholder shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Exchange, other than Transfer Taxes, if
any, imposed by the State of Delaware. Each Stockholder shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or LandCARE, will pay all
taxes due upon receipt of the consideration payable pursuant to Section 3
hereof. The Stockholders acknowledge that the risks of the transactions
contemplated hereby include tax risks, with respect to which the Stockholders
are relying solely on the opinion contemplated by Section 8.12 hereof.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to LandCARE, addressed to it at:
LandCARE USA, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
-51-
<PAGE>
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II or to the address of the Company set forth below, with copies
to:
Miranda K. Mandel
Neal, Gerber & Eisenberg
Two N. LaSalle Street, 22nd Floor
Chicago, Illinois 60602
(c) If to the Company, addressed to it at:
D. R. Church Landscape Co., Inc.
951 N. Ridge Ave.
Lombard, Illinois 60148
Attention: Bruce A. Church
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any
-52-
<PAGE>
breach or default by any other party under this Agreement shall impair any such
right, power or remedy, nor shall it be construed as a waiver of or acquiescence
in any such breach or default, or of any similar breach or default occurring
later; nor shall any waiver of any single breach or default be deemed a waiver
of any other breach or default occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of LandCARE, the Company and Stockholders who hold or who will
hold at least 50% of the LandCARE Stock issued or to be issued upon consummation
of the Exchange. Any amendment or waiver effected in accordance with this
Section 18.15 shall be binding upon each of the parties hereto, any other person
receiving LandCARE Stock in connection with the Exchange and each future holder
of such LandCARE Stock.
18.16 SPECIAL PROVISIONS. The Stockholders include Bruce A. Church (the
"ESOP Trustee"), as trustee of the D.R. Church Landscape Co., Inc. Employee
Stock Ownership Plan (the "ESOP"). Any provision hereof to the contrary
notwithstanding, the ESOP Trustee shall not be liable for any of the
representations or warranties contained herein or indeminification obligations
in respect thereof, except that the ESOP Trustee hereby represents and warrants
that the ESOP Trustee has the full legal right, power and authority to enter
into this Agreement and to perform the ESOP Trustee's obligations hereunder, and
that, except for the interests created by the trust instruments pursuant to
which the ESOP Trustee was appointed as such, the shares of Company Stock held
by the ESOP Trustee are held free and clear of all liens, encumbrances and
charges of every kind. The ESOP is a non-contributory employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security Act of
1974, and the Trustee makes all investment decisions for the ESOP.
-53-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
LANDCARE USA, INC.
By:____________________________________
William Murdy
Chief Executive Officer
-55-
<PAGE>
D. R. CHURCH LANDSCAPE CO., INC.
By:____________________________________
Name:
Title:
STOCKHOLDERS:
_____________________________________
Bruce A. Church
_____________________________________
Bruce A. Church as Trustee of the D.R.
Church Landscape Co., Inc. Employee Stock
Ownership Plan
_____________________________________
Denise L. Church
_____________________________________
Peggy R. Church Olson
_____________________________________
Deborah A. Church
_____________________________________
Denny R. Church
-56-
<PAGE>
SCHEDULE 6.4
None.
-57-
<PAGE>
SCHEDULE 6.5
None.
-58-
<PAGE>
SCHEDULE 6.7
None.
-59-
<PAGE>
SCHEDULE 6.8
None.
-60-
<PAGE>
SCHEDULE 6.9
None.
-61-
<PAGE>
SCHEDULE 6.12
1. The Agreement with D.R. Church is structured as an exchange agreement rather
than as a merger agreement.
2. The Agreements with Desert Care and Arteka Nurseries provide for S
corporation distributions.
3. The Agreements with Four Seasons and D. R. Church exclude a charitable
remainder trust and an ESOP, respectively, from the normal indemnity provisions.
4. The Agreement with Southern Tree provides for the release from individual
guaranties of a non-stockholder who has guaranteed company debt, and requires
Southern to separate a credit facility now cross guaranteed by Southern and an
affiliate.
5. TheAgreement with Desert Care notes that Desert Care has done its accounting
and taxes on a cash basis and provides that LandCARE will indemnify the
Stockholder against up to $450,000 in deferred taxes resulting from Desert
Care's termination of its S corporation election, and provides that the
Stockholder will indemnify Desert Care and LandCARE against deferred income tax
liabilities to the extent they exceed $450,000.
-62-
<PAGE>
SCHEDULE 6.15
None.
-63-
<PAGE>
SCHEDULE 9.12
D. R. Church Landscape Co., Inc. - Bruce A. Church
Desert Care Landscaping, Inc. - Jeff A. Meyer
Ground Control Landscaping, Inc. - Mark S. Yahn
Four Seasons Landscape & Maintenance - James R. Marcus
Trees, Inc. - Linda Benge
Southern Tree and Landscape Companies - Roger Braswell
Arteka Corporation - David Luse
-64-
EXHIBIT 10.6
AGREEMENT AND PLAN OF ORGANIZATION
dated as of March 17, 1998
by and among
LANDCARE USA, INC.
FOUR SEASONS ACQUISITION CORP.
(a subsidiary of LandCARE USA, Inc.)
FOUR SEASONS LANDSCAPE AND MAINTENANCE, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................5
1.3 Certificate of Incorporation, By-laws; Board of Directors
and Officers of Surviving Corporation............................5
1.4 Certain Information With Respect to the Capital Stock of
the Company, LandCARE and Newco..................................6
1.5 Effect of Merger.................................................6
2. CONVERSION OF STOCK....................................................7
2.1 Manner of Conversion.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 Due Organization.................................................9
5.2 Authorization...................................................10
5.3 Capital Stock of the Company....................................10
5.4 Transactions in Capital Stock, Organization Accounting..........10
5.5 No Bonus Shares.................................................10
5.6 Subsidiaries....................................................10
5.7 Predecessor Status; etc.........................................10
5.8 Spin-off by the Company.........................................11
5.9 Financial Statements............................................11
5.10 Liabilities and Obligations.....................................11
5.11 Accounts and Notes Receivable...................................11
5.12 Permits and Intangibles.........................................12
5.13 Environmental Matters...........................................12
5.14 Personal Property...............................................13
5.15 Significant Customers; Material Contracts and Commitments.......13
5.16 Real Property...................................................14
5.17 Insurance.......................................................14
5.18 Compensation; Employment Agreements; Organized Labor Matters....15
-i-
<PAGE>
5.19 Employee Plans..................................................15
5.20 Compliance with ERISA...........................................16
5.21 Conformity with Law; Litigation.................................17
5.22 Taxes...........................................................17
5.23 No Violations; No Consents Required, Etc.......................18
5.24 Absence of Changes..............................................18
5.25 Deposit Accounts; Powers of Attorney............................20
5.26 Validity of Obligations.........................................20
5.27 Relations with Governments......................................20
5.28 Disclosure......................................................20
5.29 [Intentionally Omitted].........................................21
5.30 No Interests In Other Businesses................................21
5.31 Authority; Ownership............................................21
5.32 Preemptive Rights...............................................21
5.33 No Intention to Dispose of LandCARE Stock.......................21
6. REPRESENTATIONS OF LANDCARE AND NEWCO.................................21
6.1 Due Organization................................................22
6.2 Authorization...................................................22
6.3 Capital Stock of LandCARE and Newco.............................22
6.4 Transactions in Capital Stock, Organization Accounting..........22
6.5 Subsidiaries....................................................22
6.6 Financial Statements............................................23
6.7 Liabilities and Obligations.....................................23
6.8 Conformity with Law; Litigation.................................23
6.9 No Violations...................................................23
6.10 Validity of Obligations.........................................24
6.11 LandCARE Stock..................................................24
6.12 Other Agreements; No Side Agreements............................24
6.13 Business; Real Property; Material Agreements....................25
6.14 Taxes...........................................................25
6.15 Absence of Changes..............................................25
6.16 Disclosure......................................................26
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 Access and Cooperation; Due Diligence...........................27
7.2 Conduct of Business Pending Closing.............................27
7.3 Prohibited Activities...........................................28
7.4 No Shop.........................................................29
7.5 Notice to Bargaining Agents.....................................30
7.6 Agreements......................................................30
-ii-
<PAGE>
7.7 Notification of Certain Matters.................................30
7.8 Amendment of Schedules..........................................30
7.9 Cooperation in Preparation of Registration Statement............31
7.10 Final Financial Statements......................................32
7.11 Further Assurances..............................................32
7.12 Authorized Capital..............................................32
7.13 Compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "Hart-Scott-Rodino Act")..........32
7.14 Stockholders of LandCARE........................................33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY...............................................................33
8.1 Representations and Warranties; Performance of Obligations......33
8.2 Satisfaction....................................................33
8.3 No Litigation...................................................34
8.4 Opinion of Counsel..............................................34
8.5 Registration Statement..........................................34
8.6 Consents and Approvals..........................................34
8.7 Good Standing Certificates......................................34
8.8 No Material Adverse Change......................................34
8.9 Closing of IPO..................................................34
8.10 Secretary's Certificate.........................................34
8.11 Employment Agreements...........................................35
8.12 Tax Matters.....................................................35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO
35
9.1 Representations and Warranties; Performance of Obligations......35
9.2 No Litigation...................................................36
9.3 Secretary's Certificate.........................................36
9.4 No Material Adverse Effect......................................36
9.5 Stockholders' Release...........................................36
9.6 Satisfaction....................................................36
9.7 Termination of Related Party Agreements.........................36
9.8 Opinion of Counsel..............................................36
9.9 Consents and Approvals..........................................37
9.10 Good Standing Certificates......................................37
9.11 Registration Statement..........................................37
9.12 Employment Agreements...........................................37
9.13 Closing of IPO..................................................37
9.14 FIRPTA Certificate..............................................37
-iii-
<PAGE>
9.15 Environmental Reviews...........................................37
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING
.....................................................................37
10.1 Release From Guarantees; Repayment of Certain Obligations.......37
10.2 Preservation of Tax and Accounting Treatment....................38
10.3 Preparation and Filing of Tax Returns...........................38
10.4 Directors.......................................................39
11. INDEMNIFICATION.......................................................39
11.1 General Indemnification by the Stockholders.....................39
11.2 Indemnification by LandCARE.....................................40
11.3 Third Person Claims.............................................41
11.4 Exclusive Remedy................................................42
11.5 Limitations on Indemnification..................................42
12. TERMINATION OF AGREEMENT..............................................43
12.1 Termination.....................................................43
12.2 Liabilities in Event of Termination.............................43
13. NONCOMPETITION........................................................44
13.1 Prohibited Activities...........................................44
13.2 Damages.........................................................45
13.3 Reasonable Restraint............................................45
13.4 Severability; Reformation.......................................45
13.5 Independent Covenant............................................45
13.6 Materiality.....................................................45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................45
14.1 Stockholders....................................................45
14.2 LandCARE and Newco..............................................46
14.3 Damages.........................................................47
14.4 Survival........................................................47
15. TRANSFER RESTRICTIONS.................................................47
15.1 Transfer Restrictions...........................................47
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................48
16.1 Compliance with Law.............................................48
16.2 Economic Risk; Sophistication...................................48
-iv-
<PAGE>
17. REGISTRATION RIGHTS...................................................49
17.1 Piggyback Registration Rights...................................49
17.2 Demand Registration Rights......................................49
17.3 Registration Procedures.........................................50
17.4 Indemnification.................................................51
17.5 Underwriting Agreement..........................................52
17.6 Rule 144 Reporting..............................................53
18. GENERAL...............................................................53
18.1 Cooperation.....................................................53
18.2 Successors and Assigns..........................................53
18.3 Entire Agreement................................................54
18.4 Counterparts....................................................54
18.5 Brokers and Agents..............................................54
18.6 Expenses........................................................54
18.7 Notices.........................................................55
18.8 Governing Law...................................................56
18.9 Survival of Representations and Warranties......................56
18.10 Exercise of Rights and Remedies.................................56
18.11 Time............................................................56
18.12 Reformation and Severability....................................56
18.13 Remedies Cumulative.............................................56
18.14 Captions........................................................56
18.15 Amendments and Waivers..........................................56
-v-
<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Benefit Plans (the Benefit Plans Schedule)
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.30 No Interests in Other Businesses
5.31 Authority; Ownership
6.4 Capital Stock etc.
6.5 Subsidiaries
6.7 Liabilities
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 OtherAgreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
March 17, 1998, by and among LandCARE USA, Inc., a Delaware corporation
("LandCARE"), Four Seasons Acquisition Corp., a Delaware corporation ("Newco"),
Four Seasons Landscape and Maintenance, Inc., a California corporation (the
"Company"), and the stockholders identified on the signature pages hereof (the
"Stockholders"). The Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on or about
March 6, 1998 solely for the purpose of completing the transactions set
forth herein, and is a wholly-owned subsidiary of LandCARE, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective Stockholders that Newco
merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation (as defined below);
WHEREAS, LandCARE is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional landscaping and related
services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "LandCARE Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of LandCARE, each of the Other Founding Companies and each of
the subsidiaries of LandCARE that are parties to the Other Agreements have
approved and adopted the LandCARE Plan of Organization as an integrated
plan pursuant to which the Stockholders and the stockholders of each of
the Other Founding Companies will transfer the capital stock of each of
the Founding Companies (as defined herein) to LandCARE and the
stockholders of each of the Other Founding Companies will acquire the
stock of LandCARE (but not cash or other property) as a tax-free transfer
of property under Section 351 of the Code;
-1-
<PAGE>
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the LandCARE Plan of Organization
in order to transfer the capital stock of the Company to LandCARE;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by LandCARE prior to the Funding
and Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
-2-
<PAGE>
"Draft Registration Statement" means the March 12, 1998 draft of the
Registration Statement, and any corrections thereto and supplemental information
delivered by LandCARE to the Company for delivery to the Stockholders prior to
the time this Agreement is delivered to LandCARE.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
(a) Arteka Corporation, a Minnesota corporation, as well as its
affiliates Arteka Natural Green Corporation, a Minnesota corporation and
Arteka Nurseries, Inc., a Minnesota corporation;
(b) D. R. Church Landscape Co., Inc., an Illinois corporation;
(c) Desert Care Landscaping, Inc., an Arizona corporation;
(d) Four Seasons Landscape and Maintenance, Inc., a California
corporation;
(e) Ground Control Landscaping, Inc., a Florida corporation;
(f) Southern Tree & Landscape Co., Inc., a North Carolina
corporation; and
(g) Trees, Inc., a Nevada corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of LandCARE Stock pursuant to the
Registration Statement described herein.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"LandCARE" has the meaning set forth in the first paragraph of this
Agreement.
"LandCARE Charter Documents" has the meaning set forth in Section 6.1.
"LandCARE Stock" means the common stock, par value $.01 per share, of
LandCARE.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
-3-
<PAGE>
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by LandCARE and the Underwriters
of the public offering price of the shares of LandCARE Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of LandCARE Stock to be issued
in the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"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 (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of California.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
-4-
<PAGE>
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to LandCARE at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, the Company shall be the
surviving party in the Merger and the Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the Merger,
such By-laws shall be the By-laws of the Surviving Corporation until they shall
thereafter be duly amended (and such Bylaws shall be amended from time to time,
if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that William
Murdy or another officer of LandCARE shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the Company
shall be
-5-
<PAGE>
increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger William Fiedler and another officer of LandCARE shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
LANDCARE AND NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, LandCARE and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of LandCARE will consist of 100,000,000 shares of
LandCARE Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, 5,000,000 shares of preferred stock, $.01
par value, of which no shares will be issued and outstanding, and 3,000,000
shares of Restricted Voting Common Stock, $.01 par value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as otherwise set
forth in the Registration Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred (100)
shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on
-6-
<PAGE>
whatever account, including subscriptions to shares, and all taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the Company and Newco
shall be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Company and Newco;
and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the State of Incorporation vested in the Company
and Newco, shall not revert or be in any way impaired by reason of the Merger.
Except as otherwise provided herein, the Surviving Corporation shall thenceforth
be responsible and liable for all the liabilities and obligations of the Company
and Newco and any claim existing, or action or proceeding pending, by or against
the Company or Newco may be prosecuted as if the Merger had not taken place, or
the Surviving Corporation may be substituted in their place. Neither the rights
of creditors nor any liens upon the property of the Company or Newco shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Newco shall attach to the Surviving Corporation, and may be enforced against
such Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) LandCARE Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
deemed to represent (1) the right to receive the number of shares of LandCARE
Stock set forth on Annex I hereto with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to such
holder;
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of LandCARE Stock or
other consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of LandCARE, automatically be converted into one
fully paid and non-assessable share of common stock of the Surviving Corporation
which shall constitute all of the issued and outstanding shares of common stock
of the Surviving Corporation immediately after the Effective Time of the Merger.
-7-
<PAGE>
All LandCARE Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
LandCARE Stock by reason of the provisions of the Certificate of Incorporation
of LandCARE or as otherwise provided by the Delaware GCL. All LandCARE Stock
received by the Stockholders shall be issued and delivered to the Stockholders
free and clear of any liens, claims or encumbrances of any kind or nature. All
voting rights of such LandCARE 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. At the Effective Time of the Merger,
LandCARE shall have no class of capital stock issued and outstanding other than
the LandCARE Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of LandCARE Stock and the amounts of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to LandCARE at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
Stockholders, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholders' expense,
affixed and canceled. The Stockholders agree promptly to cure any deficiencies
with respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to LandCARE for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
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 Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and
-8-
<PAGE>
(z) the closing with respect to the IPO shall occur and be completed. The date
on which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as 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 the parties if (a) the underwriting agreement in respect
of the IPO is terminated pursuant to the terms of such underwriting agreement,
or (b) the conditions set forth in Sections 8.5 and 8.9 hereof are not being
satisfied as of the Funding and Consummation Date. This Agreement shall also in
any event automatically terminate if the Funding and Consummation Date has not
occurred within 15 business days following the Closing Date.
Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders jointly and severally represents and warrants
that all of the representations and warranties in this Section 5 are true at the
date of this Agreement and, subject to Section 7.8 hereof, shall be true at the
time of Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
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 5.22, and the representations
and warranties set forth in Section 5.31 hereof shall survive perpetually. For
purposes of this Section 5, the term "Company" shall mean and refer to the
Company and all of its Subsidiaries, if any. For purposes of this Section 5, the
phrase "knowledge of the Stockholders" shall mean the actual knowledge of the
Stockholders after due inquiry of the appropriate management personnel employed
by the Company.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
-9-
<PAGE>
5.2 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 this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and 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 Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the LandCARE Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the LandCARE Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
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 all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
-10-
<PAGE>
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the balance sheets of the Company as of the dates shown thereon and
the related statements of operations, stockholder's equity and cash flows for
the periods shown thereon, together with the related notes and schedules (such
balance sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules being referred to herein as the
"Financial Statements"). The Financial Statements have been prepared from the
books and records of the Company as of the dates and for the periods covered
thereby. The books of account of the Company have been kept accurately in the
ordinary course of business, the transactions recorded therein represent bona
fide transactions, and the revenues, expenses, assets and liabilities of the
Company have been properly recorded therein all material respects.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and 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 and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
knowledge of the Stockholders, except as set forth on Schedule 5.10, since the
Balance Sheet Date the Company has not incurred any material liabilities of any
kind, character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to LandCARE on Schedule 5.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed, a good faith and
reasonable estimate of the maximum amount which the Company reasonably expects
will be payable and the amount, if any, accrued or reserved for each such
potential liability on the Company's Financial Statements; in the case of any
such liability for which no estimate has been provided, the estimate for
purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list 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, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are
-11-
<PAGE>
collectible in the amounts shown on Schedule 5.11, net of reserves reflected in
the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to LandCARE an accurate list and summary description
(which is set forth on Schedule 5.12) of all such Licenses, and of any
trademarks, trade names, patents, patent applications and copyrights owned or
held by the Company or by any of its employees if used or held for use by the
Company in the conduct of its business (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property owned by any employees of the Company will be assigned or licensed to
the Company for no additional consideration. To the knowledge of the
Stockholders, the Licenses and other rights listed on Schedules 5.12 and 5.13
are valid, and the Company has not received any notice that any Person intends
to cancel, terminate or not renew any such License or other right. The Company
has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees 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,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (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 Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders, there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which
-12-
<PAGE>
the Company has transported or disposed of Hazardous Materials or arranged for
the transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could reasonably be expected to lead to any claim against the Company, LandCARE
or Newco 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, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act or comparable state or local statutes or
regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to LandCARE an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the Company included in "property" or "plant, property and
equipment" or any similar category on the balance sheet of the Company as of the
Balance Sheet Date, (y) all other tangible personal property owned by the
Company with an individual fair market value (in the reasonable judgment of the
Stockholders; it being understood that the Stockholders are not obtaining
appraisals of any such property in connection with the preparation of Schedule
5.14) in excess of $25,000 (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date and (z) all material leases and agreements in
respect of personal property, including, in the case of each of (x), (y) and
(z), (1) true, complete and correct copies of all such leases and (2) an
indication as to which assets are currently owned, or were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as
set forth on Schedule 5.14, (i) all material 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 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted and (iii) all leases and agreements included on Schedule 5.14
are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.15) of all customers (persons or entities) representing 1% or more of
the Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 25
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, 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 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to LandCARE. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options
-13-
<PAGE>
to purchase land and other contracts which are not terminable on sixty days or
less notice and involve payments by the Company in any twelve-month period in
excess of $25,000. The Company has also indicated on Schedule 5.15 a summary
description of all plans or projects involving the opening of new operations,
expansion of existing operations, the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $25,000 by
the Company during any 12-month period. All of the Material Contracts are in
full force and effect and constitute valid and binding agreements of the parties
(and their successors) thereto in accordance with their respective terms.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in substantially the form of Annex VI hereto (or with terms substantially
similar to those of Annex VI) at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affilliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in
substantially the form of Annex VI hereto (or with terms substantially similar
to those of Annex VI) will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good and insurable title to any real
property owned by it that is not shown on Schedule 5.16 as property intended to
be sold or distributed prior to the Closing Date, subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to LandCARE (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the Company,
(ii) an accurate list of all
-14-
<PAGE>
insurance loss runs or workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the Company is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws, and to the knowledge
of the Stockholders provide adequate coverage against the risks involved in the
Company's business. All of such insurance policies are currently in full force
and effect. Since January 1, 1995, no insurance carried by the Company has been
canceled by the insurer and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the Company,
listing all employment agreements with such officers, directors and key
employees and the rate of compensation (and the portions thereof attributable to
salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided
to LandCARE true, complete and correct copies of any employment agreements for
persons listed on Schedule 5.18. Since the Balance Sheet Date, there have been
no material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not 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) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, 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.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to LandCARE an
accurate schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all
employee benefit plans of the Company, including all employment agreements and
other agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no 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
-15-
<PAGE>
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on the Benefit Plans Schedule.
Except as set forth on the Benefit Plans Schedule, the Company is not required
to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of the Company's or any Subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule 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. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
-16-
<PAGE>
(iv) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited to, any
liability to any multiemployer plan or the PBGC under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty, or being subject to
any statutory lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the knowledge of the Stockholders,
there is no basis for any such claim, action, suit or proceeding. The Company
has conducted and is now conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations, including all such orders and other governmental
approvals set forth on Schedules 5.12 and 5.13, except where any such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against it for federal, state
and other Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any claim for
Taxes, whether pending or threatened, has been received. All Tax due from the
Company for any period ended before the date hereof, including interest and
penalties (whether or not shown on any Return) has been paid. The amounts shown
as accruals for taxes on the Company Financial Statements are sufficient for the
payment of all Taxes (including penalties and interest) for all periods ended on
or before that date. Copies of (i) any tax examinations, (ii) extensions of
statutory limitations and (iii) the federal and local income tax returns and
franchise tax returns of the Company for their last three (3) fiscal years, or
such shorter period of time as any of them shall have existed, are attached
hereto as Schedule 5.22 or have otherwise been delivered to LandCARE. The
Company has disclosed to LandCARE when its taxable year ends. The Company uses
the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated
-17-
<PAGE>
group. Except as described on Schedule 5.22, the Company has not received, been
denied, or applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially 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 material violation or breach of 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 5.23, 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 material right or benefit. Except as set forth on
Schedule 5.23, none of the Material Documents prohibits the use or publication
by the Company, LandCARE or Newco 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, LandCARE, Newco or any Other Founding Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty 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 by
the Company 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,
-18-
<PAGE>
Stockholders, employees, consultants or agents, except for ordinary and
customary bonuses and salary increases for employees in accordance with past
practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including, without
limitation, the Stockholders and their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii)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;
(ix) 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;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii)any contract entered into or commitment incurred involving any
liability or commitment to make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 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 and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
-19-
<PAGE>
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
LandCARE an accurate schedule (which is set forth on Schedule 5.25) as of the
date of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of LandCARE utilized in
connection with the IPO, the Stockholders become aware of any fact or
circumstance which would affect the accuracy of a representation or warranty of
the Stockholders in this Agreement in any material respect, the Stockholders
shall immediately give notice of such fact or circumstance to LandCARE. Subject
to the provisions of Section 7.8, such notification shall not relieve either the
Company or the Stockholders of their respective obligations under this
Agreement.
(b) 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 the 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; (ii)
that neither
-20-
<PAGE>
LandCARE or any of its officers, directors, agents or representatives nor any
Underwriter shall have any liability to the Company, the Stockholders or any
other person affiliated or associated with the Company for any failure of the
Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to LandCARE or the prospective IPO. Notwithstanding the foregoing,
LandCARE has agreed and herein acknowledges its agreement to use its reasonable
efforts to consummate the LandCARE Plan of Organization and IPO as contemplated
hereby.
5.29 [INTENTIONALLY OMITTED]
5.30 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.30, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.31 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
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.32 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.
5.33 NO INTENTION TO DISPOSE OF LANDCARE STOCK. No Stockholder is under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of LandCARE Stock to be received as described in Section 3.1 of this
Agreement.
6. REPRESENTATIONS OF LANDCARE AND NEWCO
LandCARE and Newco jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and, subject to Section 7.8 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 twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 6.14
hereof shall survive until such time as the
-21-
<PAGE>
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 6.14.
6.1 DUE ORGANIZATION. LandCARE and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. LandCARE and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, 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 By-laws of LandCARE (the "LandCARE Charter Documents") have
been or will be filed as exhibits to the Registration Statement, and copies
thereof and copies of the Certificate of Incorporation and Bylaws of Newco will
be provided to the Stockholders promptly upon request.
6.2 AUTHORIZATION. (i) The respective representatives of LandCARE and
Newco executing this Agreement have the authority to enter into and bind
LandCARE and Newco to the terms of this Agreement and (ii) LandCARE and Newco
have the full legal right, power and authority to enter into this Agreement and
consummate the Merger. All corporate acts and other proceedings required to have
been taken by LandCARE and Newco to authorize the execution, delivery and
performance of this Agreement and the consummation of the Merger have been duly
and properly taken.
6.3 CAPITAL STOCK OF LANDCARE AND NEWCO. The authorized capital stock of
LandCARE and Newco is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of Newco are owned
by LandCARE. All of the issued and outstanding shares of the capital stock of
LandCARE and Newco have been duly authorized and validly issued, are fully paid
and nonassessable, and further, such shares were offered, issued, sold and
delivered by LandCARE and Newco in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such shares
were issued in violation of the preemptive rights of any past or present
stockholder of LandCARE or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
LandCARE or Newco to issue any of their respective authorized but unissued
capital stock; and (ii) neither LandCARE nor Newco has any 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. Complete and accurate copies of all stock
option or stock purchase plans and a list of all outstanding options, warrants
or other rights to acquire shares of the stock of LandCARE will be provided to
the Stockholders promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. LandCARE has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other
-22-
<PAGE>
newly incorporated Subsidiaries that have conducted no business and have been
created solely to effectuate the business of LandCARE. Except as set forth in
the preceding sentence or set forth on Schedule 6.5 hereto, neither LandCARE nor
any Subsidiary of LandCARE presently owns, of record or beneficially, or
controls, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity, and neither LandCARE nor Newco, directly or indirectly, is a
participant in any joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The historical financial statements of LandCARE
included in the Draft Registration Statement (the "LandCARE Financial
Statements") have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the period indicated (except
as noted thereon), and present fairly in all material respects the financial
position of LandCARE as of the date and for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither LandCARE nor any
Subsidiary of LandCARE has any material liabilities, contingent or otherwise,
except as set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither LandCARE nor
any Subsidiary of LandCARE is in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
any of them which would have a Material Adverse Effect, (b) there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
LandCARE or Newco, threatened against or affecting, LandCARE or any Subsidiary
of LandCARE, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any of them, and (c) no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received by LandCARE or Newco. LandCARE and its Subsidiaries have conducted and
are conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. LandCARE is not in violation of any LandCARE Charter
Document, and no Subsidiary of LandCARE is in violation of its Certificate of
Incorporation or Bylaws. None of LandCARE, Newco, or, to the knowledge of
LandCARE and Newco, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit to which LandCARE or any Subsidiary of
LandCARE is a party, or by which LandCARE or any Subsidiary of LandCARE, or any
of their respective properties, are bound (collectively, the "LandCARE
Documents"); and (a) the rights and benefits of LandCARE and any Subsidiary of
LandCARE under the LandCARE Documents will not
-23-
<PAGE>
be adversely affected by the transactions contemplated hereby and (b) the
execution and delivery of this Agreement by LandCARE and Newco and the
performance of their obligations hereunder do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation or default (with or without notice or
lapse of time, or both), under or give rise to a right of termination,
cancellation, or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any lien upon any of the assets of LandCARE
or any Subsidiary of LandCARE under, any provision of (i) the Certificate of
Incorporation or Bylaws of LandCARE or the comparable governing instruments of
any Subsidiary of LandCARE, (ii) any note, bond, mortgage, indenture or deed of
trust or any license, lease, contract, commitment, agreement or arrangement to
which LandCARE and any Subsidiary of LandCARE is a party or by which any of
their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to LandCARE or any
Subsidiary of LandCARE or their respective properties or assets. The execution
of this Agreement and the Other Agreements and the performance of the
obligations hereunder and thereunder and the consummation of the transactions
contemplated by the LandCARE Plan of Organization will not result in any
material violation or breach or constitute a default under, any of the terms or
provisions of the LandCARE Documents or the LandCARE Charter Documents. Except
as contemplated hereby or described in the Registration Statement or on Schedule
6.9 hereto, none of the LandCARE 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 by the LandCARE Plan of Organization in order to
remain in full force and effect and consummation of the transactions
contemplated thereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by LandCARE and Newco and the performance of the transactions contemplated
herein have been duly and validly authorized by the respective Boards of
Directors of LandCARE and Newco and this Agreement has been duly and validly
authorized by all necessary corporate action and is a legal, valid and binding
obligation of LandCARE and Newco.
6.11 LANDCARE STOCK. At the time of issuance thereof and delivery to the
Stockholders, the LandCARE Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of LandCARE,
fully paid and nonassessable, and with the exception of restrictions upon resale
set forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
LandCARE Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. Except as set forth above, the LandCARE Stock
issued and delivered to the Stockholders shall at the time of such issuance and
delivery be free and clear of any liens, security interests, claims or
encumbrances of any kind or character. The shares of LandCARE Stock to be issued
to the Stockholders pursuant to this Agreement will not be registered under the
1933 Act except as provided in Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except as described on Schedule
6.12 hereto, each of the Other Agreements is substantially similar to this
Agreement. Neither LandCARE
-24-
<PAGE>
nor Newco has entered or will enter into any agreement with any of the Other
Founding Companies or any of the stockholders of the Other Founding Companies
other than the Other Agreements and the agreements contemplated by each of the
Other Agreements, including the employment agreements and leases referred to
herein or entered into in connection with the transactions contemplated hereby
and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. LandCARE was formed in
October 1997 and has conducted only limited operations since that time. Neither
LandCARE nor any Subsidiary thereof has conducted any material business since
the date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither LandCARE nor any Subsidiary of LandCARE owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement other than the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES.LandCARE and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against LandCARE or any Subsidiary
thereof for federal, state and other Taxes (including penalties and interest)
for any such period and no notice of any claim for Taxes, whether pending or
threatened, has been received. All Taxes which LandCARE or any Subsidiary of
LandCARE has been required to collect or withhold have been duly and timely
collected and withheld and have been set aside in accounts for such purposes, or
have been duly and timely paid to the proper governmental authority. All Tax,
including interest and penalties (whether or not shown on any tax return) owed
by LandCARE, any member of an affiliated or consolidated group which includes or
included LandCARE, or with respect to any payment made or deemed made by
LandCARE herein has been paid. The amounts shown as accruals for taxes on
LandCARE Financial Statements are sufficient for the payment of all taxes of the
kinds indicated (including penalties and interest) for all fiscal periods ended
on or before that date. Neither LandCARE nor any Subsidiary thereof has entered
into any tax sharing agreement or similar arrangement. Neither LandCARE nor any
Subsidiary thereof is an investment company as defined in Section 351(e)(1) of
the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of LandCARE or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of LandCARE
or Newco;
-25-
<PAGE>
(iii) any change in the authorized capital of LandCARE or Newco or
their outstanding securities or any change in their 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 LandCARE or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of LandCARE or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to LandCARE or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of LandCARE or any Subsidiary thereof or requiring consent of any party
to the transfer and assignment of any such assets, property or rights;
(viii)any waiver of any material rights or claims of LandCARE or any
Subsidiary of LandCARE;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which LandCARE or any Subsidiary of
LandCARE is a party;
(x) any transaction by LandCARE or any Subsidiary of LandCARE
outside the ordinary course of its business;
(xi) any other distribution of property or assets by LandCARE or any
Subsidiary of LandCARE other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with the representations and warranties of
LandCARE and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
LandCARE by the Stockholders, the offering and issuance of shares of LandCARE
Stock to the Stockholders and
-26-
<PAGE>
to the stockholders of the Other Founding Companies pursuant to this Agreement
and to the Other Agreements have been made in compliance with all applicable
federal and state securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 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 LandCARE access to all of the
Company's sites, properties, books and records and will furnish LandCARE with
such additional financial and operating data and other information as to the
business and properties of the Company as LandCARE may from time to time
reasonably request. The Company will cooperate with LandCARE and its
representatives, auditors and counsel in the preparation of any documents or
other materials which may be required in connection with any documents or
materials required by this Agreement. LandCARE, Newco, the Stockholders and the
Company will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to the Other Founding Companies as confidential in accordance with
the provisions of Section 14 hereof. In addition, LandCARE will cause each of
the Other Founding Companies to enter into a provision similar to this Section
7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, LandCARE will afford to the officers and authorized representatives of the
Company access to all of LandCARE's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the business and properties of
LandCARE and Newco as the Company may from time to time reasonably request.
LandCARE and Newco will cooperate with the Company, its representatives,
auditors and counsel in the preparation of any documents or other material which
may be required in connection with any documents or materials required by this
Agreement. The Company will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to 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 all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
-27-
<PAGE>
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar governmental
authorities applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
LandCARE (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of LandCARE 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.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of LandCARE, which consent will not be
unreasonably withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) 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 in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(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
$25,000 necessary or desirable for the conduct of the businesses
-28-
<PAGE>
of the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in clause (2)
being referred to herein as "Statutory Liens"), or (3) liens set forth on
Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the 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 for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than LandCARE, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective 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.
-29-
<PAGE>
7.5 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 LandCARE on Schedule 7.5 with proof that any required notice has been
sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by LandCARE or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to LandCARE. Such termination agreements are listed on Schedule 7.6
and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to LandCARE 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 failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. LandCARE and Newco 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 LandCARE or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of LandCARE or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would
-30-
<PAGE>
have a Material Adverse Effect may be made unless LandCARE 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 LandCARE or Newco 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 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 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, LandCARE shall give the Company notice promptly
after it has knowledge thereof. If LandCARE and a majority of the Founding
Companies (other than the Founding Company seeking to amend or supplement a
Schedule) consent to such amendment or supplement, which consent shall have been
deemed given by LandCARE or any Founding Company if no response is received
within 24 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 12.1(iv) hereof. In the event that the Company
seeks to amend or supplement a Schedule pursuant to this Section 7.8, and
LandCARE 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 12.1(i) hereof. In the event that LandCARE or
Newco seeks to amend or supplement a Schedule pursuant to this Section 7.8 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 12.1(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 7.8. No amendment of or supplement to a Schedule shall be made
later than 24 hours prior to the anticipated effectiveness of the Registration
Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to LandCARE and the
Underwriters all of the information concerning the Company and the Stockholders
reasonably requested by LandCARE or the Underwriters for inclusion in, and will
cooperate with LandCARE and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements of the Company, 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 LandCARE if at any time during the period in which a prospectus relating
to the IPO is required to be delivered under the Securities 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. Insofar as the information relates solely to
the Company or the Stockholders, the Company
-31-
<PAGE>
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and LandCARE 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 ending not later
than 15 days prior to the Funding and Consummation Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
Company for all such fiscal quarters, 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. Such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein). Except as noted in such financial statements, all of
such financial statements will present fairly the results of operations of the
Company for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
LandCARE 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 LandCARE Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by LandCARE and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by LandCARE. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
-32-
<PAGE>
7.14 STOCKHOLDERS OF LANDCARE. Promptly after a request by the Company,
LandCARE will deliver to the Company a list of the stockholders of LandCARE as
of the date of this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions.
Subject to Section 12 hereof, 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 8.1, 8.5, 8.8, 8.9 and
8.12. As of the Closing Date or subject to Section 12 hereof, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been satisfied,
the Stockholders (acting in unison) shall have the right to terminate this
Agreement, or in the alternative, waive any condition not so satisfied. Any act
or action of the Stockholders in consummating the Closing or delivering
certificates representing Company Stock as of the Funding and Consummation Date
shall constitute a waiver of any conditions not so satisfied. However, no such
waiver shall be deemed to affect the survival of the representations and
warranties of LandCARE and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of LandCARE and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by LandCARE and Newco 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, respectively, and
signed by the President or any Vice President of LandCARE shall have been
delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform
-33-
<PAGE>
LandCARE in writing prior to the effectiveness of the Registration Statement of
the existence of an untrue statement of a material fact or the omission of such
a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger 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.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for LandCARE, dated the Closing Date, in the form annexed hereto as
Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of LandCARE Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger 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 Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. LandCARE and Newco each 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 LandCARE or Newco is authorized to do business,
showing that each of LandCARE and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
LandCARE and Newco, respectively, for all periods prior to the Closing have been
filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to LandCARE or Newco which has had or is reasonably likely
to have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of LandCARE and of Newco,
-34-
<PAGE>
certifying the truth and correctness of attached copies of the LandCARE's and
Newco's respective Certificates of Incorporation (including amendments thereto),
By-Laws (including amendments thereto), and resolutions of the boards of
directors and, if required, the Stockholders of LandCARE and Newco approving
LandCARE's and Newco's entering into this Agreement and the consummation of the
transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
under the caption relating to the Company shall have been afforded the
opportunity to enter into an Employment Agreement substantially in the form of
Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the LandCARE Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for LandCARE Stock (but not cash or other property) pursuant to the
LandCARE Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO
The obligations of LandCARE and Newco 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 LandCARE and
Newco 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 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, LandCARE and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, 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; 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 shall
have delivered to LandCARE certificates dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by them to such effect.
-35-
<PAGE>
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of LandCARE as a result of which the
management of LandCARE (acting in good faith) deems it inadvisable to proceed
with the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. LandCARE 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.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to
LandCARE an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Funding and Consummation 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 5.10 and 5.15 as being claims of or
obligations to the Stockholders, and (y) continuing obligations to Stockholders
relating to their employment by the Company. In the event that the Funding and
Consummation Date does not occur, then the release instrument referenced herein
shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to LandCARE.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by LandCARE, all existing agreements between
the Company and the Stockholders (and entities controlled by the Stockholders)
other than real property leases shall have been canceled effective prior to or
as of the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. LandCARE shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
-36-
<PAGE>
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
LandCARE 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 LandCARE, in each state
in which the Company is authorized to do business, showing the Company is in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
each shall enter into an employment agreement substantially in the form of Annex
V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to LandCARE
a certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. LandCARE shall have received a report from an
independent environmental consultant retained by LandCARE at its expense to
conduct an environmental review of the Company's owned and leased sites, and
such report shall not disclose any environmental condition that, in LandCARE's
reasonable judgment, either (i) could be expected to have a Material Adverse
Effect on the Company, or (ii) poses any risk of a substantial liability to the
Company.
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. LandCARE
shall use reasonable efforts, including offering its own guarantee, to have the
Stockholders and their spouses released from any and all guarantees of the
Company's indebtedness identified on Schedule 10.1. In the event that LandCARE
cannot obtain such releases from the lenders of any such guaranteed indebtedness
identified on Schedule 10.1 on or prior to 120 days subsequent to the Funding
and Consummation Date, LandCARE shall promptly pay off or otherwise refinance or
retire
-37-
<PAGE>
such indebtedness. LandCARE shall indemnify the Stockholders against, and shall
promptly reimburse the Stockholders for, any amounts which the Stockholders are
obligated to pay under any such guarantees listed on Schedule 10.1, and shall be
subrogated to any rights of the Stockholders accruing as a result of any such
payments by the Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, LandCARE shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the LandCARE Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit LandCARE to review all such
Tax Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) LandCARE shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding
-38-
<PAGE>
sentence, each party required to file Returns pursuant to this Agreement shall
bear all costs of filing such Returns.
(iv) Each of the Company, Newco, LandCARE and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of LandCARE, as and to
the extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, LandCARE and Newco each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they jointly and severally will
indemnify, defend, protect and hold harmless LandCARE, Newco, and, subsequent to
the Funding and Consummation Date, the Company and the Surviving Corporation at
all times, from and after the date of this Agreement until the Expiration Date
(provided that for purposes of Section 11.1(iii) below, the Expiration Date
shall be the date on which the applicable statute of limitations expires), from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by LandCARE, Newco, the Company or the Surviving Corporation as a
result of or arising from (i) any breach of the representations and warranties
of the Stockholders or the Company set forth herein or on the schedules or
certificates delivered in connection herewith, (ii) any breach of any agreement
on the part of the Stockholders or the Company under this Agreement, or (iii)
any liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement of a material fact relating to the Company or the Stockholders, and
provided to LandCARE or its counsel by the Company or the Stockholders (but in
the case of the Stockholders, only if such statement was provided in writing)
which is contained in the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
such indemnity shall not inure to the benefit of LandCARE, Newco, the Company or
the Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any
-39-
<PAGE>
preliminary prospectus and the Company or the Stockholders provided, in writing,
corrected information to LandCARE for inclusion in the final prospectus, and
such information was not so included or the final prospectus was not properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
LandCARE and Newco acknowledge and agree that other than the
representations and warranties of the Company or the Stockholders specifically
contained in this Agreement, there are no representations or warranties of the
Company or the Stockholders, either express or implied, with respect to the
transactions contemplated by this Agreement, the Company or its assets,
liabilities and business.
LandCARE and Newco further acknowledge and agree that, should the Funding
and Consummation Date occur, their sole and exclusive remedy with respect to any
and all claims relating to this Agreement and the transactions contemplated in
this Agreement, shall be pursuant to the indemnification provisions set forth in
this Section 11. LandCARE and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY LANDCARE. LandCARE covenants and agrees that it
will indemnify, defend, protect and hold harmless the Stockholders and, prior to
the Funding and Consummation Date, the Company, at all times from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by LandCARE or Newco
of their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
LandCARE or Newco under this Agreement, (iii) any liabilities which the
Stockholders may incur due to LandCARE's or Newco's failure to be responsible
for the liabilities and obligations of the Company as provided in Section 1
hereof (except to the extent that LandCARE or Newco has claims against the
Stockholders by reason of such liabilities); or (iv) 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 LandCARE, Newco 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
-40-
<PAGE>
of or based upon any omission or alleged omission to state therein a material
fact relating to LandCARE or Newco or any of the Other Founding Companies
required to be stated therein or necessary to make the statements therein not
misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by Indemnifying Party, provided that if counsel to the
Indemnifying Party shall have a conflict of interest that prevents counsel for
the Indemnifying Party from representing 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. After the Indemnifying Party has
notified the Indemnified Party of its intention to undertake to defend or settle
any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of
-41-
<PAGE>
settlement or judgment. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall 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.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall 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
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. LandCARE, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the LandCARE Stock delivered to Stockholders (calculated
as provided in this Section 11.5) or (b) $50,000 (the "Indemnification
Threshold").
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the LandCARE Stock received by a Stockholder, LandCARE
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an
-42-
<PAGE>
indemnification obligation through payment of a combination of stock and cash in
proportion equal to the proportion of stock and cash received by such
Stockholder in connection with the Merger, valued as described immediately
above, but shall also have the right to satisfy any such obligation in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of LandCARE and
the Company;
(ii) by the Company or by LandCARE if the transactions contemplated
by this Agreement to take place at the Closing shall not have been consummated
by September 30, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party (including, in the case of the
Company, any such failure of the Stockholders) 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 Closing Date;
(iii) by the Company or by LandCARE if a material breach or default
shall be made by the other party (including, in the case of LandCARE's right to
terminate, any such material breach or default by the Stockholders) in the
observance or in the due and timely performance of any of the covenants or
agreements contained herein, and the curing of such default shall not have been
made on or before the Funding and Consummation Date, or by the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or waived as of
the Closing Date or the Funding and Consummation Date, as applicable, or by
LandCARE, if the conditions set forth in Section 9 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation Date,
as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if (a) the underwriting agreement relating to
the IPO is terminated in accordance with its terms, or (b) the conditions set
forth in Sections 8.5 and 8.9 hereof are not being satisfied as of the Funding
and Consummation Date.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on
-43-
<PAGE>
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will 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 or Persons:
(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
landscaping business or operation or related services business in direct
competition with LandCARE or any of the Subsidiaries thereof, within 100 miles
of where the Company conducted business prior to the Funding and Consummation
Date or within the one-year period prior to the Funding and Consummation Date
(the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of LandCARE or any Subsidiary thereof for the purpose or
with the intent of enticing such employee away from or out of the employ of
LandCARE or any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within one-year prior to the Funding and Consummation Date, a customer of
LandCARE or any Subsidiary thereof, of the Company or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with LandCARE within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the landscaping
business or any related services business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by LandCARE or
any Subsidiary thereof or for which, to the actual knowledge of such Stockholder
after due inquiry, LandCARE or any Subsidiary thereof made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) except on behalf of LandCARE or any Subsidiary, disclose
customers, whether in existence or proposed, of the Company to any Person, for
any reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
two percent (2%) of the capital
-44-
<PAGE>
stock of a competing business whose stock is traded on a national securities
exchange or over-the-counter.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
LandCARE as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to LandCARE for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by LandCARE in the event of breach by such Stockholder,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of LandCARE and the
Subsidiaries thereof on the date of the execution of this Agreement and the
current plans of LandCARE and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against LandCARE or any subsidiary thereof, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by LandCARE of
such covenants. The covenants contained in Section 13 shall not be affected by
any breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or LandCARE, such as operational policies, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the Other
Founding Companies' and/or LandCARE's respective businesses. The Stockholders
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of LandCARE,
-45-
<PAGE>
(b) following the Closing, such information may be disclosed by the Stockholders
as is required in the course of performing their duties for LandCARE or the
Surviving Corporation and (c) to counsel and other advisers, provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 14.1, unless (i) such information becomes known to the public generally
through no fault of the Stockholders, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Stockholders shall,
if possible, give prior written notice thereof to LandCARE and provide LandCARE
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, LandCARE shall be entitled to an injunction restraining such Stockholders
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting LandCARE from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages. In the event the transactions contemplated by this Agreement are not
consummated, Stockholders shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
Company. Each Stockholder further agrees that in the event the transactions
contemplated herein are not consummated (i) neither the Company nor any
Stockholder can thereafter use any confidential information of the Other
Founding Companies for any purpose and (ii) upon written request of any Other
Founding Company to the Company, the Company and Stockholders will return all
confidential information pertaining to such Other Founding Company to such Other
Founding Company.
14.2 LANDCARE AND NEWCO. LandCARE and Newco recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the Company, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's business.
LandCARE and Newco agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not disclose such
confidential information to any Person for any purpose or reason whatsoever,
except (a) to authorized representatives of the Company, (b) to counsel and
other advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.2, (c) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information is or becomes known to the public generally through no fault of
LandCARE or Newco, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), LandCARE and Newco shall, if
possible, give prior written notice thereof to the Company and the Stockholders
and provide the Company and the Stockholders with the opportunity to contest
such disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, and (d) to the public to the extent necessary or advisable in
connection with the filing of the Registration Statement and the IPO and the
securities laws applicable thereto and to the operation of LandCARE as a
publicly held entity after the IPO. In the event of a breach or
-46-
<PAGE>
threatened breach by LandCARE or Newco of the provisions of this Section 14.2,
the Company and the Stockholders shall be entitled to an injunction restraining
LandCARE and Newco from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the Company and
the Stockholders from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by LandCARE, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, the trustees of which so agree), for a period of
two years from the Funding and Consummation Date, except pursuant to Section 17
hereof, none of the Stockholders shall sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint, or otherwise dispose of any shares of
LandCARE Stock received by the Stockholders in the Merger. The certificates
evidencing the LandCARE Stock delivered to the Stockholders pursuant to Section
3 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as LandCARE 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.
LandCARE agrees, however, to use reasonable efforts to implement an arrangement
with a nationally recognized investment banking firm pursuant to which such firm
will facilitate sales by the Stockholders beginning after the date one year
after the Funding and Consummation Date; and in
-47-
<PAGE>
the event such an arrangement is implemented on terms reasonably satisfactory to
LandCARE, LandCARE will waive the foregoing restriction to the extent reasonably
necessary to permit the Stockholders to participate in such arrangement.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
LandCARE Stock to be delivered to the Stockholders pursuant to this Agreement
have not been and will not be registered under the 1933 Act (except as provided
in Section 17 hereof) and therefore may not be resold without compliance with
the 1933 Act. The LandCARE Stock to be acquired by such Stockholders pursuant to
this Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of LandCARE Stock issued
to such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the LandCARE Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the LandCARE Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
LandCARE Stock. The Stockholders party hereto have had an adequate opportunity
to ask questions and receive answers from the officers of LandCARE 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 LandCARE, the plans for the operations of the business
of LandCARE, 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.
-48-
<PAGE>
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever LandCARE proposes to register any LandCARE Stock for
its own or others account under the 1933 Act for a public offering, other than
(i) any shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by LandCARE (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, LandCARE shall give each of
the Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, LandCARE shall cause to be included in such registration all of the
LandCARE Stock issued to the Stockholders pursuant to this Agreement (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security which is issued by
LandCARE as) a dividend or other distribution with respect to, or in exchange
for, or in replacement of such LandCARE Stock) which any such Stockholder
requests, provided that LandCARE 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 written opinion of tax counsel to LandCARE or its independent
auditors, jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free organization under Section 351 of the
Code. In addition, if LandCARE is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 17.1 that the number
of shares to be sold by persons other than LandCARE is greater than the number
of such shares which can be offered without adversely affecting the offering,
LandCARE may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by LandCARE after the IPO, such reduction
shall be made first by reducing the number of shares to be sold by persons other
than LandCARE, the Stockholders and the stockholders of the Other Founding
Companies (collectively, the Stockholders and the stockholders of the other
Founding Companies 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.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
LandCARE Stock issued to the Founding Stockholders pursuant to this Agreement
and the Other Agreements which have not been previously registered or sold and
which are not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that LandCARE
file a registration statement under the 1933 Act covering the registration of
the shares of LandCARE Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by LandCARE as) a dividend or other distribution
with respect to, or in
-49-
<PAGE>
exchange for, or in replacement of such LandCARE Stock) then held by such
Founding Stockholders (a "Demand Registration"). Within ten (10) days of the
receipt of such request, LandCARE shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. LandCARE shall be obligated to effect only one Demand Registration
for all Founding Stockholders and will keep the registration statement relating
to such Demand Registration current and effective for not less than 120 days (or
such shorter period as is required to sell all of the shares registered
thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of LandCARE's disinterested directors (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for up to a 60 day period after the date on
which LandCARE would otherwise be required to make such filing pursuant to the
foregoing paragraph if such directors determine in good faith that the filing of
such a registration statement or the making of any required disclosure in
connection therewith would have a material adverse effect on LandCARE or
interfere with a transaction in which LandCARE is then engaged or is then
pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration LandCARE has fixed plans to file within 60 days after such request
a registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders'
LandCARE Stock shall be initiated under this Section 17.2 until 90 days after
the effective date of such registration unless LandCARE is no longer proceeding
diligently to effect such registration; provided that LandCARE shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by
LandCARE as a consequence of the exercise of its rights under this Section 17.2,
then the period during which such demand registration may be requested by the
Founding Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever LandCARE is required to register
shares of LandCARE Stock pursuant to Sections 17.1 and 17.2, LandCARE will, as
expeditiously as possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, LandCARE
will furnish a representative of the Stockholders with copies of all such
documents proposed to be filed) as promptly as practical;
-50-
<PAGE>
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that LandCARE shall not be required
to become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of LandCARE Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
LandCARE are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that LandCARE
is required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, LandCARE will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by LandCARE.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, LandCARE
shall indemnify, to the extent permitted by law, each Stockholder and each
Person who controls such Stockholder (an "Indemnified Party") against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) arising out of or resulting from
any untrue
-51-
<PAGE>
or alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to LandCARE by such Indemnified Party expressly
for use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after LandCARE has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to LandCARE in writing such information as is
reasonably requested by LandCARE for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, LandCARE, its
directors and officers and each person who controls LandCARE (within the meaning
of the 1933 Act) against any losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses of investigation) resulting
from any untrue or alleged untrue statement of a material fact or any omission
or alleged omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in information so furnished in writing
by such Stockholder specifically for use in preparing the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.4 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, LandCARE
and each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a
-52-
<PAGE>
Demand Registration under Section 17.2 will be reasonably satisfactory to the
holders of a majority of the shares of the Founding Stockholders participating
in the Demand Registration), in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of LandCARE's size and investment stature,
including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of LandCARE
stock to the public without registration, LandCARE agrees to use its reasonable
efforts to:
(i) make and keep public information regarding LandCARE available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of LandCARE under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted LandCARE Common
Stock, furnish to each Stockholder forthwith upon written request a written
statement by LandCARE as to its compliance with the reporting requirements of
Rule 144 (at any time from and after 90 days following the effective date of the
Registration Statement), and of the 1933 Act and the 1934 Act (any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of LandCARE, and such other reports and documents so
filed as a Stockholder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Stockholder to sell any such shares without
registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, LandCARE and Newco 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 will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the Company cooperate with LandCARE 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.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit
-53-
<PAGE>
of the parties hereto, the successors of LandCARE, and the heirs and legal
representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and LandCARE and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and
LandCARE, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the Company shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, LandCARE will pay the fees, expenses and disbursements of
LandCARE 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 LandCARE under this Agreement, including the
fees and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and
any other person or entity retained by LandCARE or by Notre Capital Ventures II,
L.L.C., and the costs of preparing and filing the Registration Statement. Each
Stockholder shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than Transfer Taxes, if
any, imposed by the State of Delaware. Each Stockholder shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or LandCARE, will pay all
taxes due upon receipt of the consideration payable pursuant to Section 3
hereof. The Stockholders acknowledge that the risks of the transactions
contemplated hereby include tax risks, with respect to which the Stockholders
are relying solely on the opinion contemplated by Section 8.12 hereof.
-54-
<PAGE>
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to LandCARE, or Newco, addressed to them at:
LandCARE USA, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II or to the address of the Company set forth below, with copies
to:
Miranda K. Mandel
Neal, Gerber & Eisenberg
Two N. LaSalle Street, 22nd Floor
Chicago, Illinois 60602
(c) If to the Company, addressed to it at:
Four Seasons Landscape and Maintenance, Inc.
951 Edgewater Blvd., Bldg A, Suite 200
Foster City, CA 94404
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
-55-
<PAGE>
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of LandCARE, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the LandCARE Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving LandCARE Stock in connection with the Merger and each future
holder of such LandCARE Stock.
-56-
<PAGE>
18.16 Special Provisions. The Stockholders include ___________ (the
"Trustee"). Any provision hereof to the contrary notwithstanding, the Trustee
shall not be liable for any of the representations or warranties contained
herein or indeminification obligations in respect thereof, except that the
Trustee hereby represents and warrants that the Trustee has the full legal
right, power and authority to enter into this Agreement and to perform the
Trustee's obligations hereunder, and that, except for the interests created by
the trust instruments pursuant to which the Trustee was appointed as such, the
shares of Company Stock held by the Trustee are held free and clear of all
liens, encumbrances and charges of every kind.
-57-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
LANDCARE USA, INC.
By:
William Murdy
Chief Executive Officer
FOUR SEASONS ACQUISITION CORP.
By:
William Fiedler
Vice President
-58-
<PAGE>
FOUR SEASONS LANDSCAPE AND
MAINTENANCE, INC.
By:
Name:
Title:
STOCKHOLDERS:
James R. Marcus
Harold D. Cranston
Harold Cranston as Trustee of the Harold and
Mary Cranston Charitable Remainder Unitrust
Kenneth Sinclair
James A. Cumbra
-59-
<PAGE>
John Cranston
Susan Cranston
Robert Bilotti
Steve Jacobson
Roger Vesey
-60-
<PAGE>
SCHEDULE 6.4
None.
-61-
<PAGE>
SCHEDULE 6.5
None.
-62-
<PAGE>
SCHEDULE 6.7
None.
-63-
<PAGE>
SCHEDULE 6.8
None.
-64-
<PAGE>
SCHEDULE 6.9
None.
-65-
<PAGE>
SCHEDULE 6.12
1. The Agreement with D.R. Church is structured as an exchange agreement rather
than as a merger agreement.
2. The Agreements with Desert Care and Arteka Nurseries provide for S
corporation distributions.
3. The Agreements with Four Seasons and D. R. Church exclude a charitable
remainder trust and an ESOP, respectively, from the normal indemnity provisions.
4. The Agreement with Southern Tree provides for the release from individual
guaranties of a non-stockholder who has guaranteed company debt, and requires
Southern to separate a credit facility now cross guaranteed by Southern and an
affiliate.
5. The Agreement with Desert Care notes that Desert Care has done its accounting
and taxes on a cash basis and provides that LandCARE will indemnify the
Stockholder against up to $450,000 in deferred taxes resulting from Desert
Care's termination of its S corporation election, and provides that the
Stockholder will indemnify Desert Care and LandCARE against deferred income tax
liabilities to the extent they exceed $450,000.
-66-
<PAGE>
SCHEDULE 6.15
None.
-67-
<PAGE>
SCHEDULE 9.12
D. R. Church Landscape Co., Inc. - Bruce A. Church
Desert Care Landscaping, Inc. - Jeff A. Meyer
Ground Control Landscaping, Inc. - Mark S. Yahn
Four Seasons Landscape & Maintenance - James R. Marcus
Trees, Inc. - Linda Benge
Southern Tree and Landscape Companies - Roger Braswell
Arteka Corporation - David Luse
-68-
<PAGE>
EXHIBIT 10.7
AGREEMENT AND PLAN OF ORGANIZATION
dated as of March 17, 1998
by and among
LANDCARE USA, INC.
GROUND CONTROL ACQUISITION CORP.
(a subsidiary of LandCARE USA, Inc.)
GROUND CONTROL LANDSCAPING, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................5
1.3 Certificate of Incorporation, By-laws; Board of Directors
and Officers of Surviving Corporation............................5
1.4 Certain Information With Respect to the Capital Stock of the
Company, LandCARE and Newco......................................6
1.5 Effect of Merger.................................................6
2. CONVERSION OF STOCK....................................................7
2.1 Manner of Conversion.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 Due Organization.................................................9
5.2 Authorization...................................................10
5.3 Capital Stock of the Company....................................10
5.4 Transactions in Capital Stock, Organization Accounting..........10
5.5 No Bonus Shares.................................................10
5.6 Subsidiaries....................................................10
5.7 Predecessor Status; etc.........................................10
5.8 Spin-off by the Company.........................................11
5.9 Financial Statements............................................11
5.10 Liabilities and Obligations.....................................11
5.11 Accounts and Notes Receivable...................................11
5.12 Permits and Intangibles.........................................12
5.13 Environmental Matters...........................................12
5.14 Personal Property...............................................13
5.15 Significant Customers; Material Contracts and Commitments.......13
5.16 Real Property...................................................14
5.17 Insurance.......................................................14
5.18 Compensation; Employment Agreements; Organized Labor Matters....15
-i-
<PAGE>
5.19 Employee Plans..................................................15
5.20 Compliance with ERISA...........................................16
5.21 Conformity with Law; Litigation.................................17
5.22 Taxes...........................................................17
5.23 No Violations; No Consents Required, Etc.......................18
5.24 Absence of Changes..............................................18
5.25 Deposit Accounts; Powers of Attorney............................20
5.26 Validity of Obligations.........................................20
5.27 Relations with Governments......................................20
5.28 Disclosure......................................................20
5.29 [Intentionally Omitted].........................................21
5.30 No Interests In Other Businesses................................21
5.31 Authority; Ownership............................................21
5.32 Preemptive Rights...............................................21
5.33 No Intention to Dispose of LandCARE Stock.......................21
6. REPRESENTATIONS OF LANDCARE AND NEWCO.................................21
6.1 Due Organization................................................22
6.2 Authorization...................................................22
6.3 Capital Stock of LandCARE and Newco.............................22
6.4 Transactions in Capital Stock, Organization Accounting..........22
6.5 Subsidiaries....................................................22
6.6 Financial Statements............................................23
6.7 Liabilities and Obligations.....................................23
6.8 Conformity with Law; Litigation.................................23
6.9 No Violations...................................................23
6.10 Validity of Obligations.........................................24
6.11 LandCARE Stock..................................................24
6.12 Other Agreements; No Side Agreements............................24
6.13 Business; Real Property; Material Agreements....................25
6.14 Taxes...........................................................25
6.15 Absence of Changes..............................................25
6.16 Disclosure......................................................26
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 Access and Cooperation; Due Diligence...........................27
7.2 Conduct of Business Pending Closing.............................27
7.3 Prohibited Activities...........................................28
7.4 No Shop.........................................................29
7.5 Notice to Bargaining Agents.....................................30
7.6 Agreements......................................................30
-ii-
<PAGE>
7.7 Notification of Certain Matters.................................30
7.8 Amendment of Schedules..........................................30
7.9 Cooperation in Preparation of Registration Statement............31
7.10 Final Financial Statements......................................32
7.11 Further Assurances..............................................32
7.12 Authorized Capital..............................................32
7.13 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott-Rodino Act").......................32
7.14 Stockholders of LandCARE........................................33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......33
8.1 Representations and Warranties; Performance of Obligations......33
8.2 Satisfaction....................................................33
8.3 No Litigation...................................................34
8.4 Opinion of Counsel..............................................34
8.5 Registration Statement..........................................34
8.6 Consents and Approvals..........................................34
8.7 Good Standing Certificates......................................34
8.8 No Material Adverse Change......................................34
8.9 Closing of IPO..................................................34
8.10 Secretary's Certificate.........................................34
8.11 Employment Agreements...........................................35
8.12 Tax Matters.....................................................35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO.............35
9.1 Representations and Warranties; Performance of Obligations......35
9.2 No Litigation...................................................36
9.3 Secretary's Certificate.........................................36
9.4 No Material Adverse Effect......................................36
9.5 Stockholders' Release...........................................36
9.6 Satisfaction....................................................36
9.7 Termination of Related Party Agreements.........................36
9.8 Opinion of Counsel..............................................36
9.9 Consents and Approvals..........................................37
9.10 Good Standing Certificates......................................37
9.11 Registration Statement..........................................37
9.12 Employment Agreements...........................................37
9.13 Closing of IPO..................................................37
9.14 FIRPTA Certificate..............................................37
-iii-
<PAGE>
9.15 Environmental Reviews...........................................37
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING..............37
10.1 Release From Guarantees; Repayment of Certain Obligations.......37
10.2 Preservation of Tax and Accounting Treatment....................38
10.3 Preparation and Filing of Tax Returns...........................38
10.4 Directors.......................................................39
11. INDEMNIFICATION.......................................................39
11.1 General Indemnification by the Stockholders.....................39
11.2 Indemnification by LandCARE.....................................40
11.3 Third Person Claims.............................................41
11.4 Exclusive Remedy................................................42
11.5 Limitations on Indemnification..................................42
12. TERMINATION OF AGREEMENT..............................................43
12.1 Termination.....................................................43
12.2 Liabilities in Event of Termination.............................43
13. NONCOMPETITION........................................................44
13.1 Prohibited Activities...........................................44
13.2 Damages.........................................................45
13.3 Reasonable Restraint............................................45
13.4 Severability; Reformation.......................................45
13.5 Independent Covenant............................................45
13.6 Materiality.....................................................45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................45
14.1 Stockholders....................................................45
14.2 LandCARE and Newco..............................................46
14.3 Damages.........................................................47
14.4 Survival........................................................47
15. TRANSFER RESTRICTIONS.................................................47
15.1 Transfer Restrictions...........................................47
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................48
16.1 Compliance with Law.............................................48
16.2 Economic Risk; Sophistication...................................48
-iv-
<PAGE>
17. REGISTRATION RIGHTS...................................................49
17.1 Piggyback Registration Rights...................................49
17.2 Demand Registration Rights......................................49
17.3 Registration Procedures.........................................50
17.4 Indemnification.................................................51
17.5 Underwriting Agreement..........................................52
17.6 Rule 144 Reporting..............................................53
18. GENERAL...............................................................53
18.1 Cooperation.....................................................53
18.2 Successors and Assigns..........................................53
18.3 Entire Agreement................................................54
18.4 Counterparts....................................................54
18.5 Brokers and Agents..............................................54
18.6 Expenses........................................................54
18.7 Notices.........................................................55
18.8 Governing Law...................................................56
18.9 Survival of Representations and Warranties......................56
18.10 Exercise of Rights and Remedies.................................56
18.11 Time............................................................56
18.12 Reformation and Severability....................................56
18.13 Remedies Cumulative.............................................56
18.14 Captions........................................................56
18.15 Amendments and Waivers..........................................56
-v-
<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Benefit Plans (the Benefit Plans Schedule)
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.30 No Interests in Other Businesses
5.31 Authority; Ownership
6.4 Capital Stock etc.
6.5 Subsidiaries
6.7 Liabilities
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 OtherAgreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
March 17, 1998, by and among LandCARE USA, Inc., a Delaware corporation
("LandCARE"), Ground Control Acquisition Corp., a Delaware corporation
("Newco"), Ground Control Landscaping, Inc., a Florida corporation (the
"Company"), and the stockholders identified on the signature pages hereof (the
"Stockholders"). The Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on or about
March 6, 1998 solely for the purpose of completing the transactions set
forth herein, and is a wholly-owned subsidiary of LandCARE, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective Stockholders that Newco
merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation (as defined below);
WHEREAS, LandCARE is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional landscaping and related
services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "LandCARE Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of LandCARE, each of the Other Founding Companies and each of
the subsidiaries of LandCARE that are parties to the Other Agreements have
approved and adopted the LandCARE Plan of Organization as an integrated
plan pursuant to which the Stockholders and the stockholders of each of
the Other Founding Companies will transfer the capital stock of each of
the Founding Companies (as defined herein) to LandCARE and the
stockholders of each of the Other Founding Companies will acquire the
stock of LandCARE (but not cash or other property) as a tax-free transfer
of property under Section 351 of the Code;
-1-
<PAGE>
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the LandCARE Plan of Organization
in order to transfer the capital stock of the Company to LandCARE;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by LandCARE prior to the Funding
and Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
-2-
<PAGE>
"Draft Registration Statement" means the March 12, 1998 draft of the
Registration Statement, and any corrections thereto and supplemental information
delivered by LandCARE to the Company for delivery to the Stockholders prior to
the time this Agreement is delivered to LandCARE.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
(a) Arteka Corporation, a Minnesota corporation, as well as its
affiliates Arteka Natural Green Corporation, a Minnesota corporation and
Arteka Nurseries, Inc., a Minnesota corporation;
(b) D. R. Church Landscape Co., Inc., an Illinois corporation;
(c) Desert Care Landscaping, Inc., an Arizona corporation;
(d) Four Seasons Landscape and Maintenance, Inc., a California
corporation;
(e) Ground Control Landscaping, Inc., a Florida corporation;
(f) Southern Tree & Landscape Co., Inc., a North Carolina
corporation; and
(g) Trees, Inc., a Nevada corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of LandCARE Stock pursuant to the
Registration Statement described herein.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"LandCARE" has the meaning set forth in the first paragraph of this
Agreement.
"LandCARE Charter Documents" has the meaning set forth in Section 6.1.
"LandCARE Stock" means the common stock, par value $.01 per share, of
LandCARE.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
-3-
<PAGE>
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by LandCARE and the Underwriters
of the public offering price of the shares of LandCARE Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of LandCARE Stock to be issued
in the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"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 (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Florida.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
-4-
<PAGE>
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to LandCARE at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, the Company shall be the
surviving party in the Merger and the Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the Merger,
such By-laws shall be the By-laws of the Surviving Corporation until they shall
thereafter be duly amended (and such Bylaws shall be amended from time to time,
if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that William
Murdy or another officer of LandCARE shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the Company
shall be
-5-
<PAGE>
increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger William Fiedler and another officer of LandCARE shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
LANDCARE AND NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, LandCARE and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of LandCARE will consist of 100,000,000 shares of
LandCARE Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, 5,000,000 shares of preferred stock, $.01
par value, of which no shares will be issued and outstanding, and 3,000,000
shares of Restricted Voting Common Stock, $.01 par value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as otherwise set
forth in the Registration Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred (100)
shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on
-6-
<PAGE>
whatever account, including subscriptions to shares, and all taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the Company and Newco
shall be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Company and Newco;
and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the State of Incorporation vested in the Company
and Newco, shall not revert or be in any way impaired by reason of the Merger.
Except as otherwise provided herein, the Surviving Corporation shall thenceforth
be responsible and liable for all the liabilities and obligations of the Company
and Newco and any claim existing, or action or proceeding pending, by or against
the Company or Newco may be prosecuted as if the Merger had not taken place, or
the Surviving Corporation may be substituted in their place. Neither the rights
of creditors nor any liens upon the property of the Company or Newco shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Newco shall attach to the Surviving Corporation, and may be enforced against
such Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) LandCARE Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
deemed to represent (1) the right to receive the number of shares of LandCARE
Stock set forth on Annex I hereto with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to such
holder;
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of LandCARE Stock or
other consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of LandCARE, automatically be converted into one
fully paid and non-assessable share of common stock of the Surviving Corporation
which shall constitute all of the issued and outstanding shares of common stock
of the Surviving Corporation immediately after the Effective Time of the Merger.
-7-
<PAGE>
All LandCARE Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
LandCARE Stock by reason of the provisions of the Certificate of Incorporation
of LandCARE or as otherwise provided by the Delaware GCL. All LandCARE Stock
received by the Stockholders shall be issued and delivered to the Stockholders
free and clear of any liens, claims or encumbrances of any kind or nature. All
voting rights of such LandCARE 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. At the Effective Time of the Merger,
LandCARE shall have no class of capital stock issued and outstanding other than
the LandCARE Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of LandCARE Stock and the amounts of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to LandCARE at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
Stockholders, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholders' expense,
affixed and canceled. The Stockholders agree promptly to cure any deficiencies
with respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to LandCARE for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
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 Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and
-8-
<PAGE>
(z) the closing with respect to the IPO shall occur and be completed. The date
on which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as 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 the parties if (a) the underwriting agreement in respect
of the IPO is terminated pursuant to the terms of such underwriting agreement,
or (b) the conditions set forth in Sections 8.5 and 8.9 hereof are not being
satisfied as of the Funding and Consummation Date. This Agreement shall also in
any event automatically terminate if the Funding and Consummation Date has not
occurred within 15 business days following the Closing Date.
Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders jointly and severally represents and warrants
that all of the representations and warranties in this Section 5 are true at the
date of this Agreement and, subject to Section 7.8 hereof, shall be true at the
time of Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
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 5.22, and the representations
and warranties set forth in Section 5.31 hereof shall survive perpetually. For
purposes of this Section 5, the term "Company" shall mean and refer to the
Company and all of its Subsidiaries, if any. For purposes of this Section 5, the
phrase "knowledge of the Stockholders" shall mean the actual knowledge of the
Stockholders after due inquiry of the appropriate management personnel employed
by the Company.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
-9-
<PAGE>
5.2 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 this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and 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 Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the LandCARE Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the LandCARE Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
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 all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
-10-
<PAGE>
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the balance sheets of the Company as of the dates shown thereon and
the related statements of operations, stockholder's equity and cash flows for
the periods shown thereon, together with the related notes and schedules (such
balance sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules being referred to herein as the
"Financial Statements"). The Financial Statements have been prepared from the
books and records of the Company as of the dates and for the periods covered
thereby. The books of account of the Company have been kept accurately in the
ordinary course of business, the transactions recorded therein represent bona
fide transactions, and the revenues, expenses, assets and liabilities of the
Company have been properly recorded therein all material respects.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and 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 and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
knowledge of the Stockholders, except as set forth on Schedule 5.10, since the
Balance Sheet Date the Company has not incurred any material liabilities of any
kind, character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to LandCARE on Schedule 5.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed, a good faith and
reasonable estimate of the maximum amount which the Company reasonably expects
will be payable and the amount, if any, accrued or reserved for each such
potential liability on the Company's Financial Statements; in the case of any
such liability for which no estimate has been provided, the estimate for
purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list 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, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are
-11-
<PAGE>
collectible in the amounts shown on Schedule 5.11, net of reserves reflected in
the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to LandCARE an accurate list and summary description
(which is set forth on Schedule 5.12) of all such Licenses, and of any
trademarks, trade names, patents, patent applications and copyrights owned or
held by the Company or by any of its employees if used or held for use by the
Company in the conduct of its business (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property owned by any employees of the Company will be assigned or licensed to
the Company for no additional consideration. To the knowledge of the
Stockholders, the Licenses and other rights listed on Schedules 5.12 and 5.13
are valid, and the Company has not received any notice that any Person intends
to cancel, terminate or not renew any such License or other right. The Company
has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees 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,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (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 Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders, there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which
-12-
<PAGE>
the Company has transported or disposed of Hazardous Materials or arranged for
the transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could reasonably be expected to lead to any claim against the Company, LandCARE
or Newco 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, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act or comparable state or local statutes or
regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to LandCARE an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the Company included in "property" or "plant, property and
equipment" or any similar category on the balance sheet of the Company as of the
Balance Sheet Date, (y) all other tangible personal property owned by the
Company with an individual fair market value (in the reasonable judgment of the
Stockholders; it being understood that the Stockholders are not obtaining
appraisals of any such property in connection with the preparation of Schedule
5.14) in excess of $25,000 (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date and (z) all material leases and agreements in
respect of personal property, including, in the case of each of (x), (y) and
(z), (1) true, complete and correct copies of all such leases and (2) an
indication as to which assets are currently owned, or were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as
set forth on Schedule 5.14, (i) all material 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 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted and (iii) all leases and agreements included on Schedule 5.14
are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.15) of all customers (persons or entities) representing 1% or more of
the Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 25
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, 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 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to LandCARE. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options
-13-
<PAGE>
to purchase land and other contracts which are not terminable on sixty days or
less notice and involve payments by the Company in any twelve-month period in
excess of $25,000. The Company has also indicated on Schedule 5.15 a summary
description of all plans or projects involving the opening of new operations,
expansion of existing operations, the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $25,000 by
the Company during any 12-month period. All of the Material Contracts are in
full force and effect and constitute valid and binding agreements of the parties
(and their successors) thereto in accordance with their respective terms.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in substantially the form of Annex VI hereto (or with terms substantially
similar to those of Annex VI) at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affilliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in
substantially the form of Annex VI hereto (or with terms substantially similar
to those of Annex VI) will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good and insurable title to any real
property owned by it that is not shown on Schedule 5.16 as property intended to
be sold or distributed prior to the Closing Date, subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to LandCARE (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the Company,
(ii) an accurate list of all
-14-
<PAGE>
insurance loss runs or workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the Company is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws, and to the knowledge
of the Stockholders provide adequate coverage against the risks involved in the
Company's business. All of such insurance policies are currently in full force
and effect. Since January 1, 1995, no insurance carried by the Company has been
canceled by the insurer and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the Company,
listing all employment agreements with such officers, directors and key
employees and the rate of compensation (and the portions thereof attributable to
salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided
to LandCARE true, complete and correct copies of any employment agreements for
persons listed on Schedule 5.18. Since the Balance Sheet Date, there have been
no material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not 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) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, 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.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to LandCARE an
accurate schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all
employee benefit plans of the Company, including all employment agreements and
other agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no 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
-15-
<PAGE>
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on the Benefit Plans Schedule.
Except as set forth on the Benefit Plans Schedule, the Company is not required
to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of the Company's or any Subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule 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. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
-16-
<PAGE>
(iv) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited to, any
liability to any multiemployer plan or the PBGC under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty, or being subject to
any statutory lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the knowledge of the Stockholders,
there is no basis for any such claim, action, suit or proceeding. The Company
has conducted and is now conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations, including all such orders and other governmental
approvals set forth on Schedules 5.12 and 5.13, except where any such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against it for federal, state
and other Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any claim for
Taxes, whether pending or threatened, has been received. All Tax due from the
Company for any period ended before the date hereof, including interest and
penalties (whether or not shown on any Return) has been paid. The amounts shown
as accruals for taxes on the Company Financial Statements are sufficient for the
payment of all Taxes (including penalties and interest) for all periods ended on
or before that date. Copies of (i) any tax examinations, (ii) extensions of
statutory limitations and (iii) the federal and local income tax returns and
franchise tax returns of the Company for their last three (3) fiscal years, or
such shorter period of time as any of them shall have existed, are attached
hereto as Schedule 5.22 or have otherwise been delivered to LandCARE. The
Company has disclosed to LandCARE when its taxable year ends. The Company uses
the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated
-17-
<PAGE>
group. Except as described on Schedule 5.22, the Company has not received, been
denied, or applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially 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 material violation or breach of 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 5.23, 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 material right or benefit. Except as set forth on
Schedule 5.23, none of the Material Documents prohibits the use or publication
by the Company, LandCARE or Newco 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, LandCARE, Newco or any Other Founding Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty 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 by
the Company 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,
-18-
<PAGE>
Stockholders, employees, consultants or agents, except for ordinary and
customary bonuses and salary increases for employees in accordance with past
practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including, without
limitation, the Stockholders and their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii) 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;
(ix) 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;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii) any contract entered into or commitment incurred involving
any liability or commitment to make any capital expenditures, except in the
normal course of business (consistent with past practice) or involving an amount
not in excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 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 and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
-19-
<PAGE>
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
LandCARE an accurate schedule (which is set forth on Schedule 5.25) as of the
date of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of LandCARE utilized in
connection with the IPO, the Stockholders become aware of any fact or
circumstance which would affect the accuracy of a representation or warranty of
the Stockholders in this Agreement in any material respect, the Stockholders
shall immediately give notice of such fact or circumstance to LandCARE. Subject
to the provisions of Section 7.8, such notification shall not relieve either the
Company or the Stockholders of their respective obligations under this
Agreement.
(b) 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 the 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; (ii)
that neither
-20-
<PAGE>
LandCARE or any of its officers, directors, agents or representatives nor any
Underwriter shall have any liability to the Company, the Stockholders or any
other person affiliated or associated with the Company for any failure of the
Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to LandCARE or the prospective IPO. Notwithstanding the foregoing,
LandCARE has agreed and herein acknowledges its agreement to use its reasonable
efforts to consummate the LandCARE Plan of Organization and IPO as contemplated
hereby.
5.29 [INTENTIONALLY OMITTED]
5.30 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.30, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.31 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
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.32 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.
5.33 NO INTENTION TO DISPOSE OF LANDCARE STOCK. No Stockholder is under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of LandCARE Stock to be received as described in Section 3.1 of this
Agreement.
6. REPRESENTATIONS OF LANDCARE AND NEWCO
LandCARE and Newco jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and, subject to Section 7.8 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 twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 6.14
hereof shall survive until such time as the
-21-
<PAGE>
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 6.14.
6.1 DUE ORGANIZATION. LandCARE and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. LandCARE and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, 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 By-laws of LandCARE (the "LandCARE Charter Documents") have
been or will be filed as exhibits to the Registration Statement, and copies
thereof and copies of the Certificate of Incorporation and Bylaws of Newco will
be provided to the Stockholders promptly upon request.
6.2 AUTHORIZATION. (i) The respective representatives of LandCARE and
Newco executing this Agreement have the authority to enter into and bind
LandCARE and Newco to the terms of this Agreement and (ii) LandCARE and Newco
have the full legal right, power and authority to enter into this Agreement and
consummate the Merger. All corporate acts and other proceedings required to have
been taken by LandCARE and Newco to authorize the execution, delivery and
performance of this Agreement and the consummation of the Merger have been duly
and properly taken.
6.3 CAPITAL STOCK OF LANDCARE AND NEWCO. The authorized capital stock of
LandCARE and Newco is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of Newco are owned
by LandCARE. All of the issued and outstanding shares of the capital stock of
LandCARE and Newco have been duly authorized and validly issued, are fully paid
and nonassessable, and further, such shares were offered, issued, sold and
delivered by LandCARE and Newco in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such shares
were issued in violation of the preemptive rights of any past or present
stockholder of LandCARE or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
LandCARE or Newco to issue any of their respective authorized but unissued
capital stock; and (ii) neither LandCARE nor Newco has any 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. Complete and accurate copies of all stock
option or stock purchase plans and a list of all outstanding options, warrants
or other rights to acquire shares of the stock of LandCARE will be provided to
the Stockholders promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. LandCARE has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other
-22-
<PAGE>
newly incorporated Subsidiaries that have conducted no business and have been
created solely to effectuate the business of LandCARE. Except as set forth in
the preceding sentence or set forth on Schedule 6.5 hereto, neither LandCARE nor
any Subsidiary of LandCARE presently owns, of record or beneficially, or
controls, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity, and neither LandCARE nor Newco, directly or indirectly, is a
participant in any joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The historical financial statements of LandCARE
included in the Draft Registration Statement (the "LandCARE Financial
Statements") have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the period indicated (except
as noted thereon), and present fairly in all material respects the financial
position of LandCARE as of the date and for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither LandCARE nor any
Subsidiary of LandCARE has any material liabilities, contingent or otherwise,
except as set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither LandCARE nor
any Subsidiary of LandCARE is in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
any of them which would have a Material Adverse Effect, (b) there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
LandCARE or Newco, threatened against or affecting, LandCARE or any Subsidiary
of LandCARE, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any of them, and (c) no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received by LandCARE or Newco. LandCARE and its Subsidiaries have conducted and
are conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. LandCARE is not in violation of any LandCARE Charter
Document, and no Subsidiary of LandCARE is in violation of its Certificate of
Incorporation or Bylaws. None of LandCARE, Newco, or, to the knowledge of
LandCARE and Newco, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit to which LandCARE or any Subsidiary of
LandCARE is a party, or by which LandCARE or any Subsidiary of LandCARE, or any
of their respective properties, are bound (collectively, the "LandCARE
Documents"); and (a) the rights and benefits of LandCARE and any Subsidiary of
LandCARE under the LandCARE Documents will not
-23-
<PAGE>
be adversely affected by the transactions contemplated hereby and (b) the
execution and delivery of this Agreement by LandCARE and Newco and the
performance of their obligations hereunder do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation or default (with or without notice or
lapse of time, or both), under or give rise to a right of termination,
cancellation, or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any lien upon any of the assets of LandCARE
or any Subsidiary of LandCARE under, any provision of (i) the Certificate of
Incorporation or Bylaws of LandCARE or the comparable governing instruments of
any Subsidiary of LandCARE, (ii) any note, bond, mortgage, indenture or deed of
trust or any license, lease, contract, commitment, agreement or arrangement to
which LandCARE and any Subsidiary of LandCARE is a party or by which any of
their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to LandCARE or any
Subsidiary of LandCARE or their respective properties or assets. The execution
of this Agreement and the Other Agreements and the performance of the
obligations hereunder and thereunder and the consummation of the transactions
contemplated by the LandCARE Plan of Organization will not result in any
material violation or breach or constitute a default under, any of the terms or
provisions of the LandCARE Documents or the LandCARE Charter Documents. Except
as contemplated hereby or described in the Registration Statement or on Schedule
6.9 hereto, none of the LandCARE 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 by the LandCARE Plan of Organization in order to
remain in full force and effect and consummation of the transactions
contemplated thereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by LandCARE and Newco and the performance of the transactions contemplated
herein have been duly and validly authorized by the respective Boards of
Directors of LandCARE and Newco and this Agreement has been duly and validly
authorized by all necessary corporate action and is a legal, valid and binding
obligation of LandCARE and Newco.
6.11 LANDCARE STOCK. At the time of issuance thereof and delivery to the
Stockholders, the LandCARE Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of LandCARE,
fully paid and nonassessable, and with the exception of restrictions upon resale
set forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
LandCARE Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. Except as set forth above, the LandCARE Stock
issued and delivered to the Stockholders shall at the time of such issuance and
delivery be free and clear of any liens, security interests, claims or
encumbrances of any kind or character. The shares of LandCARE Stock to be issued
to the Stockholders pursuant to this Agreement will not be registered under the
1933 Act except as provided in Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except as described on Schedule
6.12 hereto, each of the Other Agreements is substantially similar to this
Agreement. Neither LandCARE
-24-
<PAGE>
nor Newco has entered or will enter into any agreement with any of the Other
Founding Companies or any of the stockholders of the Other Founding Companies
other than the Other Agreements and the agreements contemplated by each of the
Other Agreements, including the employment agreements and leases referred to
herein or entered into in connection with the transactions contemplated hereby
and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. LandCARE was formed in
October 1997 and has conducted only limited operations since that time. Neither
LandCARE nor any Subsidiary thereof has conducted any material business since
the date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither LandCARE nor any Subsidiary of LandCARE owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement other than the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES.LandCARE and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against LandCARE or any Subsidiary
thereof for federal, state and other Taxes (including penalties and interest)
for any such period and no notice of any claim for Taxes, whether pending or
threatened, has been received. All Taxes which LandCARE or any Subsidiary of
LandCARE has been required to collect or withhold have been duly and timely
collected and withheld and have been set aside in accounts for such purposes, or
have been duly and timely paid to the proper governmental authority. All Tax,
including interest and penalties (whether or not shown on any tax return) owed
by LandCARE, any member of an affiliated or consolidated group which includes or
included LandCARE, or with respect to any payment made or deemed made by
LandCARE herein has been paid. The amounts shown as accruals for taxes on
LandCARE Financial Statements are sufficient for the payment of all taxes of the
kinds indicated (including penalties and interest) for all fiscal periods ended
on or before that date. Neither LandCARE nor any Subsidiary thereof has entered
into any tax sharing agreement or similar arrangement. Neither LandCARE nor any
Subsidiary thereof is an investment company as defined in Section 351(e)(1) of
the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of LandCARE or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of LandCARE
or Newco;
-25-
<PAGE>
(iii) any change in the authorized capital of LandCARE or Newco or
their outstanding securities or any change in their 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 LandCARE or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of LandCARE or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to LandCARE or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of LandCARE or any Subsidiary thereof or requiring consent of any party
to the transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of LandCARE or
any Subsidiary of LandCARE;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which LandCARE or any Subsidiary of
LandCARE is a party;
(x) any transaction by LandCARE or any Subsidiary of LandCARE
outside the ordinary course of its business;
(xi) any other distribution of property or assets by LandCARE or any
Subsidiary of LandCARE other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with the representations and warranties of
LandCARE and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
LandCARE by the Stockholders, the offering and issuance of shares of LandCARE
Stock to the Stockholders and
-26-
<PAGE>
to the stockholders of the Other Founding Companies pursuant to this Agreement
and to the Other Agreements have been made in compliance with all applicable
federal and state securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 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 LandCARE access to all of the
Company's sites, properties, books and records and will furnish LandCARE with
such additional financial and operating data and other information as to the
business and properties of the Company as LandCARE may from time to time
reasonably request. The Company will cooperate with LandCARE and its
representatives, auditors and counsel in the preparation of any documents or
other materials which may be required in connection with any documents or
materials required by this Agreement. LandCARE, Newco, the Stockholders and the
Company will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to the Other Founding Companies as confidential in accordance with
the provisions of Section 14 hereof. In addition, LandCARE will cause each of
the Other Founding Companies to enter into a provision similar to this Section
7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, LandCARE will afford to the officers and authorized representatives of the
Company access to all of LandCARE's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the business and properties of
LandCARE and Newco as the Company may from time to time reasonably request.
LandCARE and Newco will cooperate with the Company, its representatives,
auditors and counsel in the preparation of any documents or other material which
may be required in connection with any documents or materials required by this
Agreement. The Company will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to 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 all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
-27-
<PAGE>
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar governmental
authorities applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
LandCARE (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of LandCARE 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.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of LandCARE, which consent will not be
unreasonably withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) 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 in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(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
$25,000 necessary or desirable for the conduct of the businesses
-28-
<PAGE>
of the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in clause (2)
being referred to herein as "Statutory Liens"), or (3) liens set forth on
Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the 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 for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than LandCARE, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective 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.
-29-
<PAGE>
7.5 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 LandCARE on Schedule 7.5 with proof that any required notice has been
sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by LandCARE or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to LandCARE. Such termination agreements are listed on Schedule 7.6
and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to LandCARE 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 failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. LandCARE and Newco 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 LandCARE or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of LandCARE or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would
-30-
<PAGE>
have a Material Adverse Effect may be made unless LandCARE 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 LandCARE or Newco 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 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 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, LandCARE shall give the Company notice promptly
after it has knowledge thereof. If LandCARE and a majority of the Founding
Companies (other than the Founding Company seeking to amend or supplement a
Schedule) consent to such amendment or supplement, which consent shall have been
deemed given by LandCARE or any Founding Company if no response is received
within 24 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 12.1(iv) hereof. In the event that the Company
seeks to amend or supplement a Schedule pursuant to this Section 7.8, and
LandCARE 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 12.1(i) hereof. In the event that LandCARE or
Newco seeks to amend or supplement a Schedule pursuant to this Section 7.8 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 12.1(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 7.8. No amendment of or supplement to a Schedule shall be made
later than 24 hours prior to the anticipated effectiveness of the Registration
Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to LandCARE and the
Underwriters all of the information concerning the Company and the Stockholders
reasonably requested by LandCARE or the Underwriters for inclusion in, and will
cooperate with LandCARE and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements of the Company, 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 LandCARE if at any time during the period in which a prospectus relating
to the IPO is required to be delivered under the Securities 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. Insofar as the information relates solely to
the Company or the Stockholders, the Company
-31-
<PAGE>
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and LandCARE 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 ending not later
than 15 days prior to the Funding and Consummation Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
Company for all such fiscal quarters, 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. Such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein). Except as noted in such financial statements, all of
such financial statements will present fairly the results of operations of the
Company for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
LandCARE 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 LandCARE Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by LandCARE and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by LandCARE. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
-32-
<PAGE>
7.14 STOCKHOLDERS OF LANDCARE. Promptly after a request by the Company,
LandCARE will deliver to the Company a list of the stockholders of LandCARE as
of the date of this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions.
Subject to Section 12 hereof, 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 8.1, 8.5, 8.8, 8.9 and
8.12. As of the Closing Date or subject to Section 12 hereof, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been satisfied,
the Stockholders (acting in unison) shall have the right to terminate this
Agreement, or in the alternative, waive any condition not so satisfied. Any act
or action of the Stockholders in consummating the Closing or delivering
certificates representing Company Stock as of the Funding and Consummation Date
shall constitute a waiver of any conditions not so satisfied. However, no such
waiver shall be deemed to affect the survival of the representations and
warranties of LandCARE and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of LandCARE and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by LandCARE and Newco 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, respectively, and
signed by the President or any Vice President of LandCARE shall have been
delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform
-33-
<PAGE>
LandCARE in writing prior to the effectiveness of the Registration Statement of
the existence of an untrue statement of a material fact or the omission of such
a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger 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.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for LandCARE, dated the Closing Date, in the form annexed hereto as
Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of LandCARE Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger 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 Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. LandCARE and Newco each 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 LandCARE or Newco is authorized to do business,
showing that each of LandCARE and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
LandCARE and Newco, respectively, for all periods prior to the Closing have been
filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to LandCARE or Newco which has had or is reasonably likely
to have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of LandCARE and of Newco,
-34-
<PAGE>
certifying the truth and correctness of attached copies of the LandCARE's and
Newco's respective Certificates of Incorporation (including amendments thereto),
By-Laws (including amendments thereto), and resolutions of the boards of
directors and, if required, the Stockholders of LandCARE and Newco approving
LandCARE's and Newco's entering into this Agreement and the consummation of the
transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
under the caption relating to the Company shall have been afforded the
opportunity to enter into an Employment Agreement substantially in the form of
Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the LandCARE Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for LandCARE Stock (but not cash or other property) pursuant to the
LandCARE Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO
The obligations of LandCARE and Newco 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 LandCARE and
Newco 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 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, LandCARE and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, 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; 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 shall
have delivered to LandCARE certificates dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by them to such effect.
-35-
<PAGE>
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of LandCARE as a result of which the
management of LandCARE (acting in good faith) deems it inadvisable to proceed
with the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. LandCARE 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.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to
LandCARE an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Funding and Consummation 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 5.10 and 5.15 as being claims of or
obligations to the Stockholders, and (y) continuing obligations to Stockholders
relating to their employment by the Company. In the event that the Funding and
Consummation Date does not occur, then the release instrument referenced herein
shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to LandCARE.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by LandCARE, all existing agreements between
the Company and the Stockholders (and entities controlled by the Stockholders)
other than real property leases shall have been canceled effective prior to or
as of the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. LandCARE shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
-36-
<PAGE>
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
LandCARE 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 LandCARE, in each state
in which the Company is authorized to do business, showing the Company is in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
each shall enter into an employment agreement substantially in the form of Annex
V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to LandCARE
a certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. LandCARE shall have received a report from an
independent environmental consultant retained by LandCARE at its expense to
conduct an environmental review of the Company's owned and leased sites, and
such report shall not disclose any environmental condition that, in LandCARE's
reasonable judgment, either (i) could be expected to have a Material Adverse
Effect on the Company, or (ii) poses any risk of a substantial liability to the
Company.
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. LandCARE
shall use reasonable efforts, including offering its own guarantee, to have the
Stockholders and their spouses released from any and all guarantees of the
Company's indebtedness identified on Schedule 10.1. In the event that LandCARE
cannot obtain such releases from the lenders of any such guaranteed indebtedness
identified on Schedule 10.1 on or prior to 120 days subsequent to the Funding
and Consummation Date, LandCARE shall promptly pay off or otherwise refinance or
retire
-37-
<PAGE>
such indebtedness. LandCARE shall indemnify the Stockholders against, and shall
promptly reimburse the Stockholders for, any amounts which the Stockholders are
obligated to pay under any such guarantees listed on Schedule 10.1, and shall be
subrogated to any rights of the Stockholders accruing as a result of any such
payments by the Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, LandCARE shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the LandCARE Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit LandCARE to review all such
Tax Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) LandCARE shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding
-38-
<PAGE>
sentence, each party required to file Returns pursuant to this Agreement shall
bear all costs of filing such Returns.
(iv) Each of the Company, Newco, LandCARE and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of LandCARE, as and to
the extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, LandCARE and Newco each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they jointly and severally will
indemnify, defend, protect and hold harmless LandCARE, Newco, and, subsequent to
the Funding and Consummation Date, the Company and the Surviving Corporation at
all times, from and after the date of this Agreement until the Expiration Date
(provided that for purposes of Section 11.1(iii) below, the Expiration Date
shall be the date on which the applicable statute of limitations expires), from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by LandCARE, Newco, the Company or the Surviving Corporation as a
result of or arising from (i) any breach of the representations and warranties
of the Stockholders or the Company set forth herein or on the schedules or
certificates delivered in connection herewith, (ii) any breach of any agreement
on the part of the Stockholders or the Company under this Agreement, or (iii)
any liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement of a material fact relating to the Company or the Stockholders, and
provided to LandCARE or its counsel by the Company or the Stockholders (but in
the case of the Stockholders, only if such statement was provided in writing)
which is contained in the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
such indemnity shall not inure to the benefit of LandCARE, Newco, the Company or
the Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any
-39-
<PAGE>
preliminary prospectus and the Company or the Stockholders provided, in writing,
corrected information to LandCARE for inclusion in the final prospectus, and
such information was not so included or the final prospectus was not properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
LandCARE and Newco acknowledge and agree that other than the
representations and warranties of the Company or the Stockholders specifically
contained in this Agreement, there are no representations or warranties of the
Company or the Stockholders, either express or implied, with respect to the
transactions contemplated by this Agreement, the Company or its assets,
liabilities and business.
LandCARE and Newco further acknowledge and agree that, should the Funding
and Consummation Date occur, their sole and exclusive remedy with respect to any
and all claims relating to this Agreement and the transactions contemplated in
this Agreement, shall be pursuant to the indemnification provisions set forth in
this Section 11. LandCARE and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY LANDCARE. LandCARE covenants and agrees that it
will indemnify, defend, protect and hold harmless the Stockholders and, prior to
the Funding and Consummation Date, the Company, at all times from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by LandCARE or Newco
of their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
LandCARE or Newco under this Agreement, (iii) any liabilities which the
Stockholders may incur due to LandCARE's or Newco's failure to be responsible
for the liabilities and obligations of the Company as provided in Section 1
hereof (except to the extent that LandCARE or Newco has claims against the
Stockholders by reason of such liabilities); or (iv) 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 LandCARE, Newco 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
-40-
<PAGE>
of or based upon any omission or alleged omission to state therein a material
fact relating to LandCARE or Newco or any of the Other Founding Companies
required to be stated therein or necessary to make the statements therein not
misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by Indemnifying Party, provided that if counsel to the
Indemnifying Party shall have a conflict of interest that prevents counsel for
the Indemnifying Party from representing 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. After the Indemnifying Party has
notified the Indemnified Party of its intention to undertake to defend or settle
any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of
-41-
<PAGE>
settlement or judgment. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall 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.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall 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
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. LandCARE, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the LandCARE Stock delivered to Stockholders (calculated
as provided in this Section 11.5) or (b) $50,000 (the "Indemnification
Threshold").
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the LandCARE Stock received by a Stockholder, LandCARE
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an
-42-
<PAGE>
indemnification obligation through payment of a combination of stock and cash in
proportion equal to the proportion of stock and cash received by such
Stockholder in connection with the Merger, valued as described immediately
above, but shall also have the right to satisfy any such obligation in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of LandCARE and the
Company;
(ii) by the Company or by LandCARE if the transactions contemplated
by this Agreement to take place at the Closing shall not have been consummated
by September 30, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party (including, in the case of the
Company, any such failure of the Stockholders) 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 Closing Date;
(iii) by the Company or by LandCARE if a material breach or default
shall be made by the other party (including, in the case of LandCARE's right to
terminate, any such material breach or default by the Stockholders) in the
observance or in the due and timely performance of any of the covenants or
agreements contained herein, and the curing of such default shall not have been
made on or before the Funding and Consummation Date, or by the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or waived as of
the Closing Date or the Funding and Consummation Date, as applicable, or by
LandCARE, if the conditions set forth in Section 9 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation Date,
as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if (a) the underwriting agreement relating to
the IPO is terminated in accordance with its terms, or (b) the conditions set
forth in Sections 8.5 and 8.9 hereof are not being satisfied as of the Funding
and Consummation Date.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on
-43-
<PAGE>
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will 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 or Persons:
(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
landscaping business or operation or related services business in direct
competition with LandCARE or any of the Subsidiaries thereof, within 100 miles
of where the Company conducted business prior to the Funding and Consummation
Date or within the one-year period prior to the Funding and Consummation Date
(the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of LandCARE or any Subsidiary thereof for the purpose or
with the intent of enticing such employee away from or out of the employ of
LandCARE or any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within one-year prior to the Funding and Consummation Date, a customer of
LandCARE or any Subsidiary thereof, of the Company or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with LandCARE within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the landscaping
business or any related services business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by LandCARE or
any Subsidiary thereof or for which, to the actual knowledge of such Stockholder
after due inquiry, LandCARE or any Subsidiary thereof made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) except on behalf of LandCARE or any Subsidiary, disclose
customers, whether in existence or proposed, of the Company to any Person, for
any reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
two percent (2%) of the capital
-44-
<PAGE>
stock of a competing business whose stock is traded on a national securities
exchange or over-the-counter.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
LandCARE as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to LandCARE for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by LandCARE in the event of breach by such Stockholder,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of LandCARE and the
Subsidiaries thereof on the date of the execution of this Agreement and the
current plans of LandCARE and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against LandCARE or any subsidiary thereof, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by LandCARE of
such covenants. The covenants contained in Section 13 shall not be affected by
any breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or LandCARE, such as operational policies, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the Other
Founding Companies' and/or LandCARE's respective businesses. The Stockholders
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of LandCARE,
-45-
<PAGE>
(b) following the Closing, such information may be disclosed by the Stockholders
as is required in the course of performing their duties for LandCARE or the
Surviving Corporation and (c) to counsel and other advisers, provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 14.1, unless (i) such information becomes known to the public generally
through no fault of the Stockholders, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Stockholders shall,
if possible, give prior written notice thereof to LandCARE and provide LandCARE
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, LandCARE shall be entitled to an injunction restraining such Stockholders
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting LandCARE from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages. In the event the transactions contemplated by this Agreement are not
consummated, Stockholders shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
Company. Each Stockholder further agrees that in the event the transactions
contemplated herein are not consummated (i) neither the Company nor any
Stockholder can thereafter use any confidential information of the Other
Founding Companies for any purpose and (ii) upon written request of any Other
Founding Company to the Company, the Company and Stockholders will return all
confidential information pertaining to such Other Founding Company to such Other
Founding Company.
14.2 LANDCARE AND NEWCO. LandCARE and Newco recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the Company, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's business.
LandCARE and Newco agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not disclose such
confidential information to any Person for any purpose or reason whatsoever,
except (a) to authorized representatives of the Company, (b) to counsel and
other advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.2, (c) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information is or becomes known to the public generally through no fault of
LandCARE or Newco, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), LandCARE and Newco shall, if
possible, give prior written notice thereof to the Company and the Stockholders
and provide the Company and the Stockholders with the opportunity to contest
such disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, and (d) to the public to the extent necessary or advisable in
connection with the filing of the Registration Statement and the IPO and the
securities laws applicable thereto and to the operation of LandCARE as a
publicly held entity after the IPO. In the event of a breach or
-46-
<PAGE>
threatened breach by LandCARE or Newco of the provisions of this Section 14.2,
the Company and the Stockholders shall be entitled to an injunction restraining
LandCARE and Newco from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the Company and
the Stockholders from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by LandCARE, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, the trustees of which so agree), for a period of
two years from the Funding and Consummation Date, except pursuant to Section 17
hereof, none of the Stockholders shall sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint, or otherwise dispose of any shares of
LandCARE Stock received by the Stockholders in the Merger. The certificates
evidencing the LandCARE Stock delivered to the Stockholders pursuant to Section
3 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as LandCARE 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.
LandCARE agrees, however, to use reasonable efforts to implement an arrangement
with a nationally recognized investment banking firm pursuant to which such firm
will facilitate sales by the Stockholders beginning after the date one year
after the Funding and Consummation Date; and in
-47-
<PAGE>
the event such an arrangement is implemented on terms reasonably satisfactory to
LandCARE, LandCARE will waive the foregoing restriction to the extent reasonably
necessary to permit the Stockholders to participate in such arrangement.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
LandCARE Stock to be delivered to the Stockholders pursuant to this Agreement
have not been and will not be registered under the 1933 Act (except as provided
in Section 17 hereof) and therefore may not be resold without compliance with
the 1933 Act. The LandCARE Stock to be acquired by such Stockholders pursuant to
this Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of LandCARE Stock issued
to such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the LandCARE Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the LandCARE Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
LandCARE Stock. The Stockholders party hereto have had an adequate opportunity
to ask questions and receive answers from the officers of LandCARE 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 LandCARE, the plans for the operations of the business
of LandCARE, 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.
-48-
<PAGE>
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever LandCARE proposes to register any LandCARE Stock for
its own or others account under the 1933 Act for a public offering, other than
(i) any shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by LandCARE (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, LandCARE shall give each of
the Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, LandCARE shall cause to be included in such registration all of the
LandCARE Stock issued to the Stockholders pursuant to this Agreement (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security which is issued by
LandCARE as) a dividend or other distribution with respect to, or in exchange
for, or in replacement of such LandCARE Stock) which any such Stockholder
requests, provided that LandCARE 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 written opinion of tax counsel to LandCARE or its independent
auditors, jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free organization under Section 351 of the
Code. In addition, if LandCARE is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 17.1 that the number
of shares to be sold by persons other than LandCARE is greater than the number
of such shares which can be offered without adversely affecting the offering,
LandCARE may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by LandCARE after the IPO, such reduction
shall be made first by reducing the number of shares to be sold by persons other
than LandCARE, the Stockholders and the stockholders of the Other Founding
Companies (collectively, the Stockholders and the stockholders of the other
Founding Companies 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.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
LandCARE Stock issued to the Founding Stockholders pursuant to this Agreement
and the Other Agreements which have not been previously registered or sold and
which are not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that LandCARE
file a registration statement under the 1933 Act covering the registration of
the shares of LandCARE Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by LandCARE as) a dividend or other distribution
with respect to, or in
-49-
<PAGE>
exchange for, or in replacement of such LandCARE Stock) then held by such
Founding Stockholders (a "Demand Registration"). Within ten (10) days of the
receipt of such request, LandCARE shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. LandCARE shall be obligated to effect only one Demand Registration
for all Founding Stockholders and will keep the registration statement relating
to such Demand Registration current and effective for not less than 120 days (or
such shorter period as is required to sell all of the shares registered
thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of LandCARE's disinterested directors (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for up to a 60 day period after the date on
which LandCARE would otherwise be required to make such filing pursuant to the
foregoing paragraph if such directors determine in good faith that the filing of
such a registration statement or the making of any required disclosure in
connection therewith would have a material adverse effect on LandCARE or
interfere with a transaction in which LandCARE is then engaged or is then
pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration LandCARE has fixed plans to file within 60 days after such request
a registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders'
LandCARE Stock shall be initiated under this Section 17.2 until 90 days after
the effective date of such registration unless LandCARE is no longer proceeding
diligently to effect such registration; provided that LandCARE shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by
LandCARE as a consequence of the exercise of its rights under this Section 17.2,
then the period during which such demand registration may be requested by the
Founding Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever LandCARE is required to register
shares of LandCARE Stock pursuant to Sections 17.1 and 17.2, LandCARE will, as
expeditiously as possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, LandCARE
will furnish a representative of the Stockholders with copies of all such
documents proposed to be filed) as promptly as practical;
-50-
<PAGE>
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that LandCARE shall not be required
to become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of LandCARE Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
LandCARE are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that LandCARE
is required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, LandCARE will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by LandCARE.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, LandCARE
shall indemnify, to the extent permitted by law, each Stockholder and each
Person who controls such Stockholder (an "Indemnified Party") against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) arising out of or resulting from
any untrue
-51-
<PAGE>
or alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to LandCARE by such Indemnified Party expressly
for use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after LandCARE has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to LandCARE in writing such information as is
reasonably requested by LandCARE for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, LandCARE, its
directors and officers and each person who controls LandCARE (within the meaning
of the 1933 Act) against any losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses of investigation) resulting
from any untrue or alleged untrue statement of a material fact or any omission
or alleged omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in information so furnished in writing
by such Stockholder specifically for use in preparing the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.4 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, LandCARE
and each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a
-52-
<PAGE>
Demand Registration under Section 17.2 will be reasonably satisfactory to the
holders of a majority of the shares of the Founding Stockholders participating
in the Demand Registration), in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of LandCARE's size and investment stature,
including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of LandCARE
stock to the public without registration, LandCARE agrees to use its reasonable
efforts to:
(i) make and keep public information regarding LandCARE available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of LandCARE under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted LandCARE Common
Stock, furnish to each Stockholder forthwith upon written request a written
statement by LandCARE as to its compliance with the reporting requirements of
Rule 144 (at any time from and after 90 days following the effective date of the
Registration Statement), and of the 1933 Act and the 1934 Act (any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of LandCARE, and such other reports and documents so
filed as a Stockholder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Stockholder to sell any such shares without
registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, LandCARE and Newco 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 will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the Company cooperate with LandCARE 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.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit
-53-
<PAGE>
of the parties hereto, the successors of LandCARE, and the heirs and legal
representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and LandCARE and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and
LandCARE, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the Company shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, LandCARE will pay the fees, expenses and disbursements of
LandCARE 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 LandCARE under this Agreement, including the
fees and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and
any other person or entity retained by LandCARE or by Notre Capital Ventures II,
L.L.C., and the costs of preparing and filing the Registration Statement. Each
Stockholder shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than Transfer Taxes, if
any, imposed by the State of Delaware. Each Stockholder shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or LandCARE, will pay all
taxes due upon receipt of the consideration payable pursuant to Section 3
hereof. The Stockholders acknowledge that the risks of the transactions
contemplated hereby include tax risks, with respect to which the Stockholders
are relying solely on the opinion contemplated by Section 8.12 hereof.
-54-
<PAGE>
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to LandCARE, or Newco, addressed to them at:
LandCARE USA, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II or to the address of the Company set forth below, with copies
to:
Miranda K. Mandel
Neal, Gerber & Eisenberg
Two N. LaSalle Street, 22nd Floor
Chicago, Illinois 60602
(c) If to the Company, addressed to it at:
Ground Control Landscaping, Inc.
2169 N. Forsyth Rd.
Orlando, FL 32807
Attention: Mark Yahn
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
-55-
<PAGE>
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of LandCARE, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the LandCARE Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving LandCARE Stock in connection with the Merger and each future
holder of such LandCARE Stock.
-56-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
LANDCARE USA, INC.
By:_______________________________
William Murdy
Chief Executive Officer
GROUND CONTROL ACQUISITION CORP.
By:_______________________________
William Fiedler
Vice President
-57-
<PAGE>
GROUND CONTROL LANDSCAPING, INC.
By:
Name:
Title:
STOCKHOLDERS:
___________________________________
Mark S. Yahn
___________________________________
Laurie L. Yahn
-58-
<PAGE>
SCHEDULE 6.4
None.
-59-
<PAGE>
SCHEDULE 6.5
None.
-60-
<PAGE>
SCHEDULE 6.7
None.
-61-
<PAGE>
SCHEDULE 6.8
None.
-62-
<PAGE>
SCHEDULE 6.9
None.
-63-
<PAGE>
SCHEDULE 6.12
1. The Agreement with D.R. Church is structured as an exchange agreement rather
than as a merger agreement.
2. The Agreements with Desert Care and Arteka Nurseries provide for S
corporation distributions.
3. The Agreements with Four Seasons and D. R. Church exclude a charitable
remainder trust and an ESOP, respectively, from the normal indemnity provisions.
4. The Agreement with Southern Tree provides for the release from individual
guaranties of a non-stockholder who has guaranteed company debt, and requires
Southern to separate a credit facility now cross guaranteed by Southern and an
affiliate.
5. TheAgreement with Desert Care notes that Desert Care has done its accounting
and taxes on a cash basis and provides that LandCARE will indemnify the
Stockholder against up to $450,000 in deferred taxes resulting from Desert
Care's termination of its S corporation election, and provides that the
Stockholder will indemnify Desert Care and LandCARE against deferred income tax
liabilities to the extent they exceed $450,000.
-64-
<PAGE>
SCHEDULE 6.15
None.
-65-
<PAGE>
SCHEDULE 9.12
D. R. Church Landscape Co., Inc. - Bruce A. Church
Desert Care Landscaping, Inc. - Jeff A. Meyer
Ground Control Landscaping, Inc. - Mark S. Yahn
Four Seasons Landscape & Maintenance - James R. Marcus
Trees, Inc. - Linda Benge
Southern Tree and Landscape Companies - Roger Braswell
Arteka Corporation - David Luse
-66-
EXHIBIT 10.8
AGREEMENT AND PLAN OF ORGANIZATION
dated as of March 17, 1998
by and among
LANDCARE USA, INC.
SOUTHERN TREE ACQUISITION CORP.
(a subsidiary of LandCARE USA, Inc.)
SOUTHERN TREE & LANDSCAPE CO., INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................5
1.3 Certificate of Incorporation, By-laws; Board of Directors and
Officers of Surviving Corporation................................5
1.4 Certain Information With Respect to the Capital Stock of the
Company, LandCARE and Newco......................................6
1.5 Effect of Merger.................................................6
2. CONVERSION OF STOCK....................................................7
2.1 Manner of Conversion.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 Due Organization.................................................9
5.2 Authorization...................................................10
5.3 Capital Stock of the Company....................................10
5.4 Transactions in Capital Stock, Organization Accounting..........10
5.5 No Bonus Shares.................................................10
5.6 Subsidiaries....................................................10
5.7 Predecessor Status; etc.........................................10
5.8 Spin-off by the Company.........................................11
5.9 Financial Statements............................................11
5.10 Liabilities and Obligations.....................................11
5.11 Accounts and Notes Receivable...................................11
5.12 Permits and Intangibles.........................................12
5.13 Environmental Matters...........................................12
5.14 Personal Property...............................................13
5.15 Significant Customers; Material Contracts and Commitments.......13
5.16 Real Property...................................................14
5.17 Insurance.......................................................14
5.18 Compensation; Employment Agreements; Organized Labor Matters....15
-i-
<PAGE>
5.19 Employee Plans..................................................15
5.20 Compliance with ERISA...........................................16
5.21 Conformity with Law; Litigation.................................17
5.22 Taxes...........................................................17
5.23 No Violations; No Consents Required, Etc.......................18
5.24 Absence of Changes..............................................18
5.25 Deposit Accounts; Powers of Attorney............................20
5.26 Validity of Obligations.........................................20
5.27 Relations with Governments......................................20
5.28 Disclosure......................................................20
5.29 [Intentionally Omitted].........................................21
5.30 No Interests In Other Businesses................................21
5.31 Authority; Ownership............................................21
5.32 Preemptive Rights...............................................21
5.33 No Intention to Dispose of LandCARE Stock.......................21
6. REPRESENTATIONS OF LANDCARE AND NEWCO.................................21
6.1 Due Organization................................................22
6.2 Authorization...................................................22
6.3 Capital Stock of LandCARE and Newco.............................22
6.4 Transactions in Capital Stock, Organization Accounting..........22
6.5 Subsidiaries....................................................22
6.6 Financial Statements............................................23
6.7 Liabilities and Obligations.....................................23
6.8 Conformity with Law; Litigation.................................23
6.9 No Violations...................................................23
6.10 Validity of Obligations.........................................24
6.11 LandCARE Stock..................................................24
6.12 Other Agreements; No Side Agreements............................24
6.13 Business; Real Property; Material Agreements....................25
6.14 Taxes...........................................................25
6.15 Absence of Changes..............................................25
6.16 Disclosure......................................................26
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 Access and Cooperation; Due Diligence...........................27
7.2 Conduct of Business Pending Closing.............................27
7.3 Prohibited Activities...........................................28
7.4 No Shop.........................................................29
7.5 Notice to Bargaining Agents.....................................30
7.6 Agreements......................................................30
-ii-
<PAGE>
7.7 Notification of Certain Matters.................................30
7.8 Amendment of Schedules..........................................30
7.9 Cooperation in Preparation of Registration Statement............31
7.10 Final Financial Statements......................................32
7.11 Further Assurances..............................................32
7.12 Authorized Capital..............................................32
7.13 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott-Rodino Act").......................32
7.14 Stockholders of LandCARE........................................33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......33
8.1 Representations and Warranties; Performance of Obligations......33
8.2 Satisfaction....................................................33
8.3 No Litigation...................................................34
8.4 Opinion of Counsel..............................................34
8.5 Registration Statement..........................................34
8.6 Consents and Approvals..........................................34
8.7 Good Standing Certificates......................................34
8.8 No Material Adverse Change......................................34
8.9 Closing of IPO..................................................34
8.10 Secretary's Certificate.........................................34
8.11 Employment Agreements...........................................35
8.12 Tax Matters.....................................................35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO.............35
9.1 Representations and Warranties; Performance of Obligations......35
9.2 No Litigation...................................................36
9.3 Secretary's Certificate.........................................36
9.4 No Material Adverse Effect......................................36
9.5 Stockholders' Release...........................................36
9.6 Satisfaction....................................................36
9.7 Termination of Related Party Agreements.........................36
9.8 Opinion of Counsel..............................................36
9.9 Consents and Approvals..........................................37
9.10 Good Standing Certificates......................................37
9.11 Registration Statement..........................................37
9.12 Employment Agreements...........................................37
9.13 Closing of IPO..................................................37
9.14 FIRPTA Certificate..............................................37
-iii-
<PAGE>
9.15 Environmental Reviews...........................................37
9.16 Certain Indebtedness............................................37
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING..............37
10.1 Release From Guarantees; Repayment of Certain Obligations.......37
10.2 Preservation of Tax and Accounting Treatment....................38
10.3 Preparation and Filing of Tax Returns...........................38
10.4 Directors.......................................................39
11. INDEMNIFICATION.......................................................39
11.1 General Indemnification by the Stockholders.....................39
11.2 Indemnification by LandCARE.....................................40
11.3 Third Person Claims.............................................41
11.4 Exclusive Remedy................................................42
11.5 Limitations on Indemnification..................................42
12. TERMINATION OF AGREEMENT..............................................43
12.1 Termination.....................................................43
12.2 Liabilities in Event of Termination.............................44
13. NONCOMPETITION........................................................44
13.1 Prohibited Activities...........................................44
13.2 Damages.........................................................45
13.3 Reasonable Restraint............................................45
13.4 Severability; Reformation.......................................45
13.5 Independent Covenant............................................45
13.6 Materiality.....................................................45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................45
14.1 Stockholders....................................................45
14.2 LandCARE and Newco..............................................46
14.3 Damages.........................................................47
14.4 Survival........................................................47
15. TRANSFER RESTRICTIONS.................................................47
15.1 Transfer Restrictions...........................................47
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................48
16.1 Compliance with Law.............................................48
16.2 Economic Risk; Sophistication...................................48
-iv-
<PAGE>
17. REGISTRATION RIGHTS...................................................49
17.1 Piggyback Registration Rights...................................49
17.2 Demand Registration Rights......................................49
17.3 Registration Procedures.........................................50
17.4 Indemnification.................................................51
17.5 Underwriting Agreement..........................................52
17.6 Rule 144 Reporting..............................................53
18. GENERAL...............................................................53
18.1 Cooperation.....................................................53
18.2 Successors and Assigns..........................................53
18.3 Entire Agreement................................................54
18.4 Counterparts....................................................54
18.5 Brokers and Agents..............................................54
18.6 Expenses........................................................54
18.7 Notices.........................................................55
18.8 Governing Law...................................................56
18.9 Survival of Representations and Warranties......................56
18.10 Exercise of Rights and Remedies.................................56
18.11 Time............................................................56
18.12 Reformation and Severability....................................56
18.13 Remedies Cumulative.............................................56
18.14 Captions........................................................56
18.15 Amendments and Waivers..........................................56
-v-
<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Benefit Plans (the Benefit Plans Schedule)
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.30 No Interests in Other Businesses
5.31 Authority; Ownership
6.4 Capital Stock etc.
6.5 Subsidiaries
6.7 Liabilities
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 OtherAgreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
March 17, 1998, by and among LandCARE USA, Inc., a Delaware corporation
("LandCARE"), Southern Tree Acquisition Corp., a Delaware corporation ("Newco"),
Southern Tree & Landscape Co., Inc., a North Carolina corporation (the
"Company"), and the stockholders identified on the signature pages hereof (the
"Stockholders"). The Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on or about
March 6, 1998 solely for the purpose of completing the transactions set
forth herein, and is a wholly-owned subsidiary of LandCARE, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective Stockholders that Newco
merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation (as defined below);
WHEREAS, LandCARE is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional landscaping and related
services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "LandCARE Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of LandCARE, each of the Other Founding Companies and each of
the subsidiaries of LandCARE that are parties to the Other Agreements have
approved and adopted the LandCARE Plan of Organization as an integrated
plan pursuant to which the Stockholders and the stockholders of each of
the Other Founding Companies will transfer the capital stock of each of
the Founding Companies (as defined herein) to LandCARE and the
stockholders of each of the Other Founding Companies will acquire the
stock of LandCARE (but not cash or other property) as a tax-free transfer
of property under Section 351 of the Code;
-1-
<PAGE>
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the LandCARE Plan of Organization
in order to transfer the capital stock of the Company to LandCARE;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by LandCARE prior to the Funding
and Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
-2-
<PAGE>
"Draft Registration Statement" means the March 12, 1998 draft of the
Registration Statement, and any corrections thereto and supplemental information
delivered by LandCARE to the Company for delivery to the Stockholders prior to
the time this Agreement is delivered to LandCARE.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
(a) Arteka Corporation, a Minnesota corporation, as well as its
affiliates Arteka Natural Green Corporation, a Minnesota corporation and
Arteka Nurseries, Inc., a Minnesota corporation;
(b) D. R. Church Landscape Co., Inc., an Illinois corporation;
(c) Desert Care Landscaping, Inc., an Arizona corporation;
(d) Four Seasons Landscape and Maintenance, Inc., a California
corporation;
(e) Ground Control Landscaping, Inc., a Florida corporation;
(f) Southern Tree & Landscape Co., Inc., a North Carolina
corporation; and
(g) Trees, Inc., a Nevada corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of LandCARE Stock pursuant to the
Registration Statement described herein.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"LandCARE" has the meaning set forth in the first paragraph of this
Agreement.
"LandCARE Charter Documents" has the meaning set forth in Section 6.1.
"LandCARE Stock" means the common stock, par value $.01 per share, of
LandCARE.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
-3-
<PAGE>
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by LandCARE and the Underwriters
of the public offering price of the shares of LandCARE Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of LandCARE Stock to be issued
in the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"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 (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of North Carolina.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
-4-
<PAGE>
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to LandCARE at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, the Company shall be the
surviving party in the Merger and the Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the Merger,
such By-laws shall be the By-laws of the Surviving Corporation until they shall
thereafter be duly amended (and such Bylaws shall be amended from time to time,
if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that William
Murdy or another officer of LandCARE shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the Company
shall be
-5-
<PAGE>
increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger William Fiedler and another officer of LandCARE shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
LANDCARE AND NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, LandCARE and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of LandCARE will consist of 100,000,000 shares of
LandCARE Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, 5,000,000 shares of preferred stock, $.01
par value, of which no shares will be issued and outstanding, and 3,000,000
shares of Restricted Voting Common Stock, $.01 par value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as otherwise set
forth in the Registration Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred (100)
shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on
-6-
<PAGE>
whatever account, including subscriptions to shares, and all taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the Company and Newco
shall be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Company and Newco;
and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the State of Incorporation vested in the Company
and Newco, shall not revert or be in any way impaired by reason of the Merger.
Except as otherwise provided herein, the Surviving Corporation shall thenceforth
be responsible and liable for all the liabilities and obligations of the Company
and Newco and any claim existing, or action or proceeding pending, by or against
the Company or Newco may be prosecuted as if the Merger had not taken place, or
the Surviving Corporation may be substituted in their place. Neither the rights
of creditors nor any liens upon the property of the Company or Newco shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Newco shall attach to the Surviving Corporation, and may be enforced against
such Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) LandCARE Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
deemed to represent (1) the right to receive the number of shares of LandCARE
Stock set forth on Annex I hereto with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to such
holder;
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of LandCARE Stock or
other consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of LandCARE, automatically be converted into one
fully paid and non-assessable share of common stock of the Surviving Corporation
which shall constitute all of the issued and outstanding shares of common stock
of the Surviving Corporation immediately after the Effective Time of the Merger.
-7-
<PAGE>
All LandCARE Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
LandCARE Stock by reason of the provisions of the Certificate of Incorporation
of LandCARE or as otherwise provided by the Delaware GCL. All LandCARE Stock
received by the Stockholders shall be issued and delivered to the Stockholders
free and clear of any liens, claims or encumbrances of any kind or nature. All
voting rights of such LandCARE 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. At the Effective Time of the Merger,
LandCARE shall have no class of capital stock issued and outstanding other than
the LandCARE Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of LandCARE Stock and the amounts of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to LandCARE at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
Stockholders, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholders' expense,
affixed and canceled. The Stockholders agree promptly to cure any deficiencies
with respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to LandCARE for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
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 Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and
-8-
<PAGE>
(z) the closing with respect to the IPO shall occur and be completed. The date
on which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as 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 the parties if (a) the underwriting agreement in respect
of the IPO is terminated pursuant to the terms of such underwriting agreement,
or (b) the conditions set forth in Sections 8.5 and 8.9 hereof are not being
satisfied as of the Funding and Consummation Date. This Agreement shall also in
any event automatically terminate if the Funding and Consummation Date has not
occurred within 15 business days following the Closing Date.
Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders jointly and severally represents and warrants
that all of the representations and warranties in this Section 5 are true at the
date of this Agreement and, subject to Section 7.8 hereof, shall be true at the
time of Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
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 5.22, and the representations
and warranties set forth in Section 5.31 hereof shall survive perpetually. For
purposes of this Section 5, the term "Company" shall mean and refer to the
Company and all of its Subsidiaries, if any. For purposes of this Section 5, the
phrase "knowledge of the Stockholders" shall mean the actual knowledge of the
Stockholders after due inquiry of the appropriate management personnel employed
by the Company.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
-9-
<PAGE>
5.2 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 this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and 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 Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the LandCARE Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the LandCARE Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
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 all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
-10-
<PAGE>
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the balance sheets of the Company as of the dates shown thereon and
the related statements of operations, stockholder's equity and cash flows for
the periods shown thereon, together with the related notes and schedules (such
balance sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules being referred to herein as the
"Financial Statements"). The Financial Statements have been prepared from the
books and records of the Company as of the dates and for the periods covered
thereby. The books of account of the Company have been kept accurately in the
ordinary course of business, the transactions recorded therein represent bona
fide transactions, and the revenues, expenses, assets and liabilities of the
Company have been properly recorded therein all material respects.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and 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 and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
knowledge of the Stockholders, except as set forth on Schedule 5.10, since the
Balance Sheet Date the Company has not incurred any material liabilities of any
kind, character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to LandCARE on Schedule 5.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed, a good faith and
reasonable estimate of the maximum amount which the Company reasonably expects
will be payable and the amount, if any, accrued or reserved for each such
potential liability on the Company's Financial Statements; in the case of any
such liability for which no estimate has been provided, the estimate for
purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list 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, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are
-11-
<PAGE>
collectible in the amounts shown on Schedule 5.11, net of reserves reflected in
the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to LandCARE an accurate list and summary description
(which is set forth on Schedule 5.12) of all such Licenses, and of any
trademarks, trade names, patents, patent applications and copyrights owned or
held by the Company or by any of its employees if used or held for use by the
Company in the conduct of its business (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property owned by any employees of the Company will be assigned or licensed to
the Company for no additional consideration. To the knowledge of the
Stockholders, the Licenses and other rights listed on Schedules 5.12 and 5.13
are valid, and the Company has not received any notice that any Person intends
to cancel, terminate or not renew any such License or other right. The Company
has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees 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,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (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 Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders, there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which
-12-
<PAGE>
the Company has transported or disposed of Hazardous Materials or arranged for
the transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could reasonably be expected to lead to any claim against the Company, LandCARE
or Newco 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, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act or comparable state or local statutes or
regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to LandCARE an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the Company included in "property" or "plant, property and
equipment" or any similar category on the balance sheet of the Company as of the
Balance Sheet Date, (y) all other tangible personal property owned by the
Company with an individual fair market value (in the reasonable judgment of the
Stockholders; it being understood that the Stockholders are not obtaining
appraisals of any such property in connection with the preparation of Schedule
5.14) in excess of $25,000 (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date and (z) all material leases and agreements in
respect of personal property, including, in the case of each of (x), (y) and
(z), (1) true, complete and correct copies of all such leases and (2) an
indication as to which assets are currently owned, or were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as
set forth on Schedule 5.14, (i) all material 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 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted and (iii) all leases and agreements included on Schedule 5.14
are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.15) of all customers (persons or entities) representing 1% or more of
the Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 25
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, 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 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to LandCARE. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options
-13-
<PAGE>
to purchase land and other contracts which are not terminable on sixty days or
less notice and involve payments by the Company in any twelve-month period in
excess of $25,000. The Company has also indicated on Schedule 5.15 a summary
description of all plans or projects involving the opening of new operations,
expansion of existing operations, the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $25,000 by
the Company during any 12-month period. All of the Material Contracts are in
full force and effect and constitute valid and binding agreements of the parties
(and their successors) thereto in accordance with their respective terms.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in substantially the form of Annex VI hereto (or with terms substantially
similar to those of Annex VI) at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affilliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in
substantially the form of Annex VI hereto (or with terms substantially similar
to those of Annex VI) will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good and insurable title to any real
property owned by it that is not shown on Schedule 5.16 as property intended to
be sold or distributed prior to the Closing Date, subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to LandCARE (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the Company,
(ii) an accurate list of all
-14-
<PAGE>
insurance loss runs or workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the Company is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws, and to the knowledge
of the Stockholders provide adequate coverage against the risks involved in the
Company's business. All of such insurance policies are currently in full force
and effect. Since January 1, 1995, no insurance carried by the Company has been
canceled by the insurer and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the Company,
listing all employment agreements with such officers, directors and key
employees and the rate of compensation (and the portions thereof attributable to
salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided
to LandCARE true, complete and correct copies of any employment agreements for
persons listed on Schedule 5.18. Since the Balance Sheet Date, there have been
no material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not 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) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, 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.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to LandCARE an
accurate schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all
employee benefit plans of the Company, including all employment agreements and
other agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no 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
-15-
<PAGE>
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on the Benefit Plans Schedule.
Except as set forth on the Benefit Plans Schedule, the Company is not required
to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of the Company's or any Subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule 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. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
-16-
<PAGE>
(iv) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited to, any
liability to any multiemployer plan or the PBGC under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty, or being subject to
any statutory lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the knowledge of the Stockholders,
there is no basis for any such claim, action, suit or proceeding. The Company
has conducted and is now conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations, including all such orders and other governmental
approvals set forth on Schedules 5.12 and 5.13, except where any such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against it for federal, state
and other Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any claim for
Taxes, whether pending or threatened, has been received. All Tax due from the
Company for any period ended before the date hereof, including interest and
penalties (whether or not shown on any Return) has been paid. The amounts shown
as accruals for taxes on the Company Financial Statements are sufficient for the
payment of all Taxes (including penalties and interest) for all periods ended on
or before that date. Copies of (i) any tax examinations, (ii) extensions of
statutory limitations and (iii) the federal and local income tax returns and
franchise tax returns of the Company for their last three (3) fiscal years, or
such shorter period of time as any of them shall have existed, are attached
hereto as Schedule 5.22 or have otherwise been delivered to LandCARE. The
Company has disclosed to LandCARE when its taxable year ends. The Company uses
the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated
-17-
<PAGE>
group. Except as described on Schedule 5.22, the Company has not received, been
denied, or applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially 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 material violation or breach of 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 5.23, 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 material right or benefit. Except as set forth on
Schedule 5.23, none of the Material Documents prohibits the use or publication
by the Company, LandCARE or Newco 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, LandCARE, Newco or any Other Founding Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty 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 by
the Company 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,
-18-
<PAGE>
Stockholders, employees, consultants or agents, except for ordinary and
customary bonuses and salary increases for employees in accordance with past
practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including, without
limitation, the Stockholders and their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii)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;
(ix) 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;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii)any contract entered into or commitment incurred involving any
liability or commitment to make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 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 and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
-19-
<PAGE>
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
LandCARE an accurate schedule (which is set forth on Schedule 5.25) as of the
date of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of LandCARE utilized in
connection with the IPO, the Stockholders become aware of any fact or
circumstance which would affect the accuracy of a representation or warranty of
the Stockholders in this Agreement in any material respect, the Stockholders
shall immediately give notice of such fact or circumstance to LandCARE. Subject
to the provisions of Section 7.8, such notification shall not relieve either the
Company or the Stockholders of their respective obligations under this
Agreement.
(b) 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 the 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; (ii)
that neither
-20-
<PAGE>
LandCARE or any of its officers, directors, agents or representatives nor any
Underwriter shall have any liability to the Company, the Stockholders or any
other person affiliated or associated with the Company for any failure of the
Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to LandCARE or the prospective IPO. Notwithstanding the foregoing,
LandCARE has agreed and herein acknowledges its agreement to use its reasonable
efforts to consummate the LandCARE Plan of Organization and IPO as contemplated
hereby.
5.29 [INTENTIONALLY OMITTED]
5.30 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.30, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.31 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
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.32 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.
5.33 NO INTENTION TO DISPOSE OF LANDCARE STOCK. No Stockholder is under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of LandCARE Stock to be received as described in Section 3.1 of this
Agreement.
6. REPRESENTATIONS OF LANDCARE AND NEWCO
LandCARE and Newco jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and, subject to Section 7.8 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 twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 6.14
hereof shall survive until such time as the
-21-
<PAGE>
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 6.14.
6.1 DUE ORGANIZATION. LandCARE and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. LandCARE and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, 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 By-laws of LandCARE (the "LandCARE Charter Documents") have
been or will be filed as exhibits to the Registration Statement, and copies
thereof and copies of the Certificate of Incorporation and Bylaws of Newco will
be provided to the Stockholders promptly upon request.
6.2 AUTHORIZATION. (i) The respective representatives of LandCARE and
Newco executing this Agreement have the authority to enter into and bind
LandCARE and Newco to the terms of this Agreement and (ii) LandCARE and Newco
have the full legal right, power and authority to enter into this Agreement and
consummate the Merger. All corporate acts and other proceedings required to have
been taken by LandCARE and Newco to authorize the execution, delivery and
performance of this Agreement and the consummation of the Merger have been duly
and properly taken.
6.3 CAPITAL STOCK OF LANDCARE AND NEWCO. The authorized capital stock of
LandCARE and Newco is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of Newco are owned
by LandCARE. All of the issued and outstanding shares of the capital stock of
LandCARE and Newco have been duly authorized and validly issued, are fully paid
and nonassessable, and further, such shares were offered, issued, sold and
delivered by LandCARE and Newco in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such shares
were issued in violation of the preemptive rights of any past or present
stockholder of LandCARE or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
LandCARE or Newco to issue any of their respective authorized but unissued
capital stock; and (ii) neither LandCARE nor Newco has any 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. Complete and accurate copies of all stock
option or stock purchase plans and a list of all outstanding options, warrants
or other rights to acquire shares of the stock of LandCARE will be provided to
the Stockholders promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. LandCARE has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other
-22-
<PAGE>
newly incorporated Subsidiaries that have conducted no business and have been
created solely to effectuate the business of LandCARE. Except as set forth in
the preceding sentence or set forth on Schedule 6.5 hereto, neither LandCARE nor
any Subsidiary of LandCARE presently owns, of record or beneficially, or
controls, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity, and neither LandCARE nor Newco, directly or indirectly, is a
participant in any joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The historical financial statements of LandCARE
included in the Draft Registration Statement (the "LandCARE Financial
Statements") have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the period indicated (except
as noted thereon), and present fairly in all material respects the financial
position of LandCARE as of the date and for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither LandCARE nor any
Subsidiary of LandCARE has any material liabilities, contingent or otherwise,
except as set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither LandCARE nor
any Subsidiary of LandCARE is in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
any of them which would have a Material Adverse Effect, (b) there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
LandCARE or Newco, threatened against or affecting, LandCARE or any Subsidiary
of LandCARE, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any of them, and (c) no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received by LandCARE or Newco. LandCARE and its Subsidiaries have conducted and
are conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. LandCARE is not in violation of any LandCARE Charter
Document, and no Subsidiary of LandCARE is in violation of its Certificate of
Incorporation or Bylaws. None of LandCARE, Newco, or, to the knowledge of
LandCARE and Newco, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit to which LandCARE or any Subsidiary of
LandCARE is a party, or by which LandCARE or any Subsidiary of LandCARE, or any
of their respective properties, are bound (collectively, the "LandCARE
Documents"); and (a) the rights and benefits of LandCARE and any Subsidiary of
LandCARE under the LandCARE Documents will not
-23-
<PAGE>
be adversely affected by the transactions contemplated hereby and (b) the
execution and delivery of this Agreement by LandCARE and Newco and the
performance of their obligations hereunder do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation or default (with or without notice or
lapse of time, or both), under or give rise to a right of termination,
cancellation, or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any lien upon any of the assets of LandCARE
or any Subsidiary of LandCARE under, any provision of (i) the Certificate of
Incorporation or Bylaws of LandCARE or the comparable governing instruments of
any Subsidiary of LandCARE, (ii) any note, bond, mortgage, indenture or deed of
trust or any license, lease, contract, commitment, agreement or arrangement to
which LandCARE and any Subsidiary of LandCARE is a party or by which any of
their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to LandCARE or any
Subsidiary of LandCARE or their respective properties or assets. The execution
of this Agreement and the Other Agreements and the performance of the
obligations hereunder and thereunder and the consummation of the transactions
contemplated by the LandCARE Plan of Organization will not result in any
material violation or breach or constitute a default under, any of the terms or
provisions of the LandCARE Documents or the LandCARE Charter Documents. Except
as contemplated hereby or described in the Registration Statement or on Schedule
6.9 hereto, none of the LandCARE 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 by the LandCARE Plan of Organization in order to
remain in full force and effect and consummation of the transactions
contemplated thereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by LandCARE and Newco and the performance of the transactions contemplated
herein have been duly and validly authorized by the respective Boards of
Directors of LandCARE and Newco and this Agreement has been duly and validly
authorized by all necessary corporate action and is a legal, valid and binding
obligation of LandCARE and Newco.
6.11 LANDCARE STOCK. At the time of issuance thereof and delivery to the
Stockholders, the LandCARE Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of LandCARE,
fully paid and nonassessable, and with the exception of restrictions upon resale
set forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
LandCARE Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. Except as set forth above, the LandCARE Stock
issued and delivered to the Stockholders shall at the time of such issuance and
delivery be free and clear of any liens, security interests, claims or
encumbrances of any kind or character. The shares of LandCARE Stock to be issued
to the Stockholders pursuant to this Agreement will not be registered under the
1933 Act except as provided in Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except as described on Schedule
6.12 hereto, each of the Other Agreements is substantially similar to this
Agreement. Neither LandCARE
-24-
<PAGE>
nor Newco has entered or will enter into any agreement with any of the Other
Founding Companies or any of the stockholders of the Other Founding Companies
other than the Other Agreements and the agreements contemplated by each of the
Other Agreements, including the employment agreements and leases referred to
herein or entered into in connection with the transactions contemplated hereby
and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. LandCARE was formed in
October 1997 and has conducted only limited operations since that time. Neither
LandCARE nor any Subsidiary thereof has conducted any material business since
the date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither LandCARE nor any Subsidiary of LandCARE owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement other than the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES.LandCARE and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against LandCARE or any Subsidiary
thereof for federal, state and other Taxes (including penalties and interest)
for any such period and no notice of any claim for Taxes, whether pending or
threatened, has been received. All Taxes which LandCARE or any Subsidiary of
LandCARE has been required to collect or withhold have been duly and timely
collected and withheld and have been set aside in accounts for such purposes, or
have been duly and timely paid to the proper governmental authority. All Tax,
including interest and penalties (whether or not shown on any tax return) owed
by LandCARE, any member of an affiliated or consolidated group which includes or
included LandCARE, or with respect to any payment made or deemed made by
LandCARE herein has been paid. The amounts shown as accruals for taxes on
LandCARE Financial Statements are sufficient for the payment of all taxes of the
kinds indicated (including penalties and interest) for all fiscal periods ended
on or before that date. Neither LandCARE nor any Subsidiary thereof has entered
into any tax sharing agreement or similar arrangement. Neither LandCARE nor any
Subsidiary thereof is an investment company as defined in Section 351(e)(1) of
the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of LandCARE or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of LandCARE
or Newco;
-25-
<PAGE>
(iii) any change in the authorized capital of LandCARE or Newco or
their outstanding securities or any change in their 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 LandCARE or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of LandCARE or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to LandCARE or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of LandCARE or any Subsidiary thereof or requiring consent of any party
to the transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of LandCARE or
any Subsidiary of LandCARE;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which LandCARE or any Subsidiary of
LandCARE is a party;
(x) any transaction by LandCARE or any Subsidiary of LandCARE
outside the ordinary course of its business;
(xi) any other distribution of property or assets by LandCARE or any
Subsidiary of LandCARE other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with the representations and warranties of
LandCARE and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
LandCARE by the Stockholders, the offering and issuance of shares of LandCARE
Stock to the Stockholders and
-26-
<PAGE>
to the stockholders of the Other Founding Companies pursuant to this Agreement
and to the Other Agreements have been made in compliance with all applicable
federal and state securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 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 LandCARE access to all of the
Company's sites, properties, books and records and will furnish LandCARE with
such additional financial and operating data and other information as to the
business and properties of the Company as LandCARE may from time to time
reasonably request. The Company will cooperate with LandCARE and its
representatives, auditors and counsel in the preparation of any documents or
other materials which may be required in connection with any documents or
materials required by this Agreement. LandCARE, Newco, the Stockholders and the
Company will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to the Other Founding Companies as confidential in accordance with
the provisions of Section 14 hereof. In addition, LandCARE will cause each of
the Other Founding Companies to enter into a provision similar to this Section
7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, LandCARE will afford to the officers and authorized representatives of the
Company access to all of LandCARE's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the business and properties of
LandCARE and Newco as the Company may from time to time reasonably request.
LandCARE and Newco will cooperate with the Company, its representatives,
auditors and counsel in the preparation of any documents or other material which
may be required in connection with any documents or materials required by this
Agreement. The Company will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to 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 all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
-27-
<PAGE>
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar governmental
authorities applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
LandCARE (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of LandCARE 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.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of LandCARE, which consent will not be
unreasonably withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) 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 in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(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
$25,000 necessary or desirable for the conduct of the businesses
-28-
<PAGE>
of the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business (the liens set forth in clause (2)
being referred to herein as "Statutory Liens"), or (3) liens set forth on
Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the 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 for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than LandCARE, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective 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.
-29-
<PAGE>
7.5 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 LandCARE on Schedule 7.5 with proof that any required notice has been
sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by LandCARE or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to LandCARE. Such termination agreements are listed on Schedule 7.6
and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to LandCARE 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 failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. LandCARE and Newco 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 LandCARE or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of LandCARE or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would
-30-
<PAGE>
have a Material Adverse Effect may be made unless LandCARE 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 LandCARE or Newco 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 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 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, LandCARE shall give the Company notice promptly
after it has knowledge thereof. If LandCARE and a majority of the Founding
Companies (other than the Founding Company seeking to amend or supplement a
Schedule) consent to such amendment or supplement, which consent shall have been
deemed given by LandCARE or any Founding Company if no response is received
within 24 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 12.1(iv) hereof. In the event that the Company
seeks to amend or supplement a Schedule pursuant to this Section 7.8, and
LandCARE 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 12.1(i) hereof. In the event that LandCARE or
Newco seeks to amend or supplement a Schedule pursuant to this Section 7.8 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 12.1(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 7.8. No amendment of or supplement to a Schedule shall be made
later than 24 hours prior to the anticipated effectiveness of the Registration
Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to LandCARE and the
Underwriters all of the information concerning the Company and the Stockholders
reasonably requested by LandCARE or the Underwriters for inclusion in, and will
cooperate with LandCARE and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements of the Company, 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 LandCARE if at any time during the period in which a prospectus relating
to the IPO is required to be delivered under the Securities 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. Insofar as the information relates solely to
the Company or the Stockholders, the Company
-31-
<PAGE>
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and LandCARE 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 ending not later
than 15 days prior to the Funding and Consummation Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
Company for all such fiscal quarters, 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. Such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein). Except as noted in such financial statements, all of
such financial statements will present fairly the results of operations of the
Company for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
LandCARE 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 LandCARE Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by LandCARE and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by LandCARE. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
-32-
<PAGE>
7.14 STOCKHOLDERS OF LANDCARE. Promptly after a request by the Company,
LandCARE will deliver to the Company a list of the stockholders of LandCARE as
of the date of this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions.
Subject to Section 12 hereof, 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 8.1, 8.5, 8.8, 8.9 and
8.12. As of the Closing Date or subject to Section 12 hereof, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been satisfied,
the Stockholders (acting in unison) shall have the right to terminate this
Agreement, or in the alternative, waive any condition not so satisfied. Any act
or action of the Stockholders in consummating the Closing or delivering
certificates representing Company Stock as of the Funding and Consummation Date
shall constitute a waiver of any conditions not so satisfied. However, no such
waiver shall be deemed to affect the survival of the representations and
warranties of LandCARE and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of LandCARE and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by LandCARE and Newco 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, respectively, and
signed by the President or any Vice President of LandCARE shall have been
delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform
-33-
<PAGE>
LandCARE in writing prior to the effectiveness of the Registration Statement of
the existence of an untrue statement of a material fact or the omission of such
a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger 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.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for LandCARE, dated the Closing Date, in the form annexed hereto as
Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of LandCARE Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger 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 Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. LandCARE and Newco each 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 LandCARE or Newco is authorized to do business,
showing that each of LandCARE and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
LandCARE and Newco, respectively, for all periods prior to the Closing have been
filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to LandCARE or Newco which has had or is reasonably likely
to have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of LandCARE and of Newco,
-34-
<PAGE>
certifying the truth and correctness of attached copies of the LandCARE's and
Newco's respective Certificates of Incorporation (including amendments thereto),
By-Laws (including amendments thereto), and resolutions of the boards of
directors and, if required, the Stockholders of LandCARE and Newco approving
LandCARE's and Newco's entering into this Agreement and the consummation of the
transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
under the caption relating to the Company shall have been afforded the
opportunity to enter into an Employment Agreement substantially in the form of
Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the LandCARE Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for LandCARE Stock (but not cash or other property) pursuant to the
LandCARE Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO
The obligations of LandCARE and Newco 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 LandCARE and
Newco 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 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, LandCARE and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, 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; 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 shall
have delivered to LandCARE certificates dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by them to such effect.
-35-
<PAGE>
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of LandCARE as a result of which the
management of LandCARE (acting in good faith) deems it inadvisable to proceed
with the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. LandCARE 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.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to
LandCARE an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Funding and Consummation 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 5.10 and 5.15 as being claims of or
obligations to the Stockholders, and (y) continuing obligations to Stockholders
relating to their employment by the Company. In the event that the Funding and
Consummation Date does not occur, then the release instrument referenced herein
shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to LandCARE.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by LandCARE, all existing agreements between
the Company and the Stockholders (and entities controlled by the Stockholders)
other than real property leases shall have been canceled effective prior to or
as of the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. LandCARE shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
-36-
<PAGE>
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
LandCARE 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 LandCARE, in each state
in which the Company is authorized to do business, showing the Company is in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
each shall enter into an employment agreement substantially in the form of Annex
V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to LandCARE
a certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. LandCARE shall have received a report from an
independent environmental consultant retained by LandCARE at its expense to
conduct an environmental review of the Company's owned and leased sites, and
such report shall not disclose any environmental condition that, in LandCARE's
reasonable judgment, either (i) could be expected to have a Material Adverse
Effect on the Company, or (ii) poses any risk of a substantial liability to the
Company.
9.16 CERTAIN INDEBTEDNESS. The Company shall have obtained a release
reasonably satisfactory to LandCARE from the lender or lenders to any affiliates
of the Company of any guarantees by the Company of indebtedness of such
affiliates.
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. LandCARE
shall use reasonable efforts, including offering its own guarantee, to have the
Stockholders and their
-37-
<PAGE>
spouses and Roger S. Braswell released from any and all guarantees of the
Company's indebtedness identified on Schedule 10.1. In the event that LandCARE
cannot obtain such releases from the lenders of any such guaranteed indebtedness
identified on Schedule 10.1 on or prior to 120 days subsequent to the Funding
and Consummation Date, LandCARE shall promptly pay off or otherwise refinance or
retire such indebtedness. LandCARE shall indemnify the Stockholders and Roger S.
Braswell against, and shall promptly reimburse the Stockholders and Roger S.
Braswell for, any amounts which the Stockholders or Mr. Braswell are obligated
to pay under any such guarantees listed on Schedule 10.1, and shall be
subrogated to any rights of the Stockholders or Mr. Braswell accruing as a
result of any such payments by the Stockholders or Mr. Braswell.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, LandCARE shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the LandCARE Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit LandCARE to review all such
Tax Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) LandCARE shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(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
-38-
<PAGE>
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, Newco, LandCARE and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of LandCARE, as and to
the extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, LandCARE and Newco each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they jointly and severally will
indemnify, defend, protect and hold harmless LandCARE, Newco, and, subsequent to
the Funding and Consummation Date, the Company and the Surviving Corporation at
all times, from and after the date of this Agreement until the Expiration Date
(provided that for purposes of Section 11.1(iii) below, the Expiration Date
shall be the date on which the applicable statute of limitations expires), from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by LandCARE, Newco, the Company or the Surviving Corporation as a
result of or arising from (i) any breach of the representations and warranties
of the Stockholders or the Company set forth herein or on the schedules or
certificates delivered in connection herewith, (ii) any breach of any agreement
on the part of the Stockholders or the Company under this Agreement, or (iii)
any liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement of a material fact relating to the Company or the Stockholders, and
provided to LandCARE or its counsel by the Company or the Stockholders (but in
the case of the Stockholders, only if such statement was provided in writing)
which is contained in the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to the Company or the
-39-
<PAGE>
Stockholders required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that such indemnity shall not inure
to the benefit of LandCARE, Newco, the Company or the Surviving Corporation 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 Company or the Stockholders provided, in writing, corrected information to
LandCARE for inclusion in the final prospectus, and such information was not so
included or the final prospectus was not properly delivered, and provided
further, that no Stockholder shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
Stockholder.
LandCARE and Newco acknowledge and agree that other than the
representations and warranties of the Company or the Stockholders specifically
contained in this Agreement, there are no representations or warranties of the
Company or the Stockholders, either express or implied, with respect to the
transactions contemplated by this Agreement, the Company or its assets,
liabilities and business.
LandCARE and Newco further acknowledge and agree that, should the Funding
and Consummation Date occur, their sole and exclusive remedy with respect to any
and all claims relating to this Agreement and the transactions contemplated in
this Agreement, shall be pursuant to the indemnification provisions set forth in
this Section 11. LandCARE and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY LANDCARE. LandCARE covenants and agrees that it
will indemnify, defend, protect and hold harmless the Stockholders and, prior to
the Funding and Consummation Date, the Company, at all times from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by LandCARE or Newco
of their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
LandCARE or Newco under this Agreement, (iii) any liabilities which the
Stockholders may incur due to LandCARE's or Newco's failure to be responsible
for the liabilities and obligations of the Company as provided in Section 1
hereof (except to the extent that LandCARE or Newco has claims against the
Stockholders by reason of such liabilities); or (iv) any liability under the
1933 Act, the 1934 Act or other Federal or state law
-40-
<PAGE>
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
LandCARE, Newco 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 LandCARE or Newco or any of the Other Founding Companies required to
be stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by Indemnifying Party, provided that if counsel to the
Indemnifying Party shall have a conflict of interest that prevents counsel for
the Indemnifying Party from representing 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. After the Indemnifying Party has
notified the Indemnified Party of its intention to undertake to defend or settle
any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the
-41-
<PAGE>
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement and the Indemnified Party shall, from that
moment on, bear full responsibility for any additional costs of defense which it
subsequently incurs with respect to such claim and all additional costs of
settlement or judgment. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall 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.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall 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
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. LandCARE, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the LandCARE Stock delivered to Stockholders (calculated
as provided in this Section 11.5) or (b) $50,000 (the "Indemnification
Threshold").
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
-42-
<PAGE>
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the LandCARE Stock received by a Stockholder, LandCARE
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such Stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of LandCARE and
the Company;
(ii) by the Company or by LandCARE if the transactions contemplated
by this Agreement to take place at the Closing shall not have been consummated
by September 30, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party (including, in the case of the
Company, any such failure of the Stockholders) 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 Closing Date;
(iii) by the Company or by LandCARE if a material breach or default
shall be made by the other party (including, in the case of LandCARE's right to
terminate, any such material breach or default by the Stockholders) in the
observance or in the due and timely performance of any of the covenants or
agreements contained herein, and the curing of such default shall not have been
made on or before the Funding and Consummation Date, or by the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or waived as of
the Closing Date or the Funding and Consummation Date, as applicable, or by
LandCARE, if the conditions set forth in Section 9 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation Date,
as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if (a) the underwriting agreement relating to
the IPO is terminated in accordance with its terms, or (b) the
-43-
<PAGE>
conditions set forth in Sections 8.5 and 8.9 hereof are not being satisfied as
of the Funding and Consummation Date.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 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.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will 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 or Persons:
(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
landscaping business or operation or related services business in direct
competition with LandCARE or any of the Subsidiaries thereof, within 100 miles
of where the Company conducted business prior to the Funding and Consummation
Date or within the one-year period prior to the Funding and Consummation Date
(the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of LandCARE or any Subsidiary thereof for the purpose or
with the intent of enticing such employee away from or out of the employ of
LandCARE or any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within one-year prior to the Funding and Consummation Date, a customer of
LandCARE or any Subsidiary thereof, of the Company or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with LandCARE within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the landscaping
business or any related services business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by LandCARE or
any Subsidiary thereof or for which, to the actual knowledge of such Stockholder
after due inquiry, LandCARE or any Subsidiary thereof made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) except on behalf of LandCARE or any Subsidiary, disclose
customers, whether in existence or proposed, of the Company to any Person, for
any reason or purpose whatsoever
-44-
<PAGE>
except to the extent that the Company has in the past disclosed such information
to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment 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.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
LandCARE as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to LandCARE for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by LandCARE in the event of breach by such Stockholder,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of LandCARE and the
Subsidiaries thereof on the date of the execution of this Agreement and the
current plans of LandCARE and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against LandCARE or any subsidiary thereof, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by LandCARE of
such covenants. The covenants contained in Section 13 shall not be affected by
any breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the
-45-
<PAGE>
Company, the Other Founding Companies, and/or LandCARE, such as operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the Company's, the Other Founding Companies' and/or LandCARE's
respective businesses. The Stockholders agree that they will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to authorized
representatives of LandCARE, (b) following the Closing, such information may be
disclosed by the Stockholders as is required in the course of performing their
duties for LandCARE or the Surviving Corporation and (c) to counsel and other
advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.1, unless (i) such information
becomes known to the public generally through no fault of the Stockholders, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), the Stockholders shall, if possible, give prior written notice
thereof to LandCARE and provide LandCARE with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by any of the
Stockholders of the provisions of this Section 14.1, LandCARE shall be entitled
to an injunction restraining such Stockholders from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting LandCARE from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. In the event the
transactions contemplated by this Agreement are not consummated, Stockholders
shall have none of the above-mentioned restrictions on their ability to
disseminate confidential information with respect to the Company. Each
Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any confidential information of the Other Founding Companies for
any purpose and (ii) upon written request of any Other Founding Company to the
Company, the Company and Stockholders will return all confidential information
pertaining to such Other Founding Company to such Other Founding Company.
14.2 LANDCARE AND NEWCO. LandCARE and Newco recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the Company, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's business.
LandCARE and Newco agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not disclose such
confidential information to any Person for any purpose or reason whatsoever,
except (a) to authorized representatives of the Company, (b) to counsel and
other advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.2, (c) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information is or becomes known to the public generally through no fault of
LandCARE or Newco, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), LandCARE and Newco shall, if
possible, give prior written notice thereof to the Company and the Stockholders
and provide the Company and
-46-
<PAGE>
the Stockholders with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, and (d)
to the public to the extent necessary or advisable in connection with the filing
of the Registration Statement and the IPO and the securities laws applicable
thereto and to the operation of LandCARE as a publicly held entity after the
IPO. In the event of a breach or threatened breach by LandCARE or Newco of the
provisions of this Section 14.2, the Company and the Stockholders shall be
entitled to an injunction restraining LandCARE and Newco from disclosing, in
whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting the Company and the Stockholders from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by LandCARE, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, the trustees of which so agree), for a period of
two years from the Funding and Consummation Date, except pursuant to Section 17
hereof, none of the Stockholders shall sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint, or otherwise dispose of any shares of
LandCARE Stock received by the Stockholders in the Merger. The certificates
evidencing the LandCARE Stock delivered to the Stockholders pursuant to Section
3 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as LandCARE 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
-47-
<PAGE>
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE
DATE SPECIFIED ABOVE.
LandCARE agrees, however, to use reasonable efforts to implement an arrangement
with a nationally recognized investment banking firm pursuant to which such firm
will facilitate sales by the Stockholders beginning after the date one year
after the Funding and Consummation Date; and in the event such an arrangement is
implemented on terms reasonably satisfactory to LandCARE, LandCARE will waive
the foregoing restriction to the extent reasonably necessary to permit the
Stockholders to participate in such arrangement.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
LandCARE Stock to be delivered to the Stockholders pursuant to this Agreement
have not been and will not be registered under the 1933 Act (except as provided
in Section 17 hereof) and therefore may not be resold without compliance with
the 1933 Act. The LandCARE Stock to be acquired by such Stockholders pursuant to
this Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of LandCARE Stock issued
to such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the LandCARE Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the LandCARE Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
LandCARE Stock. The Stockholders party hereto have had an adequate opportunity
to ask questions and receive answers from the officers of LandCARE 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 LandCARE, the plans for the operations of the business
of LandCARE, the business, operations and financial condition of the Founding
Companies other than the Company, and any plans for additional acquisitions and
the like.
-48-
<PAGE>
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.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever LandCARE proposes to register any LandCARE Stock for
its own or others account under the 1933 Act for a public offering, other than
(i) any shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by LandCARE (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, LandCARE shall give each of
the Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, LandCARE shall cause to be included in such registration all of the
LandCARE Stock issued to the Stockholders pursuant to this Agreement (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security which is issued by
LandCARE as) a dividend or other distribution with respect to, or in exchange
for, or in replacement of such LandCARE Stock) which any such Stockholder
requests, provided that LandCARE 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 written opinion of tax counsel to LandCARE or its independent
auditors, jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free organization under Section 351 of the
Code. In addition, if LandCARE is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 17.1 that the number
of shares to be sold by persons other than LandCARE is greater than the number
of such shares which can be offered without adversely affecting the offering,
LandCARE may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by LandCARE after the IPO, such reduction
shall be made first by reducing the number of shares to be sold by persons other
than LandCARE, the Stockholders and the stockholders of the Other Founding
Companies (collectively, the Stockholders and the stockholders of the other
Founding Companies 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.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
LandCARE Stock issued to the Founding Stockholders pursuant to this Agreement
and the Other Agreements which have not been previously registered or sold and
which are not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that LandCARE
file a registration statement under the 1933 Act covering the registration of
the shares of LandCARE Stock issued to the
-49-
<PAGE>
Stockholders pursuant to this Agreement and the Other Agreements (including any
stock issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by LandCARE as) a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such LandCARE Stock) then held by such Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
LandCARE shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any Stockholder, file and use its best efforts to cause
to become effective a registration statement covering all such shares. LandCARE
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep the registration statement relating to such Demand
Registration current and effective for not less than 120 days (or such shorter
period as is required to sell all of the shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of LandCARE's disinterested directors (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for up to a 60 day period after the date on
which LandCARE would otherwise be required to make such filing pursuant to the
foregoing paragraph if such directors determine in good faith that the filing of
such a registration statement or the making of any required disclosure in
connection therewith would have a material adverse effect on LandCARE or
interfere with a transaction in which LandCARE is then engaged or is then
pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration LandCARE has fixed plans to file within 60 days after such request
a registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders'
LandCARE Stock shall be initiated under this Section 17.2 until 90 days after
the effective date of such registration unless LandCARE is no longer proceeding
diligently to effect such registration; provided that LandCARE shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by
LandCARE as a consequence of the exercise of its rights under this Section 17.2,
then the period during which such demand registration may be requested by the
Founding Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever LandCARE is required to register
shares of LandCARE Stock pursuant to Sections 17.1 and 17.2, LandCARE will, as
expeditiously as possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets
-50-
<PAGE>
thereto, LandCARE will furnish a representative of the Stockholders with copies
of all such documents proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that LandCARE shall not be required
to become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of LandCARE Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
LandCARE are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that LandCARE
is required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, LandCARE will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by LandCARE.
-51-
<PAGE>
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, LandCARE
shall indemnify, to the extent permitted by law, each Stockholder and each
Person who controls such Stockholder (an "Indemnified Party") against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) arising out of or resulting from
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or associated term
sheet or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as the same are caused by or contained in or omitted
from any information furnished in writing to LandCARE by such Indemnified Party
expressly for use therein or by such Indemnified Party's failure to deliver a
copy of the registration statement or prospectus or any amendment or supplements
thereto after LandCARE has furnished such Indemnified Party with a sufficient
number of copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to LandCARE in writing such information as is
reasonably requested by LandCARE for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, LandCARE, its
directors and officers and each person who controls LandCARE (within the meaning
of the 1933 Act) against any losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses of investigation) resulting
from any untrue or alleged untrue statement of a material fact or any omission
or alleged omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in information so furnished in writing
by such Stockholder specifically for use in preparing the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.4 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of
-52-
<PAGE>
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, LandCARE
and each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
LandCARE's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of LandCARE
stock to the public without registration, LandCARE agrees to use its reasonable
efforts to:
(i) make and keep public information regarding LandCARE available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of LandCARE under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted LandCARE Common
Stock, furnish to each Stockholder forthwith upon written request a written
statement by LandCARE as to its compliance with the reporting requirements of
Rule 144 (at any time from and after 90 days following the effective date of the
Registration Statement), and of the 1933 Act and the 1934 Act (any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of LandCARE, and such other reports and documents so
filed as a Stockholder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Stockholder to sell any such shares without
registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, LandCARE and Newco 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 will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the Company cooperate with LandCARE on and after the Funding and Consummation
Date in furnishing
-53-
<PAGE>
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.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
LandCARE, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and LandCARE and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and
LandCARE, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the Company shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, LandCARE will pay the fees, expenses and disbursements of
LandCARE 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 LandCARE under this Agreement, including the
fees and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and
any other person or entity retained by LandCARE or by Notre Capital Ventures II,
L.L.C., and the costs of preparing and filing the Registration Statement. Each
Stockholder shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than Transfer Taxes, if
any,
-54-
<PAGE>
imposed by the State of Delaware. Each Stockholder shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or LandCARE, will pay all
taxes due upon receipt of the consideration payable pursuant to Section 3
hereof. The Stockholders acknowledge that the risks of the transactions
contemplated hereby include tax risks, with respect to which the Stockholders
are relying solely on the opinion contemplated by Section 8.12 hereof.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to LandCARE, or Newco, addressed to them at:
LandCARE USA, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II or to the address of the Company set forth below, with copies
to:
Miranda K. Mandel
Neal, Gerber & Eisenberg
Two N. LaSalle Street, 22nd Floor
Chicago, Illinois 60602
-55-
<PAGE>
(c) If to the Company, addressed to it at:
Southern Tree & Landscape Co., Inc.
5701 Old Pineville Rd.
Charlotte NC 28241
Attention: N. David Blakeley
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
-56-
<PAGE>
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of LandCARE, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the LandCARE Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving LandCARE Stock in connection with the Merger and each future
holder of such LandCARE Stock.
-57-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
LANDCARE USA, INC.
By:___________________________
William Murdy
Chief Executive Officer
SOUTHERN TREE ACQUISITION CORP.
By:___________________________
William Fiedler
Vice President
-58-
<PAGE>
SOUTHERN TREE & LANDSCAPE CO., INC.
By:
Name:
Title:
STOCKHOLDERS:
_____________________________________
Southern Shade Tree Co.
Roger S. Braswell, President
_____________________________________
N. David Blakeley
-59-
<PAGE>
SCHEDULE 6.4
None.
-60-
<PAGE>
SCHEDULE 6.5
None.
-61-
<PAGE>
SCHEDULE 6.7
None.
-62-
<PAGE>
SCHEDULE 6.8
None.
-63-
<PAGE>
SCHEDULE 6.9
None.
-64-
<PAGE>
SCHEDULE 6.12
1. The Agreement with D.R. Church is structured as an exchange agreement rather
than as a merger agreement.
2. The Agreements with Desert Care and Arteka Nurseries provide for S
corporation distributions.
3. The Agreements with Four Seasons and D. R. Church exclude a charitable
remainder trust and an ESOP, respectively, from the normal indemnity provisions.
4. The Agreement with Southern Tree provides for the release from individual
guaranties of a non-stockholder who has guaranteed company debt, and requires
Southern to separate a credit facility now cross guaranteed by Southern and an
affiliate.
5. TheAgreement with Desert Care notes that Desert Care has done its accounting
and taxes on a cash basis and provides that LandCARE will indemnify the
Stockholder against up to $450,000 in deferred taxes resulting from Desert
Care's termination of its S corporation election, and provides that the
Stockholder will indemnify Desert Care and LandCARE against deferred income tax
liabilities to the extent they exceed $450,000.
-65-
<PAGE>
SCHEDULE 6.15
None.
-66-
<PAGE>
SCHEDULE 9.12
D. R. Church Landscape Co., Inc. - Bruce A. Church
Desert Care Landscaping, Inc. - Jeff A. Meyer
Ground Control Landscaping, Inc. - Mark S. Yahn
Four Seasons Landscape & Maintenance - James R. Marcus
Trees, Inc. - Linda Benge
Southern Tree and Landscape Companies - Roger Braswell
Arteka Corporation - David Luse
-67-
EXHIBIT 10.9
AGREEMENT AND PLAN OF ORGANIZATION
dated as of March 17, 1998
by and among
LANDCARE USA, INC.
TREES ACQUISITION CORP.
(a subsidiary of LandCARE USA, Inc.)
TREES, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................5
1.3 Certificate of Incorporation, By-laws; Board of Directors and
Officers of Surviving Corporation................................5
1.4 Certain Information With Respect to the Capital Stock of the
Company, LandCARE and Newco......................................6
1.5 Effect of Merger.................................................6
2. CONVERSION OF STOCK....................................................7
2.1 Manner of Conversion.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 Due Organization.................................................9
5.2 Authorization....................................................9
5.3 Capital Stock of the Company....................................10
5.4 Transactions in Capital Stock, Organization Accounting..........10
5.5 No Bonus Shares.................................................10
5.6 Subsidiaries....................................................10
5.7 Predecessor Status; etc.........................................10
5.8 Spin-off by the Company.........................................11
5.9 Financial Statements............................................11
5.10 Liabilities and Obligations.....................................11
5.11 Accounts and Notes Receivable...................................11
5.12 Permits and Intangibles.........................................11
5.13 Environmental Matters...........................................12
5.14 Personal Property...............................................13
5.15 Significant Customers; Material Contracts and Commitments.......13
5.16 Real Property...................................................14
5.17 Insurance.......................................................14
5.18 Compensation; Employment Agreements; Organized Labor Matters....15
-i-
<PAGE>
5.19 Employee Plans..................................................15
5.20 Compliance with ERISA...........................................16
5.21 Conformity with Law; Litigation.................................17
5.22 Taxes...........................................................17
5.23 No Violations; No Consents Required, Etc.......................17
5.24 Absence of Changes..............................................18
5.25 Deposit Accounts; Powers of Attorney............................19
5.26 Validity of Obligations.........................................20
5.27 Relations with Governments......................................20
5.28 Disclosure......................................................20
5.29 [Intentionally Omitted].........................................21
5.30 No Interests In Other Businesses................................21
5.31 Authority; Ownership............................................21
5.32 Preemptive Rights...............................................21
5.33 No Intention to Dispose of LandCARE Stock.......................21
6. REPRESENTATIONS OF LANDCARE AND NEWCO.................................21
6.1 Due Organization................................................21
6.2 Authorization...................................................22
6.3 Capital Stock of LandCARE and Newco.............................22
6.4 Transactions in Capital Stock, Organization Accounting..........22
6.5 Subsidiaries....................................................22
6.6 Financial Statements............................................23
6.7 Liabilities and Obligations.....................................23
6.8 Conformity with Law; Litigation.................................23
6.9 No Violations...................................................23
6.10 Validity of Obligations.........................................24
6.11 LandCARE Stock..................................................24
6.12 Other Agreements; No Side Agreements............................24
6.13 Business; Real Property; Material Agreements....................24
6.14 Taxes...........................................................25
6.15 Absence of Changes..............................................25
6.16 Disclosure......................................................26
7. COVENANTS PRIOR TO CLOSING............................................26
7.1 Access and Cooperation; Due Diligence...........................26
7.2 Conduct of Business Pending Closing.............................27
7.3 Prohibited Activities...........................................28
7.4 No Shop.........................................................29
7.5 Notice to Bargaining Agents.....................................29
7.6 Agreements......................................................30
-ii-
<PAGE>
7.7 Notification of Certain Matters.................................30
7.8 Amendment of Schedules..........................................30
7.9 Cooperation in Preparation of Registration Statement............31
7.10 Final Financial Statements......................................32
7.11 Further Assurances..............................................32
7.12 Authorized Capital..............................................32
7.13 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott-Rodino Act").......................32
7.14 Stockholders of LandCARE........................................32
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......32
8.1 Representations and Warranties; Performance of Obligations......33
8.2 Satisfaction....................................................33
8.3 No Litigation...................................................33
8.4 Opinion of Counsel..............................................34
8.5 Registration Statement..........................................34
8.6 Consents and Approvals..........................................34
8.7 Good Standing Certificates......................................34
8.8 No Material Adverse Change......................................34
8.9 Closing of IPO..................................................34
8.10 Secretary's Certificate.........................................34
8.11 Employment Agreements...........................................35
8.12 Tax Matters.....................................................35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO.............35
9.1 Representations and Warranties; Performance of Obligations......35
9.2 No Litigation...................................................35
9.3 Secretary's Certificate.........................................36
9.4 No Material Adverse Effect......................................36
9.5 Stockholders' Release...........................................36
9.6 Satisfaction....................................................36
9.7 Termination of Related Party Agreements.........................36
9.8 Opinion of Counsel..............................................36
9.9 Consents and Approvals..........................................36
9.10 Good Standing Certificates......................................36
9.11 Registration Statement..........................................37
9.12 Employment Agreements...........................................37
9.13 Closing of IPO..................................................37
9.14 FIRPTA Certificate..............................................37
-iii-
<PAGE>
9.15 Environmental Reviews...........................................37
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING..............37
10.1 Release From Guarantees; Repayment of Certain Obligations.......37
10.2 Preservation of Tax and Accounting Treatment....................37
10.3 Preparation and Filing of Tax Returns...........................38
10.4 Directors.......................................................39
11. INDEMNIFICATION.......................................................39
11.1 General Indemnification by the Stockholders.....................39
11.2 Indemnification by LandCARE.....................................40
11.3 Third Person Claims.............................................40
11.4 Exclusive Remedy................................................42
11.5 Limitations on Indemnification..................................42
12. TERMINATION OF AGREEMENT..............................................42
12.1 Termination.....................................................42
12.2 Liabilities in Event of Termination.............................43
13. NONCOMPETITION........................................................43
13.1 Prohibited Activities...........................................43
13.2 Damages.........................................................44
13.3 Reasonable Restraint............................................44
13.4 Severability; Reformation.......................................45
13.5 Independent Covenant............................................45
13.6 Materiality.....................................................45
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................45
14.1 Stockholders....................................................45
14.2 LandCARE and Newco..............................................46
14.3 Damages.........................................................46
14.4 Survival........................................................47
15. TRANSFER RESTRICTIONS.................................................47
15.1 Transfer Restrictions...........................................47
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................47
16.1 Compliance with Law.............................................47
16.2 Economic Risk; Sophistication...................................48
-iv-
<PAGE>
17. REGISTRATION RIGHTS...................................................48
17.1 Piggyback Registration Rights...................................48
17.2 Demand Registration Rights......................................49
17.3 Registration Procedures.........................................50
17.4 Indemnification.................................................51
17.5 Underwriting Agreement..........................................52
17.6 Rule 144 Reporting..............................................52
18. GENERAL...............................................................53
18.1 Cooperation.....................................................53
18.2 Successors and Assigns..........................................53
18.3 Entire Agreement................................................53
18.4 Counterparts....................................................53
18.5 Brokers and Agents..............................................54
18.6 Expenses........................................................54
18.7 Notices.........................................................54
18.8 Governing Law...................................................55
18.9 Survival of Representations and Warranties......................55
18.10 Exercise of Rights and Remedies.................................55
18.11 Time............................................................56
18.12 Reformation and Severability....................................56
18.13 Remedies Cumulative.............................................56
18.14 Captions........................................................56
18.15 Amendments and Waivers..........................................56
-v-
<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Benefit Plans (the Benefit Plans Schedule)
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.30 No Interests in Other Businesses
5.31 Authority; Ownership
6.4 Capital Stock etc.
6.5 Subsidiaries
6.7 Liabilities
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 OtherAgreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
March 17, 1998, by and among LandCARE USA, Inc., a Delaware corporation
("LandCARE"), Trees Acquisition Corp., a Delaware corporation ("Newco"), Trees,
Inc., a Nevada corporation (the "Company"), and the stockholders identified on
the signature pages hereof (the "Stockholders"). The Stockholders are all the
stockholders of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on or about
March 6, 1998 solely for the purpose of completing the transactions set
forth herein, and is a wholly-owned subsidiary of LandCARE, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective Stockholders that Newco
merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation (as defined below);
WHEREAS, LandCARE is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional landscaping and related
services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "LandCARE Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of LandCARE, each of the Other Founding Companies and each of
the subsidiaries of LandCARE that are parties to the Other Agreements have
approved and adopted the LandCARE Plan of Organization as an integrated
plan pursuant to which the Stockholders and the stockholders of each of
the Other Founding Companies will transfer the capital stock of each of
the Founding Companies (as defined herein) to LandCARE and the
stockholders of each of the Other Founding Companies will acquire the
stock of LandCARE (but not cash or other property) as a tax-free transfer
of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this
-1-
<PAGE>
Agreement (which is subject to the terms and conditions herein set forth),
as part of the LandCARE Plan of Organization in order to transfer the
capital stock of the Company to LandCARE;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by LandCARE prior to the Funding
and Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the March 12, 1998 draft of the
Registration Statement, and any corrections thereto and supplemental information
delivered by LandCARE to the Company for delivery to the Stockholders prior to
the time this Agreement is delivered to LandCARE.
-2-
<PAGE>
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
(a) Arteka Corporation, a Minnesota corporation, as well as its
affiliates Arteka Natural Green Corporation, a Minnesota corporation and
Arteka Nurseries, Inc., a Minnesota corporation;
(b) D. R. Church Landscape Co., Inc., an Illinois corporation;
(c) Desert Care Landscaping, Inc., an Arizona corporation;
(d) Four Seasons Landscape and Maintenance, Inc., a California
corporation;
(e) Ground Control Landscaping, Inc., a Florida corporation;
(f) Southern Tree & Landscape Co., Inc., a North Carolina
corporation; and
(g) Trees, Inc., a Nevada corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of LandCARE Stock pursuant to the
Registration Statement described herein.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"LandCARE" has the meaning set forth in the first paragraph of this
Agreement.
"LandCARE Charter Documents" has the meaning set forth in Section 6.1.
"LandCARE Stock" means the common stock, par value $.01 per share, of
LandCARE.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
-3-
<PAGE>
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by LandCARE and the Underwriters
of the public offering price of the shares of LandCARE Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of LandCARE Stock to be issued
in the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"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 (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Nevada.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
-4-
<PAGE>
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to LandCARE at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, the Company shall be the
surviving party in the Merger and the Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the Merger,
such By-laws shall be the By-laws of the Surviving Corporation until they shall
thereafter be duly amended (and such Bylaws shall be amended from time to time,
if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that William
Murdy or another officer of LandCARE shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the Company
shall be increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
-5-
<PAGE>
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger William Fiedler and another officer of LandCARE shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
LANDCARE AND NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, LandCARE and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of LandCARE will consist of 100,000,000 shares of
LandCARE Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, 5,000,000 shares of preferred stock, $.01
par value, of which no shares will be issued and outstanding, and 3,000,000
shares of Restricted Voting Common Stock, $.01 par value (the "Restricted Common
Stock"), all of which will be issued and outstanding except as otherwise set
forth in the Registration Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred (100)
shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
-6-
<PAGE>
they were of the Company and Newco; and the title to any real estate, or
interest therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving Corporation, and may be enforced against such Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) LandCARE Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
deemed to represent (1) the right to receive the number of shares of LandCARE
Stock set forth on Annex I hereto with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to such
holder;
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of LandCARE Stock or
other consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of LandCARE, automatically be converted into one
fully paid and non-assessable share of common stock of the Surviving Corporation
which shall constitute all of the issued and outstanding shares of common stock
of the Surviving Corporation immediately after the Effective Time of the Merger.
All LandCARE Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
LandCARE Stock by reason of the provisions of the Certificate of Incorporation
of LandCARE or as otherwise provided by the Delaware GCL. All LandCARE Stock
received by the Stockholders shall be issued and delivered to the Stockholders
free and clear of any
-7-
<PAGE>
liens, claims or encumbrances of any kind or nature. All voting rights of such
LandCARE 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. At the Effective Time of the Merger, LandCARE shall
have no class of capital stock issued and outstanding other than the LandCARE
Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of LandCARE Stock and the amounts of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to LandCARE at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
Stockholders, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholders' expense,
affixed and canceled. The Stockholders agree promptly to cure any deficiencies
with respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to LandCARE for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
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 Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and (z) the closing with respect to the IPO shall
occur and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as 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 the parties if (a)
the underwriting agreement in respect of the IPO is terminated pursuant to the
terms of such underwriting agreement, or (b) the
-8-
<PAGE>
conditions set forth in Sections 8.5 and 8.9 hereof are not being satisfied as
of the Funding and Consummation Date. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date.
Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders jointly and severally represents and warrants
that all of the representations and warranties in this Section 5 are true at the
date of this Agreement and, subject to Section 7.8 hereof, shall be true at the
time of Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
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 5.22, and the representations
and warranties set forth in Section 5.31 hereof shall survive perpetually. For
purposes of this Section 5, the term "Company" shall mean and refer to the
Company and all of its Subsidiaries, if any. For purposes of this Section 5, the
phrase "knowledge of the Stockholders" shall mean the actual knowledge of the
Stockholders after due inquiry of the appropriate management personnel employed
by the Company.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
5.2 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 this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated
-9-
<PAGE>
hereby in all respects, and copies of all such resolutions, certified by the
Secretary or an Assistant Secretary of the Company as being in full force and
effect on the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and 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 Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the LandCARE Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the LandCARE Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
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 all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
-10-
<PAGE>
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the balance sheets of the Company as of the dates shown thereon and
the related statements of operations, stockholder's equity and cash flows for
the periods shown thereon, together with the related notes and schedules (such
balance sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules being referred to herein as the
"Financial Statements"). The Financial Statements have been prepared from the
books and records of the Company as of the dates and for the periods covered
thereby. The books of account of the Company have been kept accurately in the
ordinary course of business, the transactions recorded therein represent bona
fide transactions, and the revenues, expenses, assets and liabilities of the
Company have been properly recorded therein all material respects.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and 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 and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
knowledge of the Stockholders, except as set forth on Schedule 5.10, since the
Balance Sheet Date the Company has not incurred any material liabilities of any
kind, character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to LandCARE on Schedule 5.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed, a good faith and
reasonable estimate of the maximum amount which the Company reasonably expects
will be payable and the amount, if any, accrued or reserved for each such
potential liability on the Company's Financial Statements; in the case of any
such liability for which no estimate has been provided, the estimate for
purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list 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, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material
-11-
<PAGE>
Adverse Effect on the Company's business, and the Company has delivered to
LandCARE an accurate list and summary description (which is set forth on
Schedule 5.12) of all such Licenses, and of any trademarks, trade names,
patents, patent applications and copyrights owned or held by the Company or by
any of its employees if used or held for use by the Company in the conduct of
its business (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of environmental permits and other environmental approvals is set forth on
Schedule 5.13). At or prior to the Closing, all such trademarks, trade names,
patents, patent applications, copyrights and other intellectual property owned
by any employees of the Company will be assigned or licensed to the Company for
no additional consideration. To the knowledge of the Stockholders, the Licenses
and other rights listed on Schedules 5.12 and 5.13 are valid, and the Company
has not received any notice that any Person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in the Licenses and other rights listed on Schedules
5.12 and 5.13 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect on the
Company. Except as specifically provided in Schedule 5.12, 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 or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees 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,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (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 Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders, there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could reasonably be expected to lead to any claim against the Company, LandCARE
or Newco 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
-12-
<PAGE>
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Resource Conservation and Recovery Act, the Hazardous Materials
Transportation Act or comparable state or local statutes or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to LandCARE an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the Company included in "property" or "plant, property and
equipment" or any similar category on the balance sheet of the Company as of the
Balance Sheet Date, (y) all other tangible personal property owned by the
Company with an individual fair market value (in the reasonable judgment of the
Stockholders; it being understood that the Stockholders are not obtaining
appraisals of any such property in connection with the preparation of Schedule
5.14) in excess of $25,000 (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date and (z) all material leases and agreements in
respect of personal property, including, in the case of each of (x), (y) and
(z), (1) true, complete and correct copies of all such leases and (2) an
indication as to which assets are currently owned, or were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as
set forth on Schedule 5.14, (i) all material 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 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted and (iii) all leases and agreements included on Schedule 5.14
are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.15) of all customers (persons or entities) representing 1% or more of
the Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 25
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, 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 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to LandCARE. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the
-13-
<PAGE>
Company during any 12-month period. All of the Material Contracts are in full
force and effect and constitute valid and binding agreements of the parties (and
their successors) thereto in accordance with their respective terms.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in substantially the form of Annex VI hereto (or with terms substantially
similar to those of Annex VI) at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affilliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in
substantially the form of Annex VI hereto (or with terms substantially similar
to those of Annex VI) will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good and insurable title to any real
property owned by it that is not shown on Schedule 5.16 as property intended to
be sold or distributed prior to the Closing Date, subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to LandCARE (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the Company,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All
-14-
<PAGE>
of such insurance policies are currently in full force and effect. Since January
1, 1995, no insurance carried by the Company has been canceled by the insurer
and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to LandCARE an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the Company,
listing all employment agreements with such officers, directors and key
employees and the rate of compensation (and the portions thereof attributable to
salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided
to LandCARE true, complete and correct copies of any employment agreements for
persons listed on Schedule 5.18. Since the Balance Sheet Date, there have been
no material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not 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) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, 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.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to LandCARE an
accurate schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all
employee benefit plans of the Company, including all employment agreements and
other agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule. Except as set forth on the Benefit Plans
Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions of employment of any of the Company's or any
Subsidiary's employees.
-15-
<PAGE>
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule 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. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited to, any
liability to any multiemployer plan or the PBGC under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty, or being subject to
any statutory lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other than the
Company
-16-
<PAGE>
that is, or at any time was, a member of a "controlled group" (as defined in
Section 412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the knowledge of the Stockholders,
there is no basis for any such claim, action, suit or proceeding. The Company
has conducted and is now conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations, including all such orders and other governmental
approvals set forth on Schedules 5.12 and 5.13, except where any such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against it for federal, state
and other Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any claim for
Taxes, whether pending or threatened, has been received. All Tax due from the
Company for any period ended before the date hereof, including interest and
penalties (whether or not shown on any Return) has been paid. The amounts shown
as accruals for taxes on the Company Financial Statements are sufficient for the
payment of all Taxes (including penalties and interest) for all periods ended on
or before that date. Copies of (i) any tax examinations, (ii) extensions of
statutory limitations and (iii) the federal and local income tax returns and
franchise tax returns of the Company for their last three (3) fiscal years, or
such shorter period of time as any of them shall have existed, are attached
hereto as Schedule 5.22 or have otherwise been delivered to LandCARE. The
Company has disclosed to LandCARE when its taxable year ends. The Company uses
the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated group. Except as
described on Schedule 5.22, the Company has not received, been denied, or
applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other
-17-
<PAGE>
party thereto, is in default under any lease, instrument, agreement, license, or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16 (the "Material
Documents") in any manner that could result in a Material Adverse Effect; and,
except as set forth in Schedule 5.23, (a) the rights and benefits of the Company
under the Material Documents will not be materially 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 material violation or
breach of 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
5.23, 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
material right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the Company, LandCARE or
Newco 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, LandCARE,
Newco or any Other Founding Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty 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 by
the Company 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 sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including, without
limitation, the Stockholders and their Affiliates;
-18-
<PAGE>
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii)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;
(ix) 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;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii)any contract entered into or commitment incurred involving any
liability or commitment to make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 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 and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
LandCARE an accurate schedule (which is set forth on Schedule 5.25) as of the
date of this 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;
-19-
<PAGE>
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of LandCARE utilized in
connection with the IPO, the Stockholders become aware of any fact or
circumstance which would affect the accuracy of a representation or warranty of
the Stockholders in this Agreement in any material respect, the Stockholders
shall immediately give notice of such fact or circumstance to LandCARE. Subject
to the provisions of Section 7.8, such notification shall not relieve either the
Company or the Stockholders of their respective obligations under this
Agreement.
(b) 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 the 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; (ii)
that neither LandCARE or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company, the
Stockholders or any other person affiliated or associated with the Company for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or to occur at all; and (iii) that the decision of
Stockholders to enter into this Agreement, or to vote in favor of or consent to
the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to LandCARE or the prospective IPO.
Notwithstanding the foregoing, LandCARE
-20-
<PAGE>
has agreed and herein acknowledges its agreement to use its reasonable efforts
to consummate the LandCARE Plan of Organization and IPO as contemplated hereby.
5.29 [INTENTIONALLY OMITTED]
5.30 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.30, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.31 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
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.32 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.
5.33 NO INTENTION TO DISPOSE OF LANDCARE STOCK. No Stockholder is under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of LandCARE Stock to be received as described in Section 3.1 of this
Agreement.
6. REPRESENTATIONS OF LANDCARE AND NEWCO
LandCARE and Newco jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and, subject to Section 7.8 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 twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 6.14
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 6.14.
6.1 DUE ORGANIZATION. LandCARE and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. LandCARE and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete
-21-
<PAGE>
and correct copies of the Certificate of Incorporation and By-laws of LandCARE
(the "LandCARE Charter Documents") have been or will be filed as exhibits to the
Registration Statement, and copies thereof and copies of the Certificate of
Incorporation and Bylaws of Newco will be provided to the Stockholders promptly
upon request.
6.2 AUTHORIZATION. (i) The respective representatives of LandCARE and
Newco executing this Agreement have the authority to enter into and bind
LandCARE and Newco to the terms of this Agreement and (ii) LandCARE and Newco
have the full legal right, power and authority to enter into this Agreement and
consummate the Merger. All corporate acts and other proceedings required to have
been taken by LandCARE and Newco to authorize the execution, delivery and
performance of this Agreement and the consummation of the Merger have been duly
and properly taken.
6.3 CAPITAL STOCK OF LANDCARE AND NEWCO. The authorized capital stock of
LandCARE and Newco is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of Newco are owned
by LandCARE. All of the issued and outstanding shares of the capital stock of
LandCARE and Newco have been duly authorized and validly issued, are fully paid
and nonassessable, and further, such shares were offered, issued, sold and
delivered by LandCARE and Newco in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such shares
were issued in violation of the preemptive rights of any past or present
stockholder of LandCARE or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
LandCARE or Newco to issue any of their respective authorized but unissued
capital stock; and (ii) neither LandCARE nor Newco has any 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. Complete and accurate copies of all stock
option or stock purchase plans and a list of all outstanding options, warrants
or other rights to acquire shares of the stock of LandCARE will be provided to
the Stockholders promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. LandCARE has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other newly incorporated Subsidiaries that have conducted
no business and have been created solely to effectuate the business of LandCARE.
Except as set forth in the preceding sentence or set forth on Schedule 6.5
hereto, neither LandCARE nor any Subsidiary of LandCARE presently owns, of
record or beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither LandCARE nor Newco,
directly or indirectly, is a participant in any joint venture, partnership or
other non-corporate entity.
-22-
<PAGE>
6.6 FINANCIAL STATEMENTS. The historical financial statements of LandCARE
included in the Draft Registration Statement (the "LandCARE Financial
Statements") have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the period indicated (except
as noted thereon), and present fairly in all material respects the financial
position of LandCARE as of the date and for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither LandCARE nor any
Subsidiary of LandCARE has any material liabilities, contingent or otherwise,
except as set forth in or contemplated by this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither LandCARE nor
any Subsidiary of LandCARE is in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
any of them which would have a Material Adverse Effect, (b) there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
LandCARE or Newco, threatened against or affecting, LandCARE or any Subsidiary
of LandCARE, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any of them, and (c) no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received by LandCARE or Newco. LandCARE and its Subsidiaries have conducted and
are conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. LandCARE is not in violation of any LandCARE Charter
Document, and no Subsidiary of LandCARE is in violation of its Certificate of
Incorporation or Bylaws. None of LandCARE, Newco, or, to the knowledge of
LandCARE and Newco, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit to which LandCARE or any Subsidiary of
LandCARE is a party, or by which LandCARE or any Subsidiary of LandCARE, or any
of their respective properties, are bound (collectively, the "LandCARE
Documents"); and (a) the rights and benefits of LandCARE and any Subsidiary of
LandCARE under the LandCARE Documents will not be adversely affected by the
transactions contemplated hereby and (b) the execution and delivery of this
Agreement by LandCARE and Newco and the performance of their obligations
hereunder do not, and the consummation of the transactions contemplated hereby
and compliance with the terms hereof will not, conflict with, or result in any
violation or default (with or without notice or lapse of time, or both), under
or give rise to a right of termination, cancellation, or acceleration of any
obligation or to loss of a material benefit under, or result in the creation of
any lien upon any of the assets of LandCARE or any Subsidiary of LandCARE under,
any provision of (i) the Certificate of Incorporation or Bylaws of LandCARE or
the comparable governing instruments of any Subsidiary of LandCARE,
-23-
<PAGE>
(ii) any note, bond, mortgage, indenture or deed of trust or any license, lease,
contract, commitment, agreement or arrangement to which LandCARE and any
Subsidiary of LandCARE is a party or by which any of their respective properties
or assets are bound or (iii) any judgment, order, decree or law, ordinance, rule
or regulation, applicable to LandCARE or any Subsidiary of LandCARE or their
respective properties or assets. The execution of this Agreement and the Other
Agreements and the performance of the obligations hereunder and thereunder and
the consummation of the transactions contemplated by the LandCARE Plan of
Organization will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the LandCARE Documents or the
LandCARE Charter Documents. Except as contemplated hereby or described in the
Registration Statement or on Schedule 6.9 hereto, none of the LandCARE 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 by the
LandCARE Plan of Organization in order to remain in full force and effect and
consummation of the transactions contemplated thereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by LandCARE and Newco and the performance of the transactions contemplated
herein have been duly and validly authorized by the respective Boards of
Directors of LandCARE and Newco and this Agreement has been duly and validly
authorized by all necessary corporate action and is a legal, valid and binding
obligation of LandCARE and Newco.
6.11 LANDCARE STOCK. At the time of issuance thereof and delivery to the
Stockholders, the LandCARE Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of LandCARE,
fully paid and nonassessable, and with the exception of restrictions upon resale
set forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
LandCARE Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. Except as set forth above, the LandCARE Stock
issued and delivered to the Stockholders shall at the time of such issuance and
delivery be free and clear of any liens, security interests, claims or
encumbrances of any kind or character. The shares of LandCARE Stock to be issued
to the Stockholders pursuant to this Agreement will not be registered under the
1933 Act except as provided in Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except as described on Schedule
6.12 hereto, each of the Other Agreements is substantially similar to this
Agreement. Neither LandCARE nor Newco has entered or will enter into any
agreement with any of the Other Founding Companies or any of the stockholders of
the Other Founding Companies other than the Other Agreements and the agreements
contemplated by each of the Other Agreements, including the employment
agreements and leases referred to herein or entered into in connection with the
transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. LandCARE was formed in
October 1997 and has conducted only limited operations since that time. Neither
LandCARE nor any
-24-
<PAGE>
Subsidiary thereof has conducted any material business since the date of its
inception, except in connection with this Agreement, the Other Agreements and
the IPO. Except as described in the Draft Registration Statement, neither
LandCARE nor any Subsidiary of LandCARE owns or has at any time owned any real
property or any material personal property or is a party to any other agreement
other than the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES.LandCARE and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against LandCARE or any Subsidiary
thereof for federal, state and other Taxes (including penalties and interest)
for any such period and no notice of any claim for Taxes, whether pending or
threatened, has been received. All Taxes which LandCARE or any Subsidiary of
LandCARE has been required to collect or withhold have been duly and timely
collected and withheld and have been set aside in accounts for such purposes, or
have been duly and timely paid to the proper governmental authority. All Tax,
including interest and penalties (whether or not shown on any tax return) owed
by LandCARE, any member of an affiliated or consolidated group which includes or
included LandCARE, or with respect to any payment made or deemed made by
LandCARE herein has been paid. The amounts shown as accruals for taxes on
LandCARE Financial Statements are sufficient for the payment of all taxes of the
kinds indicated (including penalties and interest) for all fiscal periods ended
on or before that date. Neither LandCARE nor any Subsidiary thereof has entered
into any tax sharing agreement or similar arrangement. Neither LandCARE nor any
Subsidiary thereof is an investment company as defined in Section 351(e)(1) of
the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of LandCARE or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of LandCARE
or Newco;
(iii) any change in the authorized capital of LandCARE or Newco or
their outstanding securities or any change in their 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 LandCARE or Newco;
-25-
<PAGE>
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of LandCARE or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to LandCARE or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of LandCARE or any Subsidiary thereof or requiring consent of any party
to the transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of LandCARE or
any Subsidiary of LandCARE;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which LandCARE or any Subsidiary of
LandCARE is a party;
(x) any transaction by LandCARE or any Subsidiary of LandCARE
outside the ordinary course of its business;
(xi) any other distribution of property or assets by LandCARE or any
Subsidiary of LandCARE other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with the representations and warranties of
LandCARE and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
LandCARE by the Stockholders, the offering and issuance of shares of LandCARE
Stock to the Stockholders and to the stockholders of the Other Founding
Companies pursuant to this Agreement and to the Other Agreements have been made
in compliance with all applicable federal and state securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 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 LandCARE access to all of the
Company's sites, properties, books and records and will furnish LandCARE with
such additional financial and operating data and other information as to
-26-
<PAGE>
the business and properties of the Company as LandCARE may from time to time
reasonably request. The Company will cooperate with LandCARE and its
representatives, auditors and counsel in the preparation of any documents or
other materials which may be required in connection with any documents or
materials required by this Agreement. LandCARE, Newco, the Stockholders and the
Company will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to the Other Founding Companies as confidential in accordance with
the provisions of Section 14 hereof. In addition, LandCARE will cause each of
the Other Founding Companies to enter into a provision similar to this Section
7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, LandCARE will afford to the officers and authorized representatives of the
Company access to all of LandCARE's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the business and properties of
LandCARE and Newco as the Company may from time to time reasonably request.
LandCARE and Newco will cooperate with the Company, its representatives,
auditors and counsel in the preparation of any documents or other material which
may be required in connection with any documents or materials required by this
Agreement. The Company will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to 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 all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
-27-
<PAGE>
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar governmental
authorities applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
LandCARE (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of LandCARE 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.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of LandCARE, which consent will not be
unreasonably withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) 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 in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(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
$25,000 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 and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15
hereto;
-28-
<PAGE>
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the 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 for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than LandCARE, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 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 LandCARE on Schedule 7.5 with proof that any required notice has been
sent.
-29-
<PAGE>
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by LandCARE or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to LandCARE. Such termination agreements are listed on Schedule 7.6
and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to LandCARE 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 failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. LandCARE and Newco 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 LandCARE or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of LandCARE or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless LandCARE
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 LandCARE or Newco 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
-30-
<PAGE>
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 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, LandCARE shall give the Company notice promptly
after it has knowledge thereof. If LandCARE and a majority of the Founding
Companies (other than the Founding Company seeking to amend or supplement a
Schedule) consent to such amendment or supplement, which consent shall have been
deemed given by LandCARE or any Founding Company if no response is received
within 24 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 12.1(iv) hereof. In the event that the Company
seeks to amend or supplement a Schedule pursuant to this Section 7.8, and
LandCARE 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 12.1(i) hereof. In the event that LandCARE or
Newco seeks to amend or supplement a Schedule pursuant to this Section 7.8 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 12.1(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 7.8. No amendment of or supplement to a Schedule shall be made
later than 24 hours prior to the anticipated effectiveness of the Registration
Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to LandCARE and the
Underwriters all of the information concerning the Company and the Stockholders
reasonably requested by LandCARE or the Underwriters for inclusion in, and will
cooperate with LandCARE and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements of the Company, 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 LandCARE if at any time during the period in which a prospectus relating
to the IPO is required to be delivered under the Securities 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. 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 under
which they were made, not misleading.
-31-
<PAGE>
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and LandCARE 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 ending not later
than 15 days prior to the Funding and Consummation Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
Company for all such fiscal quarters, 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. Such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein). Except as noted in such financial statements, all of
such financial statements will present fairly the results of operations of the
Company for the periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date,
LandCARE 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 LandCARE Stock and any changes necessary or advisable in order to
permit the delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by LandCARE and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by LandCARE. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
7.14 STOCKHOLDERS OF LANDCARE. Promptly after a request by the Company,
LandCARE will deliver to the Company a list of the stockholders of LandCARE as
of the date of this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
-32-
<PAGE>
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions.
Subject to Section 12 hereof, 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 8.1, 8.5, 8.8, 8.9 and
8.12. As of the Closing Date or subject to Section 12 hereof, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been satisfied,
the Stockholders (acting in unison) shall have the right to terminate this
Agreement, or in the alternative, waive any condition not so satisfied. Any act
or action of the Stockholders in consummating the Closing or delivering
certificates representing Company Stock as of the Funding and Consummation Date
shall constitute a waiver of any conditions not so satisfied. However, no such
waiver shall be deemed to affect the survival of the representations and
warranties of LandCARE and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of LandCARE and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by LandCARE and Newco 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, respectively, and
signed by the President or any Vice President of LandCARE shall have been
delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform LandCARE in writing prior to the effectiveness of the
Registration Statement of the existence of an untrue statement of a material
fact or the omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the
-33-
<PAGE>
Company as a result of which the management of the Company deems it inadvisable
to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for LandCARE, dated the Closing Date, in the form annexed hereto as
Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of LandCARE Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger 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 Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. LandCARE and Newco each 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 LandCARE or Newco is authorized to do business,
showing that each of LandCARE and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
LandCARE and Newco, respectively, for all periods prior to the Closing have been
filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to LandCARE or Newco which has had or is reasonably likely
to have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of LandCARE and of Newco, certifying the truth and correctness of attached
copies of the LandCARE's and Newco's respective Certificates of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the boards of directors and, if required, the Stockholders of
LandCARE and Newco approving LandCARE's and Newco's entering into this Agreement
and the consummation of the transactions contemplated hereby.
-34-
<PAGE>
8.11 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
under the caption relating to the Company shall have been afforded the
opportunity to enter into an Employment Agreement substantially in the form of
Annex V hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the LandCARE Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for LandCARE Stock (but not cash or other property) pursuant to the
LandCARE Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF LANDCARE AND NEWCO
The obligations of LandCARE and Newco 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 LandCARE and
Newco 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 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, LandCARE and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, 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; 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 shall
have delivered to LandCARE certificates dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of LandCARE as a result of which the
management of LandCARE (acting in good faith) deems it inadvisable to proceed
with the transactions hereunder.
-35-
<PAGE>
9.3 SECRETARY'S CERTIFICATE. LandCARE 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.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to
LandCARE an instrument dated the Closing Date which shall be effective only upon
the occurrence of the Funding and Consummation 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 5.10 and 5.15 as being claims of or
obligations to the Stockholders, and (y) continuing obligations to Stockholders
relating to their employment by the Company. In the event that the Funding and
Consummation Date does not occur, then the release instrument referenced herein
shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to LandCARE.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by LandCARE, all existing agreements between
the Company and the Stockholders (and entities controlled by the Stockholders)
other than real property leases shall have been canceled effective prior to or
as of the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. LandCARE shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
LandCARE a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the
-36-
<PAGE>
appropriate governmental authority in the Company's state of incorporation and,
unless waived by LandCARE, in each state in which the Company is authorized to
do business, showing the Company is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
the Company for all periods prior to the Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person or persons listed on Schedule 9.12
each shall enter into an employment agreement substantially in the form of Annex
V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the LandCARE Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to LandCARE
a certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. LandCARE shall have received a report from an
independent environmental consultant retained by LandCARE at its expense to
conduct an environmental review of the Company's owned and leased sites, and
such report shall not disclose any environmental condition that, in LandCARE's
reasonable judgment, either (i) could be expected to have a Material Adverse
Effect on the Company, or (ii) poses any risk of a substantial liability to the
Company.
10. COVENANTS OF LANDCARE AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. LandCARE
shall use reasonable efforts, including offering its own guarantee, to have the
Stockholders and their spouses released from any and all guarantees of the
Company's indebtedness identified on Schedule 10.1. In the event that LandCARE
cannot obtain such releases from the lenders of any such guaranteed indebtedness
identified on Schedule 10.1 on or prior to 120 days subsequent to the Funding
and Consummation Date, LandCARE shall promptly pay off or otherwise refinance or
retire such indebtedness. LandCARE shall indemnify the Stockholders against, and
shall promptly reimburse the Stockholders for, any amounts which the
Stockholders are obligated to pay under any such guarantees listed on Schedule
10.1, and shall be subrogated to any rights of the Stockholders accruing as a
result of any such payments by the Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, LandCARE shall
-37-
<PAGE>
not and shall not permit any of its subsidiaries to undertake any act that would
jeopardize the tax-free status of the organization, including without
limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the LandCARE Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit LandCARE to review all such
Tax Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) LandCARE shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
(iv) Each of the Company, Newco, LandCARE and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
-38-
<PAGE>
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of LandCARE, as and to
the extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, LandCARE and Newco each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they jointly and severally will
indemnify, defend, protect and hold harmless LandCARE, Newco, and, subsequent to
the Funding and Consummation Date, the Company and the Surviving Corporation at
all times, from and after the date of this Agreement until the Expiration Date
(provided that for purposes of Section 11.1(iii) below, the Expiration Date
shall be the date on which the applicable statute of limitations expires), from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by LandCARE, Newco, the Company or the Surviving Corporation as a
result of or arising from (i) any breach of the representations and warranties
of the Stockholders or the Company set forth herein or on the schedules or
certificates delivered in connection herewith, (ii) any breach of any agreement
on the part of the Stockholders or the Company under this Agreement, or (iii)
any liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement of a material fact relating to the Company or the Stockholders, and
provided to LandCARE or its counsel by the Company or the Stockholders (but in
the case of the Stockholders, only if such statement was provided in writing)
which is contained in the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
such indemnity shall not inure to the benefit of LandCARE, Newco, the Company or
the Surviving Corporation 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 Company or the Stockholders provided, in
writing, corrected information to LandCARE for inclusion in the final
prospectus, and such information was not so included or the final prospectus was
not properly delivered, and provided further, that no Stockholder shall be
liable for any indemnification obligation pursuant to this Section 11.1 to the
extent attributable to a breach of any representation, warranty or agreement
made herein individually by any other Stockholder.
LandCARE and Newco acknowledge and agree that other than the
representations and warranties of the Company or the Stockholders specifically
contained in this Agreement, there are
-39-
<PAGE>
no representations or warranties of the Company or the Stockholders, either
express or implied, with respect to the transactions contemplated by this
Agreement, the Company or its assets, liabilities and business.
LandCARE and Newco further acknowledge and agree that, should the Funding
and Consummation Date occur, their sole and exclusive remedy with respect to any
and all claims relating to this Agreement and the transactions contemplated in
this Agreement, shall be pursuant to the indemnification provisions set forth in
this Section 11. LandCARE and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY LANDCARE. LandCARE covenants and agrees that it
will indemnify, defend, protect and hold harmless the Stockholders and, prior to
the Funding and Consummation Date, the Company, at all times from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by LandCARE or Newco
of their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
LandCARE or Newco under this Agreement, (iii) any liabilities which the
Stockholders may incur due to LandCARE's or Newco's failure to be responsible
for the liabilities and obligations of the Company as provided in Section 1
hereof (except to the extent that LandCARE or Newco has claims against the
Stockholders by reason of such liabilities); or (iv) 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 LandCARE, Newco 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
LandCARE or Newco or any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
-40-
<PAGE>
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by Indemnifying Party, provided that if counsel to the
Indemnifying Party shall have a conflict of interest that prevents counsel for
the Indemnifying Party from representing 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. After the Indemnifying Party has
notified the Indemnified Party of its intention to undertake to defend or settle
any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
If the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
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
-41-
<PAGE>
the Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall 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
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. LandCARE, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the LandCARE Stock delivered to Stockholders (calculated
as provided in this Section 11.5) or (b) $50,000 (the "Indemnification
Threshold").
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the LandCARE Stock received by a Stockholder, LandCARE
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such Stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
-42-
<PAGE>
(i) by mutual consent of the boards of directors of LandCARE and the
Company;
(ii) by the Company or by LandCARE if the transactions contemplated
by this Agreement to take place at the Closing shall not have been consummated
by September 30, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party (including, in the case of the
Company, any such failure of the Stockholders) 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 Closing Date;
(iii) by the Company or by LandCARE if a material breach or default
shall be made by the other party (including, in the case of LandCARE's right to
terminate, any such material breach or default by the Stockholders) in the
observance or in the due and timely performance of any of the covenants or
agreements contained herein, and the curing of such default shall not have been
made on or before the Funding and Consummation Date, or by the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or waived as of
the Closing Date or the Funding and Consummation Date, as applicable, or by
LandCARE, if the conditions set forth in Section 9 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation Date,
as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if (a) the underwriting agreement relating to
the IPO is terminated in accordance with its terms, or (b) the conditions set
forth in Sections 8.5 and 8.9 hereof are not being satisfied as of the Funding
and Consummation Date.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 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.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will 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 or Persons:
-43-
<PAGE>
(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
landscaping business or operation or related services business in direct
competition with LandCARE or any of the Subsidiaries thereof, within 100 miles
of where the Company conducted business prior to the Funding and Consummation
Date or within the one-year period prior to the Funding and Consummation Date
(the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of LandCARE or any Subsidiary thereof for the purpose or
with the intent of enticing such employee away from or out of the employ of
LandCARE or any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within one-year prior to the Funding and Consummation Date, a customer of
LandCARE or any Subsidiary thereof, of the Company or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with LandCARE within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the landscaping
business or any related services business, which candidate, to the actual
knowledge of such Stockholder after due inquiry, was called upon by LandCARE or
any Subsidiary thereof or for which, to the actual knowledge of such Stockholder
after due inquiry, LandCARE or any Subsidiary thereof made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) except on behalf of LandCARE or any Subsidiary, disclose
customers, whether in existence or proposed, of the Company to any Person, for
any reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment 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.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
LandCARE as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to LandCARE for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by LandCARE in the event of breach by such Stockholder,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and
-44-
<PAGE>
business of LandCARE and the Subsidiaries thereof on the date of the execution
of this Agreement and the current plans of LandCARE and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against LandCARE or any subsidiary thereof, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by LandCARE of
such covenants. The covenants contained in Section 13 shall not be affected by
any breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or LandCARE, such as operational policies, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the Other
Founding Companies' and/or LandCARE's respective businesses. The Stockholders
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of LandCARE, (b) following
the Closing, such information may be disclosed by the Stockholders as is
required in the course of performing their duties for LandCARE or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order of
any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Stockholders shall,
if possible, give prior written notice thereof to LandCARE and provide LandCARE
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, LandCARE shall be entitled to an injunction
-45-
<PAGE>
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
LandCARE from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. In the event the transactions
contemplated by this Agreement are not consummated, Stockholders shall have none
of the above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company. Each Stockholder further agrees that in
the event the transactions contemplated herein are not consummated (i) neither
the Company nor any Stockholder can thereafter use any confidential information
of the Other Founding Companies for any purpose and (ii) upon written request of
any Other Founding Company to the Company, the Company and Stockholders will
return all confidential information pertaining to such Other Founding Company to
such Other Founding Company.
14.2 LANDCARE AND NEWCO. LandCARE and Newco recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the Company, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's business.
LandCARE and Newco agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not disclose such
confidential information to any Person for any purpose or reason whatsoever,
except (a) to authorized representatives of the Company, (b) to counsel and
other advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.2, (c) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information is or becomes known to the public generally through no fault of
LandCARE or Newco, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), LandCARE and Newco shall, if
possible, give prior written notice thereof to the Company and the Stockholders
and provide the Company and the Stockholders with the opportunity to contest
such disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, and (d) to the public to the extent necessary or advisable in
connection with the filing of the Registration Statement and the IPO and the
securities laws applicable thereto and to the operation of LandCARE as a
publicly held entity after the IPO. In the event of a breach or threatened
breach by LandCARE or Newco of the provisions of this Section 14.2, the Company
and the Stockholders shall be entitled to an injunction restraining LandCARE and
Newco from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the Company and the
Stockholders from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
-46-
<PAGE>
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by LandCARE, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts for the benefit of the
Stockholders or family members, the trustees of which so agree), for a period of
two years from the Funding and Consummation Date, except pursuant to Section 17
hereof, none of the Stockholders shall sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint, or otherwise dispose of any shares of
LandCARE Stock received by the Stockholders in the Merger. The certificates
evidencing the LandCARE Stock delivered to the Stockholders pursuant to Section
3 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as LandCARE 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.
LandCARE agrees, however, to use reasonable efforts to implement an arrangement
with a nationally recognized investment banking firm pursuant to which such firm
will facilitate sales by the Stockholders beginning after the date one year
after the Funding and Consummation Date; and in the event such an arrangement is
implemented on terms reasonably satisfactory to LandCARE, LandCARE will waive
the foregoing restriction to the extent reasonably necessary to permit the
Stockholders to participate in such arrangement.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
LandCARE Stock to be delivered to the Stockholders pursuant to this Agreement
have not been and will not be registered under the 1933 Act (except as provided
in Section 17 hereof) and therefore may not be resold without compliance with
the 1933 Act. The LandCARE Stock to be acquired by such Stockholders pursuant to
this Agreement is being acquired solely for their own respective accounts,
-47-
<PAGE>
for investment purposes only, and with no present intention of distributing,
selling or otherwise disposing of it in connection with a distribution. The
Stockholders covenant, warrant and represent that none of the shares of LandCARE
Stock issued to such Stockholders will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full compliance
with all of the applicable provisions of the 1933 Act and the rules and
regulations of the SEC. All the LandCARE Stock shall bear the following legend
in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the LandCARE Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
LandCARE Stock. The Stockholders party hereto have had an adequate opportunity
to ask questions and receive answers from the officers of LandCARE 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 LandCARE, the plans for the operations of the business
of LandCARE, 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.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever LandCARE proposes to register any LandCARE Stock for
its own or others account under the 1933 Act for a public offering, other than
(i) any shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by LandCARE (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, LandCARE shall give each of
the Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, LandCARE shall cause to be included in such registration all of the
LandCARE Stock issued to the Stockholders pursuant to this Agreement (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security which is issued by
LandCARE as) a dividend or other distribution with respect to, or in exchange
for, or in replacement of such LandCARE Stock) which any such Stockholder
requests, provided that LandCARE shall have the right to reduce the number of
-48-
<PAGE>
shares included in such registration to the extent that inclusion of such shares
could, in the written opinion of tax counsel to LandCARE or its independent
auditors, jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free organization under Section 351 of the
Code. In addition, if LandCARE is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 17.1 that the number
of shares to be sold by persons other than LandCARE is greater than the number
of such shares which can be offered without adversely affecting the offering,
LandCARE may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by LandCARE after the IPO, such reduction
shall be made first by reducing the number of shares to be sold by persons other
than LandCARE, the Stockholders and the stockholders of the Other Founding
Companies (collectively, the Stockholders and the stockholders of the other
Founding Companies 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.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
LandCARE Stock issued to the Founding Stockholders pursuant to this Agreement
and the Other Agreements which have not been previously registered or sold and
which are not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that LandCARE
file a registration statement under the 1933 Act covering the registration of
the shares of LandCARE Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by LandCARE as) a dividend or other distribution
with respect to, or in exchange for, or in replacement of such LandCARE Stock)
then held by such Founding Stockholders (a "Demand Registration"). Within ten
(10) days of the receipt of such request, LandCARE shall give written notice of
such request to all other Founding Stockholders and shall, as soon as
practicable but in no event later than 45 days after notice from any
Stockholder, file and use its best efforts to cause to become effective a
registration statement covering all such shares. LandCARE shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
the registration statement relating to such Demand Registration current and
effective for not less than 120 days (or such shorter period as is required to
sell all of the shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of LandCARE's disinterested directors (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for up to a 60 day period after the date on
which LandCARE would otherwise be required to make such filing pursuant to the
foregoing paragraph if such directors determine in good faith that the filing of
such a registration statement or the making of any required disclosure in
connection therewith would have a material
-49-
<PAGE>
adverse effect on LandCARE or interfere with a transaction in which LandCARE is
then engaged or is then pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration LandCARE has fixed plans to file within 60 days after such request
a registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders'
LandCARE Stock shall be initiated under this Section 17.2 until 90 days after
the effective date of such registration unless LandCARE is no longer proceeding
diligently to effect such registration; provided that LandCARE shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by
LandCARE as a consequence of the exercise of its rights under this Section 17.2,
then the period during which such demand registration may be requested by the
Founding Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever LandCARE is required to register
shares of LandCARE Stock pursuant to Sections 17.1 and 17.2, LandCARE will, as
expeditiously as possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, LandCARE
will furnish a representative of the Stockholders with copies of all such
documents proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that LandCARE shall not be required
to become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
-50-
<PAGE>
e. Cause all such shares of LandCARE Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
LandCARE are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that LandCARE
is required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, LandCARE will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by LandCARE.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, LandCARE
shall indemnify, to the extent permitted by law, each Stockholder and each
Person who controls such Stockholder (an "Indemnified Party") against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) arising out of or resulting from
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or associated term
sheet or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as the same are caused by or contained in or omitted
from any information furnished in writing to LandCARE by such Indemnified Party
expressly for use therein or by such Indemnified Party's failure to deliver a
copy of the registration statement or prospectus or any amendment or supplements
thereto after LandCARE has furnished such Indemnified Party with a sufficient
number of copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to LandCARE in writing such information as is
reasonably requested by LandCARE for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, LandCARE, its
directors and officers and each person who controls LandCARE (within the meaning
of the 1933 Act) against any losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses of investigation) resulting
from any untrue or alleged untrue statement of a material fact or any omission
or alleged omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto necessary
to
-51-
<PAGE>
make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in information so furnished in writing
by such Stockholder specifically for use in preparing the registration
statement. Notwithstanding the foregoing, the liability of a Stockholder under
this Section 17.4 shall be limited to an amount equal to the net proceeds
actually received by such Stockholder from the sale of the relevant shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, LandCARE
and each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
LandCARE's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of LandCARE
stock to the public without registration, LandCARE agrees to use its reasonable
efforts to:
(i) make and keep public information regarding LandCARE available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of LandCARE under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
-52-
<PAGE>
(iii) so long as a Stockholder owns any restricted LandCARE Common
Stock, furnish to each Stockholder forthwith upon written request a written
statement by LandCARE as to its compliance with the reporting requirements of
Rule 144 (at any time from and after 90 days following the effective date of the
Registration Statement), and of the 1933 Act and the 1934 Act (any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of LandCARE, and such other reports and documents so
filed as a Stockholder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Stockholder to sell any such shares without
registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, LandCARE and Newco 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 will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the Company cooperate with LandCARE 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.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
LandCARE, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and LandCARE and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and
LandCARE, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the Company shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
-53-
<PAGE>
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, LandCARE will pay the fees, expenses and disbursements of
LandCARE 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 LandCARE under this Agreement, including the
fees and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and
any other person or entity retained by LandCARE or by Notre Capital Ventures II,
L.L.C., and the costs of preparing and filing the Registration Statement. Each
Stockholder shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than Transfer Taxes, if
any, imposed by the State of Delaware. Each Stockholder shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or LandCARE, will pay all
taxes due upon receipt of the consideration payable pursuant to Section 3
hereof. The Stockholders acknowledge that the risks of the transactions
contemplated hereby include tax risks, with respect to which the Stockholders
are relying solely on the opinion contemplated by Section 8.12 hereof.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to LandCARE, or Newco, addressed to them at:
LandCARE USA, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
-54-
<PAGE>
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II or to the address of the Company set forth below, with copies
to:
Miranda K. Mandel
Neal, Gerber & Eisenberg
Two N. LaSalle Street, 22nd Floor
Chicago, Illinois 60602
(c) If to the Company, addressed to it at:
Trees, Inc.
7020 Steubner Airline
Houston, Texas 77091
Attention: Linda Benge
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or
-55-
<PAGE>
remedy, nor shall it be construed as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of LandCARE, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the LandCARE Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving LandCARE Stock in connection with the Merger and each future
holder of such LandCARE Stock.
-56-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
LANDCARE USA, INC.
By:___________________________
William Murdy
Chief Executive Officer
TREES ACQUISITION CORP.
By:___________________________
William Fiedler
Vice President
-57-
<PAGE>
TREES, INC.
By:
Name:
Title:
STOCKHOLDERS:
______________________________
Linda Benge
______________________________
Gerald Benge
______________________________
Susan Benge Givens
______________________________
Linda Benge as Escrow Agent under Stock
Pledge and Escrow Agreement dated August 14,
1992
______________________________
Linda Benge as Escrow Agent under Stock
Pledge and Escrow Agreement dated August 14,
1992
-58-
<PAGE>
SCHEDULE 6.4
None.
-59-
<PAGE>
SCHEDULE 6.5
None.
-60-
<PAGE>
SCHEDULE 6.7
None.
-61-
<PAGE>
SCHEDULE 6.8
None.
-62-
<PAGE>
SCHEDULE 6.9
None.
-63-
<PAGE>
SCHEDULE 6.12
1. The Agreement with D.R. Church is structured as an exchange agreement rather
than as a merger agreement.
2. The Agreements with Desert Care and Arteka Nurseries provide for S
corporation distributions.
3. The Agreements with Four Seasons and D. R. Church exclude a charitable
remainder trust and an ESOP, respectively, from the normal indemnity provisions.
4. The Agreement with Southern Tree provides for the release from individual
guaranties of a non-stockholder who has guaranteed company debt, and requires
Southern to separate a credit facility now cross guaranteed by Southern and an
affiliate.
5. TheAgreement with Desert Care notes that Desert Care has done its accounting
and taxes on a cash basis and provides that LandCARE will indemnify the
Stockholder against up to $450,000 in deferred taxes resulting from Desert
Care's termination of its S corporation election, and provides that the
Stockholder will indemnify Desert Care and LandCARE against deferred income tax
liabilities to the extent they exceed $450,000.
-64-
<PAGE>
SCHEDULE 6.15
None.
-65-
<PAGE>
SCHEDULE 9.12
D. R. Church Landscape Co., Inc. - Bruce A. Church
Desert Care Landscaping, Inc. - Jeff A. Meyer
Ground Control Landscaping, Inc. - Mark S. Yahn
Four Seasons Landscape & Maintenance - James R. Marcus
Trees, Inc. - Linda Benge
Southern Tree and Landscape Companies - Roger Braswell
Arteka Corporation - David Luse
-66-
EXHIBIT 10.20
LandCare USA, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
March __, 1998
To the Stockholders of the Companies
Reference is made to those certain Agreements and Plans of Organization (the
"Agreements"), each dated as of _______ __, 1998, by and among the parties as
reflected on Exhibit A attached hereto. Each of the undersigned hereby agrees,
and LandCare USA, Inc., a Delaware corporation ("LandCare"), hereby agrees with
respect to Section 5, as follows:
1. NONCOMPETITION. Each of the undersigned hereby agrees to adhere to and
be bound by the terms, covenants, restrictions, prohibitions and limitations of
Section 13 of the Agreements as if each of the undersigned was a STOCKHOLDER as
defined therein.
2. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Each of the undersigned
hereby agrees to adhere to and be bound by the terms, covenants, restrictions,
prohibitions and limitations of Section 14.1, 14.3 and 14.4 of the Agreements as
if each of the undersigned was a STOCKHOLDER as defined therein, and agrees to
adhere to and be bound by the terms, covenants, restrictions, prohibitions and
limitations of Sections 14.2, 14.3 and 14.4 of the Agreements as if each was
LANDCARE and NEWCO as defined therein.
3. TRANSFER RESTRICTIONS. Each of the undersigned hereby agrees to adhere
to and be bound by the terms, covenants, restrictions, prohibitions and
limitations of Section 15 of the Agreements with respect to all of the shares of
LandCare Common Stock owned of record by each of the undersigned as of the
Funding and Consummation Date (as defined in the Agreements) as if each of the
undersigned was a STOCKHOLDER as defined therein. Each of the undersigned
expressly acknowledges and agrees that the stock certificates evidencing all of
such shares shall bear the restrictive legend contained in Section 15.1 of the
Agreements.
<PAGE>
Stockholders of the Companies
March ___, 1998
Page 2
4. FEDERAL SECURITIES ACT REPRESENTATIONS. Each of the undersigned hereby
agrees to adhere to and be bound by the terms, covenants, restrictions,
prohibitions and limitations of Section 16 of the Agreements with respect to all
of the shares of LandCare Common Stock owned of record by the undersigned as of
the Funding and Consummation Date as if each of the undesigned was a STOCKHOLDER
as defined therein. Further, each of the undersigned expressly acknowledges and
agrees that the stock certificates evidencing all of such shares shall bear the
restrictive legend contained in Section 16.1 of the Agreements.
5. REGISTRATION RIGHTS. LandCare hereby grants each of the undersigned the
same piggyback registration rights set forth in Section 17.1 of the agreements
granted to the STOCKHOLDERS (as defined in the Agreements), subject to the
terms, covenants, restrictions, prohibitions and limitations of Sections 17.3,
17.4 and 17.5 of the Agreements, which the undersigned agree to adhere to and to
be bound by.
6. COUNTERPARTS. This letter 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.
7. CONDITION TO TRANSFER. As a condition to any sale, transfer, gift,
assignment or other disposition of shares of LandCare Common Stock prior to the
expiration of the agreements set forth herein, the undersigned agree to cause
this transferee to agree to be bound by the applicable restrictions conferred
herein.
<PAGE>
Stockholders of the Companies
March ___, 1998
Page 3
IN WITNESS WHEREOF, the parties hereto have set their hands as of the day
and year first above written.
--------------------------------------
William F. Murdy
--------------------------------------
William L. Fiedler
-------------------------------------
Peter C. Forbes
-------------------------------------
Kenneth V. Garcia
-------------------------------------
Steven Ives
--------------------------------------
Rohan Crighton
<PAGE>
Stockholders of the Companies
March ___, 1998
Page 4
Notre Capital Ventures II, L.L.C.
By:__________________________________
Name: Steven S. Harter
Title: President
------------------------------------
Fred M. Ferreira
--------------------------------------
Ronald L. Stanfa
--------------------------------------
Patrick J. Norton
-------------------------------------
John T. King
--------------------------------------
Susan M. Yancey
-------------------------------------
Jennifer Davidson
<PAGE>
Stockholders of the Companies
March ___, 1998
Page 5
--------------------------------------
Jennifer Jackson
-------------------------------------
Melinda Malek
Fieldstone Partners, Inc.
-------------------------------------
By: __________________________________
Title: _________________________________
-------------------------------------
Shellie G. LePori
-------------------------------------
Richard T. Howell
-------------------------------------
Steven J. Blum
<PAGE>
Stockholders of the Companies
March ___, 1998
Page 6
-------------------------------------
Richard Owen
Infoscope Partners, Inc.
--------------------------------------
By: __________________________________
Title: _________________________________
--------------------------------------
Tina Rose
<PAGE>
Stockholders of the Companies
March ___, 1998
Page 7
ACCEPTED AND AGREED, as of the day and year first above written as to Section 5.
LANDCARE USA, INC.
By:___________________________________
<PAGE>
Stockholders of the Companies
March ___, 1998
Page 8
EXHIBIT A
Arteka Corporation
Arteka Natural Green Corporation
Arteka Nurseries, Inc.
D.R. Church Landscape Co., Inc.
Desert Care Landscaping, Inc.
Four Seasons Landscape & Maintenance, Inc.
Ground Control Landscaping, Inc.
Southern Tree & Landscape Company, Co.
Trees, Inc.
EXHIBIT 10.21
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made and entered into by and
between LandCARE USA, Inc., a Delaware corporation ("Company"), and Notre
Capital Ventures II, L.L.C., a Texas limited liability company ("Indemnitee").
INTRODUCTION
Indemnitee is an organizer and promoter of the Company and has provided,
and continues to provide, the Company with valuable expertise in connection with
the organization of the Company and the formulation of its strategy regarding
the consolidation of the landscaping industry and related matters. In
consideration of these services, the Company has agreed to indemnify Indemnitee
against any and all liabilities asserted against the Indemnitee or its managers,
officers, directors, employees, agents, members, partners and owners
(collectively, the "Indemnified Parties") in connection with or as a result of
Indemnitee's status as an organizer and/or promoter (as that term is defined in
Rule 405 under the Securities Act of 1933, as amended) of the Company. Based on
such premise, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. INDEMNIFICATION. The Company shall indemnify the Indemnified
Parties as follows:
1.1. The Company shall indemnify the Indemnified Parties when any of
such Indemnified Parties is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil
(including under federal and/or state securities laws), criminal, administrative
or investigative, by reason of the fact that the Indemnified Parties, or any of
them, is or was an organizer and/or promoter of the Company, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such Indemnified Parties in connection with
such action, suit or proceeding.
1.2. Expenses (including attorneys' fees) incurred by the
Indemnified Parties, or any of them, in defending any such civil (including
under federal and/or state securities laws), criminal, administrative, or
investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding, within 14 days
after the receipt by the Company from the Indemnified Parties, or any of them,
of notice in which such Indemnified Party states that it has reasonably incurred
actual expenses in defending a civil (including under federal and/or state
securities laws), criminal, administrative, or investigative action, suit or
<PAGE>
proceeding by reason of the fact that such Indemnified Party is or was an
organizer and/or promoter of the Company.
1.3. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 1 shall not be deemed exclusive of any other
rights to which the Indemnified Parties may be entitled under any law or
agreement, and shall continue after each of the Indemnified Parties has ceased
to be an organizer and/or promoter of the Company.
2. ATTORNEYS' FEES. If the Indemnified Parties, or any of them, institute
any legal action to enforce their rights under this Agreement, or to recover
damages for breach of this Agreement, such Indemnified Parties, if they prevail
in whole or in part, shall be entitled to recover from the Company all fees and
expenses (including attorneys' fees) incurred by such Indemnified Parties, or
any of them, in connection therewith.
3. DEPOSIT OF FUNDS IN TRUST. If the Company voluntarily decides to
dissolve or to file a petition for relief under the applicable bankruptcy,
moratorium or similar laws, then not later than 10 days prior to such
dissolution or filing, the Company shall deposit in trust for the sole and
exclusive benefit of the Indemnified Parties a cash amount equal to all amounts
previously authorized to be paid to the Indemnified Parties hereunder, such
amounts to be used to discharge the Company's obligations to the Indemnified
Parties hereunder. Any amounts in such trust not required for such purpose shall
be returned to the Company.
4. MERGER, CONSOLIDATION OR CHANGE IN CONTROL. If the Company is a
constituent corporation in a merger or consolidation, whether the Company is the
resulting or surviving corporation or is absorbed as a result thereof, or if
there is a change in control of the Company, The Indemnified Parties shall stand
in the same position under this Agreement with respect to the resulting,
surviving or changed corporation as the Indemnified Parties would have with
respect to the Company if its separate existence had continued or if there had
been no change in the control of the Company.
5. LITIGATION. To the best of Indemnitee's and Indemnitor's knowledge,
there is no action, suit or proceeding currently existing, pending or threatened
against Indemnitee.
6. MISCELLANEOUS PROVISIONS.
6.1. NOTIFICATION. Each party agrees to give prompt notice to the
other upon its discovery of facts giving rise to a claim for indemnity under the
provisions of this Agreement,
-2-
<PAGE>
including receipt by it of notice of any demand, assertion, claim, action or
proceeding, judicial or otherwise.
6.2. SURVIVAL. The provisions of this Agreement shall survive the
termination of any of the Indemnified Parties' status as an organizer and/or
promoter of the Company.
6.3. ENTIRE AGREEMENT. This Agreement constitutes the full
understanding of the parties and a complete and exclusive statement of the terms
and conditions of their agreement relating to the subject matter hereof and
supersedes all prior negotiations, understandings and agree ments, whether
written or oral, between the parties, their affiliates, and their respective
principals, shareholders, directors, officers, employees, consultants and agents
with respect thereto.
6.4. AMENDMENTS AND WAIVERS. No alteration, modification, amendment,
change or waiver of any provision of this Agreement shall be effective or
binding on any party hereto unless the same is in writing and is executed by all
parties hereto.
6.5. MODIFICATION AND SEVERABILITY. If a court of competent
jurisdiction declares that any provision of this Agreement is illegal, invalid
or unenforceable, then such provision shall be modified automatically to the
extent necessary to make such provision fully legal, valid or enforce able. If
such court does not modify any such provision as contemplated herein, but
instead declares it to be wholly illegal, invalid or unenforceable, then such
provision shall be severed from this Agreement, this Agreement and the rights
and obligations of the parties hereto shall be construed as if this Agreement
did not contain such severed provision, and this Agreement otherwise shall
remain in full force and effect.
6.6. ENFORCEABILITY. This Agreement shall be enforceable by and
against the Company, the Indemnified Parties and their respective successors and
assignees.
6.7. GOVERNING LAW. This Agreement shall be governed by, construed
under, and enforce in accordance with the laws of the State of Delaware without
reference to the conflict-of- laws provisions thereof.
6.8. MULTIPLE COUNTERPARTS. This Agreement may be executed by the
parties hereto in multiple counterparts, each of which shall be deemed an
original for all purposes, and all of which together shall constitute one and
the same instrument.
-3-
<PAGE>
The parties hereto have executed this Agreement on ____________, 1998.
COMPANY:
LandCARE USA, Inc.
By:__________________________________
Name: William F. Murdy
Title: President
INDEMNITEE:
Notre Capital Ventures II, L.L.C.
By:__________________________________
Name: STEVE HARTER
Title: PRESIDENT
-4-
EXHIBIT 10.22
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made and entered into by and
between LandCare USA, Inc., a Delaware corporation ("Company"), and
___________________ ("Indemnitee").
INTRODUCTION
Indemnitee is a director and/or officer of the Company. The parties desire
that the Company provide indemnification (including advancement of expenses) to
Indemnitee against any and all liabilities asserted against Indemnitee to the
fullest extent permitted by the Delaware General Corporation Law ("Act"), as the
Act presently exists and may be expanded from time to time. Based on such
premise, and for certain good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. CONTINUED SERVICE. Indemnitee will serve at the will of the Company or
under separate contract, if such exists, as a director and/or officer of the
Company for so long as Indemnitee is duly elected and qualified in accordance
with the Bylaws of the Company or until Indemnitee tenders his or her
resignation to the Company.
2. INDEMNIFICATION. The Company shall indemnify Indemnitee as follows:
2.1. The Company shall indemnify Indemnitee when Indemnitee 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 Company), by
reason of the fact that Indemnitee is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company 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 Indemnitee in connection with such action, suit or proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that
Indemnitee's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that
Indemnitee did not act in good faith
<PAGE>
and in a manner which Indemnitee reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that Indemnitee's conduct was
unlawful.
2.2. The Company shall indemnify Indemnitee when Indemnitee 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 Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such action or suit if Indemnitee
acted in good faith and in a manner that Indemnitee reasonably believed to be in
or not opposed to the best interests of the Company and except that no
indemnification pursuant to this Agreement shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company 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, Indemnitee is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
2.3. Any indemnification under Sections 2.1 and 2.2 (unless ordered
by a court) shall be made by the Company only as authorized in the specific case
upon a determination, in accordance with the procedures set forth in Section 3,
that indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct set forth in such Sections
2.1 and 2.2. Such determination shall be made (1) by the board of directors of
the Company 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 of the Company.
2.4. Expenses (including attorneys' fees) incurred by Indemnitee in
defending any civil, criminal, administrative, or investigative action, suit or
proceeding shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding, as authorized in the manner provided in Section
2.3, within 14 days after the receipt by the Company from Indemnitee of a
Statement of Undertaking in substantially the form set forth in Exhibit A, in
which Indemnitee (1) states that Indemnitee has reasonably incurred actual
expenses in defending a civil, criminal, administrative, or investigative
action, suit or proceeding and (2) undertakes to repay such amount
-2-
<PAGE>
if it shall ultimately be determined that Indemnitee is not entitled to be
indemnified by the Company as authorized in this Section 2.
2.5. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 2 shall not be deemed exclusive of any other
rights to which Indemnitee may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such office, shall continue after Indemnitee has ceased to be a
director, officer, employee or agent of the Company, and shall inure to the
benefit of the heirs, executors and administrators of Indemnitee.
3. DETERMINATION OF RIGHT TO INDEMNIFICATION. For the purpose of making
the determination of whether to indemnify Indemnitee in a specific case under
Section 2.3, the board of directors of the Company, independent legal counsel or
stockholders, as the case may be, shall make the determination in accordance
with the following procedures:
3.1. Indemnitee shall submit to the board of directors a Statement
of Request for Indemnification in substantially the form set forth in Exhibit B,
in which Indemnitee states that Indemnitee has met the applicable standard of
conduct set forth in Sections 2.1 and 2.2.
3.2. Indemnitee's submission of a Statement of Request for
Indemnification to the board of directors shall create a rebuttable presumption
that Indemnitee has met the applicable standard of conduct set forth in Sections
2.1 and 2.2 and, therefore, is entitled to indemnification under Section 2. The
board of directors, independent legal counsel or stockholders, as the case may
be, shall determine, within 30 days after submission of the Statement of Request
for Indemnification, specifically that Indemnitee is so entitled, unless it or
they shall possess clear and convincing evidence to rebut the foregoing
presumption, which evidence shall be disclosed to Indemnitee with particularity
in a sworn written statement signed by all persons who participated in the
determination and voted to deny indemnification.
4. MERGER, CONSOLIDATION OR CHANGE IN CONTROL. If the Company is a
constituent corporation in a merger or consolidation, whether the Company is the
resulting or surviving corporation or is absorbed as a result thereof, or if
there is a change in control of the Company, Indemnitee shall stand in the same
position under this Agreement with respect to the resulting, surviving or
changed corporation as Indemnitee would have with respect to the Company if its
separate existence had continued or if there had been no change in the control
of the Company.
-3-
<PAGE>
5. CERTAIN DEFINITIONS. For the purposes of this Agreement, the following
terms shall have the indicated meanings and understandings:
5.1. The term "other enterprise" shall include, among others,
employee benefit plans and civic, non-profit and charitable organizations,
whether or not incorporated.
5.2. The term "fines" shall include any excise taxes assessed on
Indemnitee with respect to any employee benefit plan.
5.3. The term "serving at the request of the Company" shall include
any service, at the request or with the express or implied authorization of the
Company, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, which service imposes
duties on, or involves services by, Indemnitee with respect to such corporation,
partnership, joint venture, trust or other enterprise, its participants or
beneficiaries. If Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of such other
enterprise, its participants or beneficiaries, Indemnitee shall be deemed to
have acted in a manner not opposed to the best interests of the Company.
5.4. The term "change of control" shall include any change in the
ownership of a majority of the outstanding voting securities of the Company or
in the composition of a majority of the members of the board of directors of the
Company.
6. ATTORNEYS' FEES. If Indemnitee institutes any legal action to enforce
Indemnitee's rights under this Agreement, or to recover damages for breach of
this Agreement, Indemnitee, if Indemnitee prevails in whole or in part, shall be
entitled to recover from the Company all fees and expenses (including attorneys'
fees) incurred by Indemnitee in connection therewith.
7. DEPOSIT OF FUNDS IN TRUST. If the Company voluntarily decides to
dissolve or to file a petition for relief under the applicable bankruptcy,
moratorium or similar laws, then not later than 10 days prior to such
dissolution or filing, the Company shall deposit in trust for the sole and
exclusive benefit of Indemnitee a cash amount equal to all amounts previously
authorized to be paid to Indemnitee hereunder, such amounts to be used to
discharge the Company's obligations to Indemnitee hereunder. Any amounts in such
trust not required for such purpose shall be returned to the Company. This
Section 7 shall not apply to the dissolution of the Company in connection with a
transaction as to which Section 4 applies.
8. AMENDMENTS TO ACT. This Agreement is intended to provide indemnity to
Indemnitee to the fullest extent allowed under Delaware law. Accordingly, to the
extent permitted by law, if the
-4-
<PAGE>
Act permits greater indemnity than the indemnity set forth herein, or if any
amendment is made to the Act expanding the indemnity permissible under Delaware
law, the indemnity obligations contained herein automatically shall be expanded,
without the necessity of action on the part of any party, to the extent
necessary to provide to Indemnitee the fullest indemnity permissible under
Delaware law.
9. MISCELLANEOUS PROVISIONS.
9.1. SURVIVAL. The provisions of this Agreement shall survive the
termination of Indemnitee's service as a director or officer of the Company.
9.2. ENTIRE AGREEMENT. This Agreement constitutes the full
understanding of the parties and a complete and exclusive statement of the terms
and conditions of their agreement relating to the subject matter hereof and
supersedes all prior negotiations, understandings and agree ments, whether
written or oral, between the parties, their affiliates, and their respective
principals, shareholders, directors, officers, employees, consultants and agents
with respect thereto.
9.3. AMENDMENTS AND WAIVERS. No alteration, modification, amendment,
change or waiver of any provision of this Agreement shall be effective or
binding on any party hereto unless the same is in writing and is executed by all
parties hereto.
9.4. MODIFICATION AND SEVERABILITY. If a court of competent
jurisdiction declares that any provision of this Agreement is illegal, invalid
or unenforceable, then such provision shall be modified automatically to the
extent necessary to make such provision fully legal, valid or enforce able. If
such court does not modify any such provision as contemplated herein, but
instead declares it to be wholly illegal, invalid or unenforceable, then such
provision shall be severed from this Agreement, this Agreement and the rights
and obligations of the parties hereto shall be construed as if this Agreement
did not contain such severed provision, and this Agreement otherwise shall
remain in full force and effect.
9.5. ENFORCEABILITY. This Agreement shall be enforceable by and
against the Company, the Indemnitee and their respective executors, legal
representatives, administrators, heirs, successors and assignees.
9.6. GOVERNING LAW. This Agreement shall be governed by, construed
under, and enforce in accordance with the laws of the State of Delaware without
reference to the conflict-of-laws provisions thereof.
-5-
<PAGE>
9.7. MULTIPLE COUNTERPARTS. This Agreement may be executed by the
parties hereto in multiple counterparts, each of which shall be deemed an
original for all purposes, and all of which together shall constitute one and
the same instrument.
The parties hereto have executed this Agreement to be effective as of
___________, 1998.
COMPANY:
LandCare USA, Inc.
By:
Name:
Title:
INDEMNITEE:
By:
Name:
Title:
-6-
<PAGE>
EXHIBIT A
STATEMENT OF UNDERTAKING
STATE OF __________________ ss.
ss.
COUNTY OF _________________ ss.
I, __________________________________, being first duly sworn, depose and
say as follows:
1. This Statement of Undertaking is submitted pursuant to the Indemnity
Agreement dated __________________, between LandCare USA, Inc., a Delaware
corporation ("Company"), and me.
2. I am requesting the advancement of certain actual expenses which I have
reasonably incurred in defending a civil or criminal action, suit or proceeding
by reason of the fact that I am or was a director and/or officer of the Company.
3. I hereby undertake to repay this advancement of expenses if it is
ultimately determined that I am not entitled to be indemnified by the Company.
4. I am requesting the advancement of expenses in connection with the
following action, suit or proceeding:
I have executed this Statement of Undertaking on .
Signature
Print Name
Subscribed and sworn to before me on ___________________.
Notary Public in and for
said state and county
My commission expires:
-7-
<PAGE>
EXHIBIT B
STATEMENT OF REQUEST FOR INDEMNIFICATION
STATE OF __________________ ss.
ss.
COUNTY OF _________________ ss.
I, _______________________________, being first duly sworn, depose and say
as follows:
1. This Statement of Request for Indemnification is submitted pursuant to
the Indemnity Agreement dated _________________, between LandCare USA, Inc., a
Delaware corporation ("Company"), and me.
2. I am requesting indemnification against expenses (including attorneys'
fees) and, with respect to any action not by or in the right of the Company,
judgments, fines and amounts paid in settlement, all of which have been actually
and reasonably incurred by me in connection with a certain action, suit or
proceeding to which I am a party or am threatened to be made a party by reason
of the fact that I am or was a director and/or officer of the Company.
3. With respect to all matters related to any such action, suit or
proceeding, I acted in good faith and in a manner I reasonably believed to be in
or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, I had no reason to believe that my conduct was
unlawful.
4. I am requesting indemnification in connection with the following suit,
action or proceeding:
I have executed this Statement of Request for Indemnification on
_______________.
Signature
Print Name
Subscribed and sworn to before me on ___________________.
Notary Public in and for said state
and county My Commission expires:
-8-
EXHIBIT 10.23
MANAGEMENT
EMPLOYMENT AGREEMENT
This Management Employment Agreement (this "Agreement") by and among
LandCare USA Management Co., L.P., a Delaware limited partnership ("Employer"),
and _______________ ("Employee") is hereby entered into and effective as of the
__ day of ____________, 1998 (the "Effective Date"), which date is the date of
the consummation of the initial public offering of the common stock of LandCare
USA, Inc., a Delaware corporation (the "Company").
R E C I T A L S
A. The Company is engaged primarily in the landscaping services
industry.
B. Employer is engaged primarily in the business of providing
management services to the Company;
C. Employer desires to employ Employee hereunder in a confidential
relationship wherein Employee, in the course of his employment, will become
familiar with and aware of information as to the Company's customers, specific
manner of doing business, processes, techniques and trade secrets and future
plans with respect thereto, all of which have been and will be established and
maintained at great expense to the Company, which information is a trade secret
and constitutes the valuable good will of the Company; and
D. The Company is intended to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) Employer hereby employs Employee to serve as _________________________
of the Company. As such, Employee shall have responsibilities, duties and
authority customarily accorded to and expected of an officer holding such
position directly with the Company. Employee hereby accepts this employment upon
the terms and conditions herein contained and agrees to devote his full time,
attention and efforts to promote and further the business of Employer.
-1-
<PAGE>
(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by Employer from time to time.
2. COMPENSATION. For all services rendered by Employee, Employer shall
compensate Employee as follows:
(a) BASE SALARY; PERFORMANCE BONUS; COMPANY STOCK OPTIONS. Effective as of
the Effective Date, the base salary payable to Employee shall be $____________
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,
Employer will review Employee's performance and may, in its sole discretion, (i)
make increases to such base salary; (ii) pay a performance bonus; or (iii)
recommend Employee for the grant of Company stock options.
(b) EMPLOYEE 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) Coverage for Employee and his dependent family members under
health, hospitalization, disability, dental, life and other insurance
plans that Employer may have in effect from time to time. Benefits
provided to Employee under this clause (i) shall be equal to such benefits
provided to other Employer employees of the same level.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of 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 employee
perquisites as may be available to or deemed appropriate for Employee by
Employer and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) 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
-2-
<PAGE>
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of this
paragraph 3. Employee will not, during the period of his employment by or with
Employer, and for a period of two (2) years immediately following the
termination of his employment under this Agreement, except as provided below,
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 retail manufactured housing business in direct
competition with Employer or the Company within 100 miles of where the
Company or any of its subsidiaries conduct business, including any
territory serviced by the Company or any of such subsidiaries (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Employer or the Company (including the
respective 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 or the Company (including the respective 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 the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(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 or the Company (including the respective subsidiaries thereof) or
for which Employer or the Company 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 a passive investment not more than one
percent (1%) of the capital stock of a publicly traded corporation or other
entity, even if such corporation or other entity competes with the Company.
(b) Because of the difficulty of measuring economic losses to Employer or
the Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to Employer or the
Company for which they would have no other
-3-
<PAGE>
adequate remedy, Employee agrees that the foregoing covenant may be enforced by
Employer or the Company 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 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities, business and locations of the Company (including the
Company's subsidiaries) throughout the term of this covenant, whether before or
after the date of termination of the employment of Employee. For example, if,
during the term of this Agreement, the Company (including the Company'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
covenant.
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 the Company (including the
Company's subsidiaries), or similar activities or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of Employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company'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 3 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 herein 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 this
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 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 or the
Company, whether predicated on this Agreement or
-4-
<PAGE>
otherwise, shall not constitute a defense to the enforcement by Employer or the
Company of such covenants. It is specifically agreed that the period of two (2)
years following termination of employment stated at the beginning of this
paragraph 3, during which the agreements and covenants of Employee made in this
paragraph 3 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 3.
4. PLACE OF PERFORMANCE; RELOCATION RIGHTS.
(a) Employee understands that he may be requested by Employer or the
Company to relocate from his present residence to another geographic location in
order to more efficiently carry out his duties and responsibilities under this
Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, Employer or the
Company will pay all relocation costs to move Employee, his immediate family and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use his best efforts to incur only those costs
which are reasonable and necessary to effect a smooth, efficient and orderly
relocation with minimal disruption to the business affairs of Employer or the
Company and the personal life of Employee and his family.
(b) Notwithstanding the above, if Employee is requested by Employer to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(a)(iii).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
(a) TERM. The term of this Agreement shall begin on the date hereof and
continue for __________ (___) years (the "Initial Term") unless terminated
sooner as herein provided, and 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 (the "Term"). This Agreement and Employee's employment may be terminated
in any one of the followings ways:
(i) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
-5-
<PAGE>
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been absent from his
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 his full-time duties with or without reasonable
accommodation at the conclusion of such notice period. Also, Employee may
terminate his employment hereunder if his health should become impaired to
an extent that makes the continued performance of his duties hereunder
hazardous to his physical or mental health or his life, provided that
Employee shall have furnished 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 Initial Term of this Agreement or for one (1) year, whichever
amount is greater; provided, however, that any such payments shall be
reduced by the amount of any disability insurance payments payable to the
Employee as a result of such disability.
(iii) GOOD CAUSE. Employer may terminate this Agreement immediately
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 of any of Employee's
material duties and responsibilities hereunder; (3) Employee's willful
dishonesty, fraud or misconduct with respect to the business or affairs of
Employer or the Company which materially and adversely affects the
operations or reputation of Employer or the Company; (4) Employee's
conviction of a felony crime; or (5) Employee's confirmed positive illegal
drug test result. In the event of a termination for good cause, as
enumerated above, Employee shall have no right to any severance
compensation.
(iv) WITHOUT CAUSE. At any time after the commencement of
employment, either Employee or Employer may, without cause, terminate this
Agreement and Employee's employment, effective thirty (30) days after
written notice is provided to the other. Should Employee be terminated by
Employer without cause during the Initial 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 Initial
-6-
<PAGE>
Term of this Agreement or for one (1) year, whichever amount is greater.
Should Employee be terminated by Employer without cause after the Initial
Term, Employee shall receive from Employer, in a lump-sum payment due on
the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without
cause by Employer shall operate to shorten the period set forth in
paragraph 3(a) and during which the terms of paragraph 3 apply to one (1)
year from the date of termination of employment. If Employee resigns or
otherwise terminates this Agreement, the provisions of paragraph 3 hereof
shall apply, except that Employee shall receive no severance compensation.
(b) CHANGE IN CONTROL OF THE COMPANY. In the event of a "Change in Control
of the Company" (as defined below) during the Term, paragraph 12 below shall
apply.
(c) EFFECT OF TERMINATION. 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 herein. 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 9 herein and Employee's obligations under
paragraphs 3, 6, 7, 8 and 10 herein shall survive such termination in accordance
with their terms.
(d) BREACH BY COMPANY. 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 16 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 his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by Employer.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company
-7-
<PAGE>
which is collected by Employee shall be delivered promptly to the Company
without request by it upon termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment hereunder. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that he will not, during or after the
Term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
9. 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 he 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, to the maximum extent permitted by applicable law. The advancement of
expenses shall be mandatory to the extent permitted by applicable law. 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 counsel, and
Employee agrees to use the same counsel, 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 reasonable attorneys' fees of such separate counsel. Employer shall not
be required to pay the fees of more than one law firm except as described in the
preceding sentence, and shall not be required to pay the fees of more than two
law firms under any circumstances. Further, while Employee is expected at all
times to use his 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 and wanton
negligence or misconduct or performed criminal or fraudulent acts.
-8-
<PAGE>
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to
Employer and the Company that the execution of this Agreement by Employee and
his employment by Employer and the performance of his duties hereunder will not
violate or be a breach of any agreement with a former employer, client or any
other person or entity. Further, Employee agrees to indemnify Employer and the
Company for any claim, including, but not limited to, attorneys' fees and
expenses of investigation, by any such third party that such third party may now
have or may hereafter come to have against Employer or the Company based upon or
arising out of any non-competition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
11. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by Employer and/or the Company on the basis of his
personal qualifications, experience and skills. Employee agrees, therefore, he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two (2) sentences and the express provisions of
paragraph 12 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.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that Employer and/or the Company
may be merged or consolidated with or into another entity and that such entity
shall automatically succeed to the rights and obligations of Employer and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated during the Initial Term of this Agreement, then the provisions of
this paragraph 12 shall be applicable.
(b) In the event of a pending Change in Control wherein the Company 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 the Company'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 cause during the Initial Term and the applicable
portions of paragraph 5(a)(iv) 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 5(a)(iv) and the non-competition
provisions of paragraph 3 shall not apply whatsoever.
-9-
<PAGE>
(c) In any Change in Control situation, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to
Employer at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(a)(iv) will apply as though Employer had terminated
the Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be double the amount calculated under the terms of paragraph 5(a)(iv) and
the non-competition provisions of paragraph 3 shall apply for a period of two
(2) years from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) 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, Employer shall ensure that
Employee will be given sufficient time and opportunity to elect whether to
exercise all or any of his vested options to purchase the Company's Common
Stock, including any options with accelerated vesting under the provisions of
the Company's 1997 Long-Term Incentive Plan, such that he may convert the
options to shares of the Company's Common Stock at or prior to the closing of
the transaction giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company, and other than Notre Capital Ventures II, L.L.C. or any
entity controlled by it, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended) of any voting security of the Company and immediately
after such acquisition such Person 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 the
Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of the Company: (A) the individuals
who, as of the closing date of the Company's initial public offering,
constitute the Board of Directors of the Company (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company 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 of Directors of the Company and whose election, or
nomination for election, to the Board of Directors
-10-
<PAGE>
of the Company 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 the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially Owned by
at least 75% of the holders of outstanding voting securities of the
Company immediately prior to the transaction, with the voting power of
each such continuing holder relative to other such continuing holders not
substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(f) Employee must be notified in writing by Employer or the Company at any
time that either Employer or the Company anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by Employer or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. 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 his tax
return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between or among
Employer, the Company and Employee. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with Employer or the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement. This
Agreement is the final, complete and exclusive statement and expression of the
agreement between 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 further writing signed by a duly authorized officer
of Employer and
-11-
<PAGE>
Employee, and no term of this Agreement may be waived except in writing signed
by the party waiving the benefit of such term.
14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To Employer: LandCare USA Management Co., L.P.
Three Riverway, Suite 630
Houston, Texas 77056
Attention: President
To Employee: ______________________
______________________
______________________
Notice shall be deemed given and effective on the earlier of 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
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. 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 this
Agreement or of any part hereof.
16. ARBITRATION. With the exception of paragraphs 3 and 7, 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 Houston, Texas, in accordance with the National
Rules for the Resolution of Employment Disputes of the American Arbitration
Association ("AAA") then in effect, provided that Employee shall comply with
Employer's grievance procedures in an effort to resolve such dispute or
controversy before resorting to arbitration, and provided further that the
parties may agree to use arbitrators other than those provided by the AAA. 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
-12-
<PAGE>
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 5(a)(ii) and 5(a)(iii), respectively, or that Employer has breached
this Agreement in any material respect. 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.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
18. 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.
19. THIRD-PARTY BENEFICIARY. The Company is intended to be a third-party
beneficiary under this Agreement, and shall be entitled to enforce the
provisions hereof benefitting the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
LANDCARE USA MANAGEMENT CO., L.P.
By: LUSA GP, INC.
By:_____________________________
Vice-President
-13-
<PAGE>
EMPLOYEE
________________________________
-14-
EXHIBIT 21.1
LANDCARE USA, INC.
SUBSIDIARY COMPANIES
Arteka Acquisition Corp.
Arteka Natural Acquisition Corp.
Arteka Nurseries Acquisition Corp.
Desert Care Acquisition Corp.
D.R. Church Acquisition Corp.
Four Seasons Acquisition Corp.
Ground Control Acquisition Corp.
Southern Tree Acquisition Corp.
Trees Acquisition Corp.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and all references to our Firm included in this registration statement
on Form S-1 filed by LandCARE USA, Inc.
ARTHUR ANDERSEN LLP
Houston, Texas
March 18, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and all references to our Firm included in this registration statement
on Form S-1 filed by LandCARE USA, Inc.
HARPER AND PEARSON COMPANY PC
Houston, Texas
March 18, 1998
EXHBIT 23.4
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of LandCARE USA,
Inc. (the "Company") in the Registration Statement on form S-1 to be filed by
the Company with the Securities and Exchange Commission.
Dated: March ___ , 1998
By: ______________________________
Name: Linda T. Benge
EXHBIT 23.5
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of LandCARE USA,
Inc. (the "Company") in the Registration Statement on form S-1 to be filed by
the Company with the Securities and Exchange Commission.
Dated: March 10, 1998
By: /s/ Roger S. Braswell
Name: Roger S. Braswell
EXHIBIT 23.6
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of LandCARE USA,
Inc. (the "Company") in the Registration Statement on form S-1 to be filed by
the Company with the Securities and Exchange Commission.
Dated: March 12, 1998
By:/s/ Bruce A Church
Name: Bruce A. Church
EXHIBIT 23.7
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of LandCARE USA,
Inc. (the "Company") in the Registration Statement on form S-1 to be filed by
the Company with the Securities and Exchange Commission.
Dated: March 11, 1998
By:/s/ Horold D. Cranson
Name: Harold D. Cranston
EXHIBIT 23.8
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of LandCARE USA,
Inc. (the "Company") in the Registration Statement on form S-1 to be filed by
the Company with the Securities and Exchange Commission.
Dated: March __, 1998
By: /s/ Fred M. Ferreira
Name: Fred M. Ferreira
EXHIBIT 23.9
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of
LandCARE USA, Inc. (the "Company") in the Registration Statement on form S-1 to
be filed by the Company with the Securities and Exchange Commission.
Dated: March 12, 1998
By: /s/ Peter C. Forbes
Name: Peter C. Forbes
EXHIBIT 23.10
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of
LandCARE USA, Inc. (the "Company") in the Registration Statement on form S-1 to
be filed by the Company with the Securities and Exchange Commission.
Dated: March 10, 1998
By: /s/ Clark A. Johnson
Name: Clark A. Johnson
EXHIBIT 23.11
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of
LandCARE USA, Inc. (the "Company") in the Registration Statement on form S-1 to
be filed by the Company with the Securities and Exchange Commission.
Dated: March 9, 1998
By: /s/ David K. Luse
Name: David K. Luse
EXHIBIT 23.12
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of
LandCARE USA, Inc. (the "Company") in the Registration Statement on form S-1 to
be filed by the Company with the Securities and Exchange Commission.
Dated: March 10, 1998
By: /s/ Jeff A. Meyer
Name: Jeff A. Meyer
EXHIBIT 23.13
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of LandCARE USA,
Inc. (the "Company") in the Registration Statement on form S-1 to be filed by
the Company with the Securities and Exchange Commission.
Dated: March __, 1998
By: /s/ WILLIAM F. MURDY
Name: William F. Murdy
EXHIBIT 23.14
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of LandCARE USA,
Inc. (the "Company") in the Registration Statement on form S-1 to be filed by
the Company with the Securities and Exchange Commission.
Dated: March __, 1998
By: ________________________________________
Name: Patrick J. Norton
EXHIBIT 23.15
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of LandCARE USA,
Inc. (the "Company") in the Registration Statement on form S-1 to be filed by
the Company with the Securities and Exchange Commission.
Dated: March __, 1998
By: /s/ Ronald L Stanfa
Name: Ronald L. Stanfa
EXHIBIT 23.16
CONSENT TO BE NAMED AS A DIRECTOR
OF
LANDCARE USA, INC.
The undersigned hereby consents to be named as a director of LandCARE USA,
Inc. (the "Company") in the Registration Statement on form S-1 to be filed by
the Company with the Securities and Exchange Commission.
Dated: March 11, 1998
By: /s/ MARK S. YAHN
Name: Mark S. Yahn
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 218,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 227,000
<CURRENT-LIABILITIES> 203,000
<BONDS> 0
0
0
<COMMON> 24,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 227,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,557,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,557,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,557,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
