<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1998
REGISTRATION NO. 333-57013
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NATIONWIDE ELECTRIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1731 43-1807205
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1201 WALNUT STREET
SUITE 1300
KANSAS CITY, MISSOURI 64106
(816) 556-2582
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GREGORY J. ORMAN
CHAIRMAN OF THE BOARD
1201 WALNUT STREET
SUITE 1300
KANSAS CITY, MISSOURI 64106
(816) 556-2582
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JOHN A. GRANDA STEPHEN A. RIDDICK
STINSON, MAG & FIZZELL, P.C. PIPER & MARBURY L.L.P.
1201 WALNUT STREET 36 SOUTH CHARLES STREET
KANSAS CITY, MISSOURI 64106 BALTIMORE, MARYLAND 21201
(816) 842-8600 (410) 539-2530
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
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,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value per share...... $74,750,000 $25,651.52*
</TABLE>
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*Previously paid.
----------------
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 SUCH SECTION 8(A), MAY DETERMINE.
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<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
AUGUST 25, 1998
5,000,000 Shares
NATIONWIDE ELECTRIC, INC.
Common Stock
---------
All of the 5,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), offered hereby are being offered by Nationwide Electric, Inc.
("Nationwide"). Nationwide was founded in February 1998 to create a leading
provider of electrical contracting and maintenance services to commercial,
industrial and institutional customers. Nationwide acquired Parsons Electric
Co. ("Parsons") effective February 27, 1998 and conducted no operations prior
to that acquisition. Three additional companies (the "Acquired Companies") will
be acquired as a condition to, and simultaneously with, the offering made
hereby (the "Offering"). It is currently estimated that the initial offering
price will be between $11 and $13 per share. Prior to the Offering, there has
been no public market for the Common Stock. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. Of the net proceeds to Nationwide from the sale of the Common Stock
offered hereby, approximately $16.9 million will be paid to the stockholders of
the Acquired Companies in connection with the acquisition of the Acquired
Companies by Nationwide and approximately $6.2 million will be used to redeem
preferred stock owned by KLT Energy Services, Inc. ("KLT"), an affiliate of the
Company. See "Use of Proceeds." KLT has indicated that it will purchase 500,000
of the shares of Common Stock offered hereby at the initial public offering
price. The Common Stock has been approved for listing on the New York Stock
Exchange ("NYSE") under the trading symbol "NEL."
---------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY.
---------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY (1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total (2)........................ $ $ $
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</TABLE>
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(1) Before deducting expenses of the Offering payable by the Company estimated
at $1,450,000.
(2) Nationwide has granted the Underwriters a 30-day option to purchase up to
an additional 750,000 shares of Common Stock solely to cover over-
allotments, if any. To the extent the option is exercised, the Underwriters
will offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters, as stated
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to their right 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 ALEXl BROWN PIPER JAFFRAY INC.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS.
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
Effective February 27, 1998, Nationwide acquired Parsons through a merger
with an affiliated company owning all of Parsons' capital stock in exchange for
2,310,000 shares of Common Stock, 990,000 shares of Class A Non-Voting Common
Stock (which will be converted into an equal number of shares of Common Stock
concurrently with the consummation of the Offering) and 6,000 shares of its
preferred stock, par value $.01 per share ("Redeemable Preferred Stock").
Concurrently with the closing of the Offering, Nationwide plans to acquire in
separate transactions (collectively, the "Acquisitions"), in exchange for
consideration including shares of its Common Stock, the Acquired Companies,
namely: Allison-Smith Company (through its parent, The Allison Company)
("Allison-Smith"), Henderson Electric Co. Inc. ("Henderson"), and Potter
Electric Co., Inc. ("Potter"). Unless otherwise indicated, references herein to
"Nationwide" mean Nationwide Electric, Inc. and its subsidiaries (including
Parsons) and references to the "Company" mean Nationwide and the Acquired
Companies collectively.
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information and
share and per share data in this Prospectus (i) give effect to the
Acquisitions, (ii) give effect to the other Nationwide share issuances
subsequent to March 31, 1998, (iii) assume the Underwriters' over-allotment
option is not exercised and (iv) assume an initial public offering price of
$12.00 per share.
THE COMPANY
Nationwide is a leading provider of electrical contracting and maintenance
services to commercial, industrial and institutional customers. The Company
provides a wide array of electrical contracting services ranging from the
design and installation of electrical systems for new facilities, the
renovation and retrofit of existing electrical systems, specialized and value-
added services, as well as long-term and on-call maintenance and repair
services. The Company believes that its focused operating strategy, emphasis on
providing design-build, specialized and value-added services, prominence within
its markets and the experience of its executive management team will provide
the Company with significant competitive advantages as it pursues its growth
strategy. See "Business--General."
For the twelve months ended March 31, 1998, Nationwide provided specialty
electrical contracting and maintenance services primarily in Minnesota, as well
as in Alabama, Arkansas, Illinois, Iowa, North Dakota, Oregon, South Dakota,
Texas, Virginia and Wisconsin. Concurrently with the closing of the Offering,
Nationwide will expand its current business through the Acquisitions, making it
one of the largest providers of electrical contracting and maintenance services
in the U.S. The Company maintains six offices in five states and performed work
in 19 states, as well as in the United Kingdom and Canada, in the fiscal year
ended March 31, 1998. The Company generated pro forma combined revenues,
operating income and net income of $145.8, $8.4 and $5.1 million, respectively,
during that fiscal year, and $38.5, $2.4 and $1.5 million, respectively for the
three months ended June 30, 1998. Operating income and net income do not
include a nonrecurring, noncash compensation charge of $3.3 million ($2.0
million, net of tax) directly attributable to the transactions contemplated by
the Offering, which will be recorded in the first reportable quarter following
consummation of the Offering. Of such fiscal 1998 pro forma combined revenues,
approximately 28% were derived from "design-build" new construction projects,
26% were derived from "bid-to-spec" new construction projects, 26% were derived
from retrofit and renovation projects, 11% were derived from maintenance and
repair services and 9% were derived from specialized and value-added services.
The Company's customers include general contractors, property managers,
operators and owners of commercial, industrial and institutional properties,
real estate developers and governmental entities. See "Business--Services" and
"--Customers and Marketing."
3
<PAGE>
The Company emphasizes the marketing of its design-build expertise and
specialized and value-added services because it believes that its capabilities
and track record give it a sustainable competitive advantage and that such
services provide higher margins than general electrical contracting services.
The Company plans to capitalize on the long-standing customer relationships of
Parsons and the Acquired Companies in these and other service areas by
leveraging its resources and technical capabilities through sharing of
expertise, staffing flexibility, improved job selection processes, and Company-
wide implementation of best practices.
The Company estimates that the annual revenues generated by the electrical
contracting industry grew from approximately $39.3 billion in 1990 to
approximately $49.1 billion in 1995. The Company believes that it will be well-
positioned to capitalize on significant trends currently affecting its
industry. The Company expects that these trends, which include increased levels
of construction and renovation, more stringent electrical codes, enhanced
safety standards, demand for uninterruptible power, increased complexity of
systems, networking of local area and wide area computer systems, increases in
predictive and preventive maintenance to minimize process downtime, more
stringent national energy standards, demand to build out and reconfigure lease
spaces in office buildings and increases in use of electrical power, will
provide significant opportunities for growth. See "Business--Industry
Overview."
Nationwide was founded in February 1998 to execute an acquisition-based
growth strategy. The Company believes that the highly fragmented nature of its
industry presents substantial consolidation and growth opportunities. According
to industry sources, there are approximately 60,000 electrical contracting
businesses in the U.S., consisting of a small number of regional or national
providers and a large number of relatively small, owner-operated businesses.
The Company believes that its disciplined acquisition strategy, financial
strength, experienced management team, decentralized operating philosophy,
performance incentive programs and opportunities for advancement within the
Company will enable it to attract and acquire electrical contractors with
leading reputations in their regional or local markets. See "Business--Industry
Overview."
Nationwide was incorporated in Delaware on February 17, 1998. Its executive
offices are located at 1201 Walnut Street, Suite 1300, Kansas City, Missouri
64106 and its telephone number at that address is (816) 556-2582.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered hereby.... 5,000,000 shares
Common Stock to be outstanding
after the Offering............ 10,048,746 shares (1)
Use of Proceeds................ To pay the cash portion of the purchase price
for the Acquired Companies, to repay all of
the debt of Nationwide and the Acquired
Companies, to redeem shares of outstanding
Redeemable Preferred Stock and pay accrued
but unpaid dividends in respect thereof, to
repay expenses incurred in connection with
the organization of Nationwide and the
Offering and for general corporate purposes,
including future acquisitions.
NYSE symbol.................... NEL
</TABLE>
- --------
(1) Includes (i) 1,100,416 shares to be issued to the owners of the Acquired
Companies, (ii) 5,000,000 shares to be sold in the Offering and (iii)
3,948,330 shares issued to the existing stockholders and certain management
personnel of the Company. Excludes options to purchase approximately
220,000 shares of Common Stock that are expected to be granted upon
consummation of the Offering at an exercise price equal to the initial
public offering price. See "Management--1998 Stock Option Plans," "Certain
Transactions--Organization of the Company" and "Description of Capital
Stock--Common Stock."
4
<PAGE>
ACQUISITION CONSIDERATION
The aggregate consideration to be paid by Nationwide in the Acquisitions
consists of approximately $16.9 million in cash (approximately 31% of the net
proceeds of the Offering, 27% if the over-allotment option is exercised in
full) and 1,100,416 shares of Common Stock (collectively, the "Acquisition
Consideration"). The number of shares to be issued as part of the Acquisition
Consideration will depend upon the actual initial public offering price. The
Acquisition Consideration was determined by arms-length negotiations between
Nationwide and representatives of each of the Acquired Companies and was based
primarily on historical operating results and Nationwide's belief that
operating results will increase in the future based on the Company's strategy,
certain of the Acquired Companies' contracts in place and their respective
market outlooks. See "Business--Strategy." As described under "Certain
Transactions--Organization of the Company", the amount of Acquisition
Consideration set forth above does not reflect (i) an opportunity for the
stockholders of Allison-Smith, and the stockholder of Potter, to earn
additional cash consideration based on the future financial performance of
Allison-Smith and Potter, respectively, (ii) an additional cash bonus will be
paid to stockholder-officers of Allison-Smith, and (iii) the stockholders of
Henderson will receive all of Henderson's income from August 15, 1998 through
the consummation of the Offering.
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Nationwide will acquire the three Acquired Companies simultaneously with and
as a condition to the consummation of the Offering. For financial statement
presentation purposes, Nationwide, which includes Parsons (the "Predecessor"),
has been identified as the "accounting acquiror." Nationwide acquired Parsons
effective February 27, 1998 and conducted no operations prior to that
acquisition. The following summary unaudited pro forma combined financial data
present certain data for the Company, as adjusted for (i) the effects of the
Acquisitions, including the acquisition of Parsons (ii) the effects of certain
other pro forma adjustments to the historical financial statements and (iii)
the consummation of the Offering and the application of the net proceeds
therefrom. The unaudited pro forma combined income statement data assumes that
the Acquisitions, as well as the acquisition of Parsons and related
transactions, were closed on April 1, 1997 and are not necessarily indicative
of the results that the Company would have obtained had these events actually
occurred at that time, or of the Company's future results. During the periods
presented below, Nationwide and the Acquired Companies were not under common
control or management and, therefore, the data presented may not be comparable
to or indicative of postcombination results to be achieved by the Company. The
unaudited pro forma combined financial data should be read in conjunction with
the other financial information included elsewhere in the Prospectus. See
"Selected Financial Data," the Unaudited Pro Forma Combined Financial
Statements and notes thereto and the historical financial statements of
Nationwide, Parsons and the Acquired Companies and the notes thereto, all
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
---------------------------
THREE
MONTHS ENDED TWELVE
JUNE 30, MONTHS ENDED
1998 MARCH 31, 1998
------------ --------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................................... $38,474 $145,821
Cost of services, excluding depreciation shown
separately below................................ 31,773 121,046
------- --------
Gross profit..................................... 6,701 24,775
------- --------
Selling, general and administrative expenses (1). 4,004 14,911
Depreciation..................................... 187 862
Goodwill amortization (2)........................ 151 603
------- --------
Operating income................................. 2,359 8,399
Interest and other income (expense), net (3)..... 177 444
------- --------
Income before income taxes....................... 2,536 8,843
Income tax (4)................................... 1,075 3,773
------- --------
Income before a nonrecurring, noncash charge
directly attributable to the transaction (1).... $ 1,461 $ 5,070
======= ========
Income per share before a nonrecurring, noncash
charge directly attributable to the
transaction--basic and diluted (1).............. $ 0.15 $ 0.50
======= ========
Shares used in computing pro forma net income per
share--basic and diluted (5).................... 10,049 10,049
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------
JUNE 30, 1998
---------------------------------
COMBINED(6)(8) AS ADJUSTED(7)(8)
-------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................... $ (3,176)(9) $43,762
Total assets................................ 68,203 89,045
Long-term debt, net of current maturities... 1,149 --
Redeemable Preferred Stock.................. 6,263 --
Total stockholders' equity.................. 12,450 66,800
</TABLE>
- --------
(1) The unaudited pro forma combined statement of operations data reflect an
aggregate of approximately $1,190,000 for the twelve months ended March 31,
1998 and $109,000 for the three months ended June 30, 1998 in pro forma
reductions in salary, bonus and benefits of the owners of the Acquired
Companies to which they have agreed prospectively. Also, reflects results
of operations of one of the Acquired Companies for which historical
financial statements are not included. Additionally, reflects adjustments
to expenses associated with certain non-operating assets that will be
transferred from the Acquired Companies prior to the Acquisitions and
certain other transactions, including the elimination of activities related
to assets not purchased from the shareholders of Parsons (see Note 5a of
Notes to Unaudited Pro Forma Combined Financial Statements).
Under certain restricted stock purchase agreements, the Company has sold
315,000 shares of Common Stock to management, two outside directors and one
director nominee. As a result, the Company will record a non-recurring, non-
cash compensation charge of $3.3 million and related income tax benefit of
$1.3 million or $2.0 million ($0.20 per share) in the first reportable
quarter after the consummation of the Offering, representing the difference
between the amount paid for the shares and the estimated fair value thereof
(a fair value that is discounted ten percent from the assumed initial public
offering price). This non-recurring compensation charge is not included in
the Unaudited Pro Forma Combined Financial Statements.
(2) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions, as well as Parsons' acquisition, over a 40-year period.
(3) Reflects the reduction for interest expense of approximately $600,000 for
the twelve months ended March 31, 1998 and $200,000 for the three months
ended June 30, 1998 attributable to the repayment of approximately $10.8
and $9.9 million, respectively, of historical debt of Nationwide and the
Acquired Companies with proceeds from the Offering. Additionally, reflects
reductions in expenses associated with certain non-operating assets that
will be transferred to the Acquired Companies prior to the Acquisitions, as
well as activities related to assets not purchased from the shareholders of
Parsons.
(4) Assumes all pretax income before non-deductible goodwill and other
permanent items is subject to a statutory 40% tax rate.
(5) Includes (i) 3,948,330 shares of Common Stock issued or to be issued to
certain management personnel and the existing stockholders, (ii) 1,100,416
shares of Common Stock to be issued to the owners of the Acquired
Companies, (iii) 3,331,500 of the 5,000,000 shares of Common Stock to be
sold in the Offering to pay the cash portion of the Acquisition
Consideration, to repay expenses incurred in connection with the
organization of Nationwide and the Offering and to retire debt and redeem
the Redeemable Preferred Stock and (iv) 1,668,500 of the 5,000,000 shares
sold in the Offering to provide net cash to Nationwide expected to be used
for working capital and future acquisitions of businesses. Excludes options
to purchase approximately 220,000 shares of Common Stock that are expected
to be granted upon consummation of the Offering. See "Management--1998
Stock Option Plans."
(6) Reflects the Acquisitions and related transactions as if they had occurred
on June 30, 1998 as described in the Notes to Unaudited Pro Forma Combined
Financial Statements. The unaudited pro forma combined balance sheet data
should be read in conjunction with the other financial information and
historical financial statements and notes thereto included elsewhere in
this Prospectus.
(7) Reflects the closing of the Offering and the Company's application of the
net proceeds therefrom to fund the cash portion of the Acquisition
Consideration and to repay certain indebtedness of the Acquired Companies.
See "Use of Proceeds" and "Certain Transactions."
(8) Includes the payment of additional one-time bonuses to owners who are also
officers of Allison-Smith in accordance with the Stock Purchase Agreement
concurrently with the consummation of the Offering.
(9) Includes approximately $16.9 million payable to owners of the Acquired
Companies, representing the actual cash portion of the Acquisition
Consideration to be paid from a portion of the net proceeds of the
Offering.
6
<PAGE>
SUMMARY INDIVIDUAL FINANCIAL DATA OF PARSONS/NATIONWIDE AND THE
SIGNIFICANT ACQUIRED COMPANIES (IN THOUSANDS)
The following table presents certain summary historical income statement data
of Parsons/Nationwide and the significant Acquired Companies for each of their
three most recent fiscal years. The historical income statement data presented
below have not been adjusted for the pro forma adjustments reflected in the
Unaudited Pro Forma Combined Financial Statements, included elsewhere in this
Prospectus. The income statement data presented below has been derived from the
audited and unaudited financial statements of Nationwide, Parsons and the
significant Acquired Companies included elsewhere in this Prospectus. Also, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Introduction."
<TABLE>
<CAPTION>
PREDECESSOR NATIONWIDE
----------------------------------------- -------------- THREE MONTHS ENDED
FISCAL YEARS ENDED JUNE 30,
----------------------- JANUARY 1 TO JANUARY 1 TO -------------------
1995 1996 1997 FEBRUARY 27, 1998 MARCH 31, 1998 1997 1998
------- ------- ------- ----------------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PARSONS/NATIONWIDE(1)(4):
Revenue................ $52,017 $58,563 $58,005 $9,700 $4,305 $ 14,115 $ 13,448
Gross profit........... 8,355 9,401 10,657 1,870 703 2,392 2,312
ALLISON-SMITH(2):
Revenue................ 32,392 28,000 31,373 10,008 9,308
Gross profit........... 5,068 5,199 5,921 2,106 1,953
HENDERSON(3):
Revenue................ 27,337 36,409 44,000 8,836 11,459
Gross profit........... 4,149 5,384 6,048 910 1,756
</TABLE>
- --------
(1) The fiscal years presented for Parsons are for the years ended December 31.
(2) The fiscal years presented for Allison-Smith are for the years ended June
30, 1996, 1997 and 1998.
(3) The fiscal years presented for Henderson are for the years ended March 31,
1996, 1997 and 1998.
(4) The three months ended June 30, 1997 are predecessor historical amounts,
and include $1.0 million and $187,000 of revenues and gross profit,
respectively, related to the welding distribution business which the
Company did not purchase.
7
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in the following risk factors, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business" and elsewhere in
this Prospectus.
Limited Operating History; Integration of Acquired Companies. Nationwide was
founded in February 1998 in order to effectuate the acquisition of Parsons,
the Offering and the Acquisitions and commenced operations effective February
27, 1998. Accordingly, the Company has only a limited operating history upon
which to base an evaluation of its business and its prospects. The disclosures
regarding the Company contained in this Prospectus must be considered in light
of the risks, expenses and difficulties frequently encountered by companies in
their early stages of development.
The Company has entered into agreements to acquire the Acquired Companies
simultaneously with, and as a condition to, the Offering. The Acquired
Companies have been operating and will continue to operate as separate
independent entities or divisions of subsidiaries of the Company, 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 or to realize significant cost
savings and increased revenues from the combined operations. In addition,
there can be no assurance that the recently assembled management group will be
able to successfully manage the combined entity and effectively implement the
Company's operating and growth strategies. The pro forma combined financial
results of the Acquired Companies cover periods during which the Acquired
Companies and Nationwide were not under common control or management and,
therefore, may not be indicative of the Company's future financial or
operating results. The success of the Company will depend on management's
ability to integrate the Acquired Companies and other companies acquired in
the future into one organization in a profitable manner. The inability of the
Company to successfully integrate the Acquired Companies and to coordinate and
integrate certain operational, administrative, banking, insurance and
accounting functions and computer systems would have a material adverse effect
on the Company's financial condition and results of operations and would make
it unlikely that the Company's acquisition program will be successful. See
"Business--Strategy" and "Management."
Exposure to Downturns in Construction. A substantial portion of the
Company's business involves installation of electrical systems in newly
constructed and renovated properties for commercial, industrial or
institutional customers. The extent to which the Company is able to maintain
or increase revenues from new installation services will depend on the levels
of new construction starts from time to time in the geographic markets in
which it operates and likely will reflect the cyclical nature of the
construction industry. The level of new installation services is affected by
fluctuations in the level of new construction of properties for commercial,
industrial and institutional customers in the markets in which the Company
operates, due to local economic conditions, changes in interest rates and
other related factors. Downturns in levels of construction starts could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality; Fluctuations of Quarterly
Results."
Risks Related to Acquisition Strategy. One of the Company's principal growth
strategies is to increase its revenues and the markets it serves through the
acquisition of additional electrical contracting and maintenance service
companies. The Company expects to face competition for acquisition candidates,
which may limit the number of acquisition opportunities and may lead to higher
acquisition prices. There
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can be no assurance that the Company will be able to identify, acquire or
profitably manage additional businesses or to integrate successfully any
acquired businesses into the Company without substantial costs, delays or
other operational or financial problems. Further, acquisitions involve a
number of special risks, including failure of the acquired business to achieve
expected results, diversion of management's attention, failure to retain key
personnel of the acquired business and risks associated with unanticipated
events or liabilities, some or all of which could have a material adverse
effect on the Company's business, financial condition and results of
operations. Customer dissatisfaction or performance problems at a single
acquired company could have an adverse effect on the reputation of the Company
generally. In addition, there can be no assurance that the Acquired Companies
or other businesses acquired in the future will achieve anticipated revenues
and earnings. See "Business--Strategy."
Risks Related to Acquisition Financing. The timing, size and success of the
Company's acquisition efforts and the associated capital commitments cannot be
readily predicted. The Company intends to use its Common Stock for all or a
portion of the consideration for future acquisitions. If the Common Stock does
not maintain a sufficient market value or potential acquisition candidates are
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to pursue its acquisition program. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through future debt or equity
financings. Using cash to complete acquisitions and finance internal growth
could substantially limit the Company's financial flexibility, using debt
could result in financial covenants that limit the Company's operations and
financial flexibility and using equity may result in dilution of the ownership
interests of the then-existing stockholders of the Company. The Company has
recently initiated negotiations with a group of commercial banks to provide
the Company with a credit facility to be used for acquisitions, working
capital and other general corporate purposes. Entering into a credit facility
may result in the lender's imposition of financial covenants that limit the
Company's operations and financial flexibility. There can be no assurance that
the Company will be able to obtain financing if and when it is needed or that,
if available, it will be available on terms the Company deems acceptable. As a
result, the Company may be unable to pursue its acquisition strategy
successfully. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Combined Liquidity and Capital Resources" and
"Business--Strategy."
Risks Related to Operating and Internal Growth Strategies. A key element of
the Company's strategy is to increase the profitability and revenues of the
Acquired Companies and any subsequently acquired businesses. There can be no
assurance that the Company will be able to do so. A key component of the
Company's strategy is to operate the Acquired Companies and subsequently
acquired businesses on a decentralized basis, with local management retaining
responsibility for day-to-day operations, profitability and the internal
growth of the business. If proper overall business controls are not
implemented, this decentralized operating strategy could result in
inconsistent operating and financial practices at the Acquired Companies and
subsequently acquired businesses, and the Company's overall profitability
could be adversely affected. The Company's ability to generate internal
earnings growth will be affected by, among other factors, its ability to
expand the range of services offered to customers, expand its geographic
scope, attract new customers, increase the number of projects performed for
existing customers, hire and retain employees, open additional facilities and
reduce operating and overhead expenses. There can be no assurance that the
Company's strategies will be successful or that it will be able to generate
cash flow sufficient to fund its operations and to support internal growth.
The Company's inability to achieve internal earnings growth could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Strategy."
Management of Growth. The Company expects to grow both internally and
through acquisitions. Management expects to expend significant time and effort
in evaluating, completing and integrating acquisitions and opening new
facilities. There can be no assurance that the Company's systems, procedures
and controls will be adequate to support the Company's operations as they
expand. Any future
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growth also will impose significant additional responsibilities on members of
the senior management team, including the need to identify, recruit and
integrate new senior level managers and executives. There can be no assurance
that such additional management personnel will be identified, hired and
retained by the Company. To the extent that the Company is unable to manage
its growth efficiently and effectively, or is unable to attract and retain
additional qualified management, the Company's financial condition and results
of operations could be materially adversely affected. See "Business--
Strategy."
Availability of Qualified Employees. The Company's ability to provide high-
quality services on a timely basis requires an adequate supply of skilled
electricians, project estimators and project managers. Accordingly, the
Company's ability to increase its productivity and profitability will be
limited by its ability to employ, train and retain skilled personnel necessary
to meet the Company's requirements. Many companies in the electrical
contracting and maintenance services industry, including Parsons and the
Acquired Companies, are currently experiencing or may experience shortages of
qualified personnel, and there can be no assurance that the Company will be
able to maintain an adequate skilled labor force necessary to operate
efficiently, that the Company's labor expenses will not increase as a result
of a shortage in the supply of skilled personnel or that the Company will not
have to curtail its planned internal growth as a result of labor shortages.
See "Business--Employees" and "--Training, Quality Assurance and Safety."
Unionized and Open-Shop Workforce. The Company has organized two separate
subsidiaries to conduct its operations, one of which will acquire businesses
with unionized workforces and operate as a union contractor and the other of
which will acquire businesses with open-shop workforces and operate as an
open-shop contractor. Approximately 70% of the Company's employees are covered
by collective bargaining agreements. There can be no assurance that these
employees will not engage in strikes or work slowdowns or stoppages. Such
strikes or work slowdowns or stoppages and the resultant adverse impact on the
Company's relationship with its customers could have a material adverse effect
on the Company's business, financial condition and results of operations.
There can be no assurance that relations with unions representing Company
employees will not be adversely affected by the Company's ownership of an
open-shop subsidiary, or by any operations of that subsidiary within the same
geographic market in which the unionized subsidiary operates. In addition, the
Company's acquisition strategy could be adversely affected because of its
union status for a variety of reasons, including without limitation,
incompatibility with a target's existing unions and reluctance of open-shop
targets to become affiliated with a union-based company. See "Business--
Employees."
Competition. The electrical contracting and maintenance services industry is
highly competitive and is served by numerous small, owner-operated private
companies, public companies and several large regional companies. In addition,
there are relatively few, if any, barriers to entry into the market in which
the Company operates and, as a result, any organization that has adequate
financial resources and access to technical expertise may become a competitor
to the Company, including public utilities. Competition in the industry
depends on a number of factors, including price. Certain of the Company's
competitors may have lower overhead cost structures and may, therefore, be
able to provide their services at lower rates than the Company. In addition,
some of the Company's competitors are larger and have greater resources than
the Company. There can be no assurance that the Company's competitors do not
currently possess or will not develop the expertise, experience and resources
to provide services that are equal or superior in both price and quality to
the Company's services, or that the Company will be able to maintain or
enhance its competitive position. There can be no assurance that existing or
prospective customers of the Company will continue to outsource services in
the future. In addition, the Company may face competition for acquisition
targets from entities including, but not limited to, the small number of large
companies in the electrical contracting and maintenance services industry.
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."
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Contract Bidding Risks. A significant portion of the Company's revenues are,
and will continue to be, generated under fixed price contracts. The Company
must estimate the costs of completing a particular project, and the cost of
labor and materials may vary from the costs originally estimated by the
Company. These variations and other risks inherent in performing fixed price
contracts may result in revenue and gross profits different from those
originally estimated, which could result in reduced profitability or losses on
projects. Depending upon the size of a particular project, variations from
estimated contract costs can have a significant impact on the Company's
operating results for any fiscal quarter or year. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Introduction."
Certain of the Company's contracts are maintenance contracts pursuant to
which work is assigned on a project by project basis or maintenance services
are provided for a specific facility. There is generally no obligation on the
part of the Company's customers to assign work to the Company under these
agreements and there can be no assurance that customers will continue to
assign work to the Company. A significant decline in work assigned pursuant to
these contracts could have a material adverse effect on the results of
operations of the Company.
Contract Receivables. A high percentage of the Company's current assets is
typically composed of contract receivables due to the project nature of its
business and the large size of many of those projects. On a pro forma basis,
as of June 30, 1998, the Company had $31.8 million of total contract
receivables. The Company intends to implement improved credit and collection
policies to reduce the age and amount of its contract receivables and to
improve their collectibility. However, there can be no assurance that such
policies will be successfully implemented, that the Company will not suffer
one or more defaults on outstanding contract receivables, or that its
allowance for doubtful accounts will be adequate to cover the amount of any
such defaults.
Materiality of Goodwill. The Company's balance sheet immediately following
the Offering and consummation of the acquisition of the Acquired Companies
will include an amount designated as "goodwill" that represents 21% of total
assets and 28% of stockholders' equity. Goodwill arises when an acquiror pays
more for a business than the fair value of the tangible and separately
measurable intangible net assets. Generally accepted accounting principles
require that this and all other intangible assets be amortized over the period
benefited. Management has determined that the period benefited by the goodwill
will be no less than 40 years. If management were not to give effect to
shorter benefit periods of factors giving rise to a material portion of the
goodwill, earnings reported in periods immediately following the acquisition
would be overstated. In later years, the Company would be burdened by a
continuing charge against earnings without the associated benefit to income
valued by management in arriving at the consideration paid for the businesses.
Earnings in later years also could be significantly affected if management
determined then that the remaining balance of goodwill was impaired.
Management has reviewed all of the factors and related future cash flows which
it considered in arriving at the amount incurred to acquire each of the
Acquired Companies. Management concluded that the anticipated future cash
flows associated with intangible assets recognized in the Acquisitions will
continue indefinitely, and there is no persuasive evidence that any material
portion will dissipate over a period shorter than 40 years.
Seasonality; Fluctuations of Quarterly Results. The electrical contracting
and maintenance services industry can be subject to seasonal variations.
Generally, during the winter months, demand for new projects and maintenance
services may be lower due to reduced construction activity during inclement
weather, while demand for electrical contracting and maintenance services may
be higher due to damage caused by such weather. Additionally, the industry can
be highly cyclical. As a result, the Company's volume of business may be
adversely affected by declines in new projects in various geographic regions
of the U.S. Quarterly results may also be materially affected by the timing of
acquisitions, variations in the profit margins of projects performed during
any particular quarter, the timing and magnitude of acquisition assimilation
costs and regional economic conditions. Accordingly, the Company's operating
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results in any particular quarter may not be indicative of the results that
can be expected for any other quarter or for the entire year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality; Fluctuations of Quarterly Results."
Potential Exposure to Environmental Liabilities. The Company's operations
are subject to various environmental laws and regulations, including those
dealing with handling and disposal of waste products, polychlorinated
biphenyls, fuel storage and air quality. As a result of past and future
operations at its facilities, the Company may be required to incur remediation
costs and other expenses related thereto. There can be no assurance that the
Company will be able to identify or be indemnified for any or all potential
environmental liabilities relating to any acquired business.
Control by Existing Management and Stockholders. Following consummation of
the Acquisitions and the Offering, the Company's executive officers and
directors, the Initial stockholders (i.e., KLT Energy Services, Inc. and
Reardon Capital, LLC), the former stockholders of the Acquired Companies and
entities affiliated with them will beneficially own 5,048,746 shares of Common
Stock (5,548,746 if KLT Energy Services, Inc. effects its planned purchase of
500,000 shares of Common Stock in the Offering), representing approximately
50.2% and 55.2% of the aggregate outstanding shares of Common Stock,
respectively (46.8% and 51.4% if the Underwriters' overallotment option is
exercised in full). If the Company's executive officers and directors and
former stockholders of the Acquired Companies act in concert, they will be
able to control the Company's affairs, elect all of the members of the Board
of Directors and control the outcome of any matter submitted to a vote of
stockholders. See "Principal Stockholders."
Dependence on Key Personnel. The Company's operations are dependent on the
continued efforts of its executive officers and on senior management of
Parsons and the Acquired Companies. Furthermore, the Company will likely be
dependent on the senior management of companies that it may acquire in the
future. The loss of key personnel, or the inability to hire and retain
qualified employees could have an adverse effect on the Company's business,
financial condition and results of operations. The Company does not intend to
carry key-person life insurance on any of its employees. Certain members of
the executive management team and other key managers have employment
agreements with the Company, each of which contain noncompete agreements. See
"Management--Employment Agreements."
Proceeds of Offering Payable to Affiliates. A portion of the net proceeds of
this Offering will be used to pay the cash portion of the Acquisition
Consideration to the owners of the Acquired Companies (some of whom will
become officers, directors or key employees of the Company). A portion of the
remaining net proceeds will be used to repay outstanding indebtedness of
Nationwide and the Acquired Companies. Additionally, the Company has entered
into leases of real property and equipment with owners of certain of the
Acquired Companies, or their respective affiliates, and one of these owners
will become a director of the Company following the Offering. Because of these
relationships between the parties, these leases may not have been negotiated
at arm's length. See "Certain Transactions."
Shares Eligible for Future Sale. The sale of substantial amounts of the
Company's Common Stock in the public market following the Offering (including
shares issued on the exercise of outstanding stock options), or the perception
that such sales could occur, could adversely affect prevailing market prices
of the Company's Common Stock. All of the shares offered hereby will be freely
saleable in the public market after completion of the Offering, unless
acquired by affiliates of the Company.
Simultaneously with the closing of the Offering, the stockholders of the
Acquired Companies will receive, in the aggregate, 1,100,416 shares of Common
Stock as a portion of the Acquisition Consideration for their businesses.
Additionally, the existing stockholders of the Company and certain members of
management own 3,948,330 shares of Common Stock. None of these shares was or
will be issued in a transaction registered under the Securities Act of 1933,
as amended (the "Securities Act"), and,
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accordingly, such shares may not be sold except in transactions registered
under the Securities Act or pursuant to an exemption from registration,
including the exemption contained in Rule 144 under the Securities Act. When
these shares become eligible for sale, the market price of the Common Stock
could be adversely affected by the sale of substantial amounts of the shares
in the public market. The stockholders of the Acquired Companies have certain
registration rights with respect to their shares to be received that may be
exercised after the expiration of the one-year lock-up period described below.
If such stockholders, by exercising such registration rights, cause a large
number of shares to be registered and sold in the public market, such sales
may have an adverse effect on the market price of the Common Stock.
Upon the closing of this Offering, the Company also expects to grant options
to purchase approximately 220,000 shares of Common Stock, pursuant to the
Company's 1998 Stock Option Plans (the "1998 Stock Option Plans"). The
aggregate number of shares issuable pursuant to the 1998 Stock Option Plans
shall be 1,000,000. The Company intends to register all of the shares subject
to these options under the Securities Act for public resale. See "Management--
1998 Stock Option Plans."
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 the grant of employee stock
options (up to a maximum of 1,000,000 shares) under the 1998 Stock Option
Plans and for shares issued (i) in connection with acquisitions of businesses
and (ii) pursuant to the Nationwide Executive Stock Purchase Plan (up to a
maximum of 250,000 shares). Further, the Company's directors, executive
officers and certain stockholders who will beneficially own 5,048,746 shares
of Common Stock in the aggregate after the Offering have agreed not to
directly or indirectly offer for sale, sell or otherwise dispose of any Common
Stock for a period of one year after the date of this Prospectus without the
prior written consent of BT Alex. Brown Incorporated. BT Alex Brown
Incorporated has indicated that it does not currently foresee any
circumstances under which it would consent to the sale of Common Stock or
options by the Company or existing stockholders of the Company beyond the
exceptions stated above in this paragraph.
The Company currently intends to file a Registration Statement on Form S-1
covering up to an additional 5,000,000 shares of Common Stock under the
Securities Act for its use in connection with future acquisitions. Unless the
Company contractually restricts their resale, these shares generally will be
freely tradeable after their issuance so long as the shares are issued to
persons not affiliated with the Company or the companies being acquired. See
"Shares Eligible for Future Sale."
No Prior Market; Possible Volatility of Stock Price; Determination of
Offering Price. Prior to the Offering, there has been no public market for the
Common Stock. The initial public offering price of the Common Stock will be
determined through negotiations between the Company and the representatives of
the Underwriters and may not be indicative of the price at which the Common
Stock will trade after the Offering. See "Underwriting" for a description of
the factors to be considered in determining the initial public offering price.
The securities markets have, from time to time, experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. These fluctuations often substantially affect the market
price of a company's stock. The Common Stock has been approved for listing on
the NYSE, although there can be no assurance that an active trading market for
the Common Stock will develop or, if developed, will continue after the
Offering. The market price of the Common Stock could be subject to significant
fluctuations in response to numerous factors, including the timing of
acquisitions by the Company, variations in financial results or announcements
of material events by the Company or its competitors. Regulatory changes,
developments in the Company's industry or changes in general conditions in the
economy or the financial markets could also adversely affect the market price
of the Common Stock.
Certain Anti-Takeover Provisions. Certain provisions of the Company's
Amended and Restated Certificate of Incorporation, Amended and Restated
Bylaws, and Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the
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Company or limit the price that certain investors may be willing to pay in the
future for shares of the Common Stock. The Company's Board of Directors is
divided into three classes with each class consisting, as nearly as possible,
of one-third of the total number of directors and serving a staggered three-
year term. The Amended and Restated Certificate of Incorporation permits the
Board of Directors to determine the rights, preferences and restrictions of
unissued series of the Company's authorized Preferred Stock and to fix the
number and the designation of shares thereunder. The Amended and Restated
Bylaws contain restrictions regarding the right of stockholders to nominate
directors and to submit proposals to be considered at stockholder meetings.
Also, the Amended and Restated Certificate of Incorporation restricts the
right of stockholders to call a special meeting of stockholders and to act by
written consent. The Company also is subject to Section 203 of the Delaware
General Corporation Law (the "DGCL"), which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business transactions with an "interested stockholder" for a period of three
years following the time such stockholder became an interested stockholder.
See "Description of Capital Stock." In addition, the Amended and Restated
Certificate of Incorporation also requires super-majority voting requirements
for certain business combinations. The Board is also permitted by the Amended
and Restated Certificate of Incorporation to take into account the long-term
interests of stockholders and the interests of non-stockholder constituencies
with respect to business combinations.
Immediate and Substantial Dilution. Purchasers of shares of the Common Stock
offered hereby will experience immediate and substantial dilution in the net
tangible book value of their shares in the amount of $7.23 per share from the
initial public offering price. See "Dilution." In the event the Company issues
additional Common Stock in the future, including shares that may be issued in
connection with future acquisitions of businesses or other public or private
financings, purchasers of Common Stock in the Offering may experience further
dilution in the net tangible book value per share of the Common Stock.
Absence of Dividends. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying cash dividends on its Common Stock
in the immediate future. See "Dividend Policy."
Year 2000 Compliance. The Company intends to implement a common management
information system among Parsons, the Acquired Companies and subsequently
acquired businesses. The Company anticipates that the system it adopts on a
Company-wide basis will be designed to address Year 2000 issues associated
with computer systems that use only two digits to identify a year in the date
field. The ability of third parties with whom the Company transacts business
to address adequately their Year 2000 issues is outside of the Company's
control. There can be no assurance that the failure of the Company or such
third parties to address adequately their Year 2000 issues will not have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations.
Forward-Looking Statements. There are a number of statements in this
Prospectus that address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such matters
as the Company's strategy for internal growth and improved profitability,
additional capital expenditures (including the amount and nature thereof),
acquisitions of assets and businesses, industry trends and other such matters.
These statements are based on certain assumptions and analyses made by the
Company in light of its perception of historical trends, current business and
economic conditions and expected future developments as well as other factors
it believes are reasonable or appropriate. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including the risk factors
discussed in this Prospectus; general economic, market or business conditions;
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company; changes in laws or regulations and other factors, most
of which are beyond the control of the Company. Consequently, there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations.
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THE COMPANY
Nationwide is a leading provider of electrical contracting and maintenance
services to commercial, industrial and institutional customers. Effective
February 27, 1998, Nationwide acquired Parsons, which for the twelve months
ended March 31, 1998 provided specialty electrical contracting and maintenance
services primarily in Minnesota, as well as in Alabama, Arkansas, Illinois,
Iowa, North Dakota, Oregon, South Dakota, Texas, Virginia and Wisconsin.
Concurrently with and as a condition to the closing of the Offering,
Nationwide will acquire the three Acquired Companies making it one of the
largest providers of electrical contracting and maintenance services in the
U.S. During the fiscal year ended March 31, 1998, Parsons and the Acquired
Companies, which have been in business an average of 43 years, had pro forma
combined revenues of $146 million. A brief description of Parsons and each of
the Acquired Companies is set forth below.
PARSONS. Parsons was founded in 1927 and is headquartered in Minneapolis,
Minnesota. During the twelve months ended March 31, 1998, Parsons provided
services to customers primarily in Minnesota, as well as in Wisconsin, North
Dakota, South Dakota, Iowa, Texas, Oregon, Arkansas, Alabama, Virginia and
Illinois. Parsons had revenues of approximately $58 million for the fiscal
year ended December 31, 1997 with approximately 85% derived from repeat
customers. Parsons is a union contractor with over 300 employees providing
electrical contracting and maintenance services, including design and
installation, new construction and retrofit/renovation for commercial,
industrial and institutional customers. Don Dolan, former President of
Parsons, has entered into a one-year consulting agreement with the Company.
Joel Moryn, current President of Parsons, has entered into a three-year
employment agreement with the Company.
ALLISON-SMITH. Allison-Smith was founded in 1943 and is headquartered in
Atlanta, Georgia. During the twelve months ended March 31, 1998 Allison-Smith
has provided services to customers in Kansas, Georgia, Florida and Texas, as
well as the United Kingdom and Canada. Allison-Smith had revenues of
approximately $31 million for the fiscal year ended June 30, 1998 with
approximately 80% derived from repeat customers. Allison-Smith is a union
contractor with over 200 employees providing electrical contracting and
maintenance services as well as installation of wiring or cabling for
computer, telecommunication and security systems. Allison-Smith also has
significant design-build capability, particularly an established capability to
complete these projects on a "fast track" basis. Robert Allison, President of
Allison-Smith, will become a Director of the Company upon consummation of the
Offering and has entered into a three-year employment agreement with the
Company. David Cartwright and Lanny Thomas, each Vice Presidents of Allison-
Smith, have agreed to enter into three-year employment agreements with the
Company.
HENDERSON. Henderson was founded in 1919, is headquartered in Louisville,
Kentucky and maintains an additional office in Lexington, Kentucky. During the
twelve months ended March 31, 1998, Henderson has provided services to
customers in Kentucky and Indiana. Henderson had consolidated revenues of
approximately $44 million for the fiscal year ended March 31, 1998 with
approximately 75% derived from repeat customers. Henderson is a union
contractor with over 300 employees providing electrical contracting and
maintenance services as well as installation of wiring or cabling for
computer, telecommunication and security systems. Henderson also has
significant design-build capacity. Rodney and Bruce Henderson, respectively
Chief Executive Officer and President of Henderson, have each agreed to enter
into three-year employment agreements with the Company.
In 1986, Henderson established Eagle Electrical Systems, Inc. ("Eagle") as a
wholly-owned subsidiary which is headquartered in Cincinnati, Ohio. During the
twelve months ended March 31, 1998, Eagle provided services to customers in
Indiana, Kansas, Kentucky, Ohio and Wisconsin. Eagle is an open-shop
contractor with over 100 employees providing electrical contracting and
maintenance services, as well as installation of wiring or cabling for
computer, telecommunication and security systems.
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POTTER. Potter was founded in 1969 and is headquartered in Las Vegas,
Nevada. During the twelve months ended March 31, 1998, Potter provided
services to customers in California and Nevada. Potter had revenues of
approximately $11.4 million for the fiscal year ended March 31, 1998 with 85%
derived from repeat customers. Potter is an open-shop contractor with
approximately 120 employees providing electrical contracting and maintenance
services including installation of wiring and cabling for computer,
telecommunication and security systems primarily for large commercial projects
such as casinos. Ralph Pangonis, President, has entered into a three-year
employment agreement with the Company.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting underwriting discounts and commissions and
estimated Offering and Acquisition expenses) will be approximately $54.3
million ($62.7 million if the Underwriters' overallotment option is exercised
in full), assuming an initial public offering price of $12.00 per share.
Of the net proceeds, approximately $16.9 million will be used to pay the
cash portion of the Acquisition Consideration, all of which will be paid to
stockholders of the Acquired Companies, including a person who will become a
director of the Company upon consummation of the Offering. In addition, the
Company will use (i) $6 million to redeem the outstanding shares of Redeemable
Preferred Stock owned by KLT Energy Services, Inc., an affiliate of the
Company (see "Principal Stockholders") (ii) approximately $262,500 in payment
of accrued but unpaid dividends on the outstanding shares of Redeemable
Preferred Stock, and (iii) approximately $9.9 million to repay outstanding
indebtedness of Nationwide and the Acquired Companies as of June 30, 1998. The
remaining net proceeds (approximately $21.2 million) will be used for working
capital and for general corporate purposes, which are expected to include
future acquisitions. Pending such uses, the Company intends to invest the
remaining net proceeds in short-term, investment grade, interest bearing
securities. While the Company is continuously considering possible acquisition
prospects as part of its growth strategy, the Company presently has no binding
agreements to effect any mergers or acquisitions other than the Acquisitions.
DIVIDEND POLICY
The Company currently intends to retain its future earnings, if any, to
finance the growth, development and expansion of its business and,
accordingly, does not currently intend to declare or pay any cash dividends on
the Common Stock in the immediate future. The declaration, payment and amount
of future cash dividends, if any, will be made at the discretion of the
Company's Board of Directors after taking into account various factors,
including, among others, the Company's financial condition, results of
operations, cash flows from operations, current and anticipated capital
requirements and expansion plans, the income tax laws then in effect and the
requirements of Delaware law. In addition, the Company intends to enter into a
credit facility immediately after the Offering that will include restrictions
on the payment of cash dividends by the Company without the consent of the
lender.
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CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and the capitalization as of June 30, 1998 of the Company (i) on a
pro forma basis after giving effect to the acquisition of Parsons and the
Acquisitions and related transactions and (ii) on a pro forma combined basis,
as adjusted to give effect to the acquisition of Parsons and the Acquisitions
and related transactions and the Offering and the application of the estimated
net proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Unaudited Pro Forma Combined Financial
Statements of the Company and the related notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
------------------------
JUNE 30, 1998
------------------------
AS
COMBINED(1) ADJUSTED(3)
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term obligations........... $17,151(2) $ --
======= =======
Long-term debt, less current maturities............... $ 1,149 $ --
------- -------
Redeemable Preferred Stock: $.01 par value, 10,000,000
shares authorized; 6,000 shares issued and
outstanding, pro forma combined; and none issued and
outstanding, pro forma as adjusted (3)(4)............ 6,263 --
------- -------
Stockholders' equity:
Common Stock: $.01 par value, 30,000,000 shares
authorized; 3,948,330 shares issued and
outstanding, pro forma combined; and 10,048,746
shares issued and outstanding, pro forma as
adjusted (4)....................................... 39 100
Class A Nonvoting Common Stock: $.01 par value,
1,200,000 shares authorized; 1,089,999 issued and
outstanding, pro forma combined; and none issued
and outstanding, pro forma as adjusted (4)(5)...... 11 --
Additional paid-in capital.......................... 12,321 66,621
Shareholder notes................................... (50) (50)
Retained earnings (deficit)......................... 129 129
------- -------
Total stockholders' equity........................ 12,450 66,800
------- -------
Total capitalization.............................. $19,862 $66,800
======= =======
</TABLE>
- --------
(1) Combines the respective accounts of Nationwide and the Acquired Companies
as reflected in the Unaudited Pro Forma Combined Balance Sheet as of June
30, 1998 prior to the Offering.
(2) Includes approximately $16.9 million payable to the owners of the Acquired
Companies, which represents the cash portion of the Acquisition
Consideration to be paid from the net proceeds of the Offering.
(3) Upon the consummation of the Offering, the Company will redeem all of the
issued and outstanding Redeemable Preferred Stock from the net proceeds of
the Offering.
(4) Adjusted to reflect (i) the sale of 5,000,000 shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom
and (ii) an amendment to the Company's Certificate of Incorporation,
effective as of June 4, 1998, which increased the Company's authorized
capital stock to 41,200,000 shares, 10,000,000 of which are Preferred
Stock, 30,000,000 of which are Common Stock and 1,200,000 of which are
Class A Nonvoting Common Stock. See "Use of Proceeds" and "Description of
Capital Stock." Excludes options to purchase approximately 220,000 shares
of Common Stock that are expected to be granted upon consummation of the
Offering. See Management--1998 Stock Option Plans.
(5) Upon the consummation of the Offering, all of the issued and outstanding
shares of Class A Nonvoting Common Stock shall automatically convert into
1,089,999 shares of Common Stock.
17
<PAGE>
DILUTION
The deficit in pro forma combined net tangible book value of the Company at
June 30, 1998 was approximately $(6.4) million, or $(1.27) per share of Common
Stock. The deficit in pro forma combined net tangible book value per share is
determined by dividing the pro forma net tangible book value of the Company
(pro forma combined net tangible assets less pro forma combined total
liabilities) by the number of shares of Common Stock and Class A Nonvoting
Common Stock to be outstanding after giving effect to the Acquisitions. The
number of shares includes the 5,048,746 shares outstanding after the
Acquisitions. After giving effect to the sale by the Company of 5,000,000
shares of Common Stock offered hereby, and the conversion of 1,089,999 shares
of Class A Nonvoting Common Stock to Common Stock, and after deduction of the
underwriting discounts and commissions and estimated Offering expenses, the
pro forma net tangible book value of the Company at June 30, 1998 would have
been $48.0 million or $4.77 per share. This represents an immediate increase
in pro forma net tangible book value of $6.04 per share to existing
stockholders and an immediate dilution to new investors purchasing Common
Stock in the Offering of $7.23 per share. The following table illustrates the
per share dilution to new investors purchasing Common Stock in the Offering:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $12.00
Pro forma combined deficit in net tangible book value per
share prior to the Offering............................... $(1.27)
Increase in pro forma net tangible book value per share
attributable to new investors............................. 6.04
------
Pro forma combined net tangible book value per share after the
Offering......................................................... 4.77
------
Dilution in net tangible book value per share to new investors...... $ 7.23
======
</TABLE>
The following table sets forth, as of June 30, 1998, on a pro forma combined
basis to give effect to the Acquisitions, the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by (i) existing stockholders and stockholders of the Acquired
Companies and (ii) the new investors purchasing shares from the Company in the
Offering (before deducting underwriting discounts and commissions and
estimated Offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED AVERAGE
------------------ TOTAL PRICE
NUMBER(2) PERCENT CONSIDERATION(3) PER SHARE
---------- ------- ---------------- ---------
<S> <C> <C> <C> <C>
Existing stockholders and
stockholders of Acquired
Companies(1)................ 5,048,746 50.2% $(6,400,000) $(1.27)
New investors................ 5,000,000 49.8% 60,000,000 12.00
---------- ------ -----------
Total.................... 10,048,746 100.0% $53,447,000
========== ====== ===========
</TABLE>
- --------
(1) See "Certain Transactions" for a discussion of the issuance of Common
Stock to the existing stockholders and certain management of Nationwide.
(2) Excludes options to purchase approximately 220,000 shares of Common Stock
that are expected to be granted upon consummation of the Offering at an
exercise price equal to the initial public offering price. See
"Management--1998 Stock Option Plans."
(3) Total consideration paid by stockholders of the Acquired Companies and
existing stockholders represents the combined stockholders' equity of the
Acquired Companies before the Offering and the consideration paid by the
Initial Stockholders and management of the Company, adjusted to reflect
the payment of approximately $16.9 million in cash to the stockholders of
the Acquired Companies as part of the Acquisition Consideration. As
described under "Certain Transactions--Organization of the Company", the
amount of Acquisition Consideration set forth above does not reflect (i)
an opportunity for the stockholders of Allison-Smith, and the stockholder
of Potter, to earn additional cash consideration based on the future
financial performance of Allison-Smith and Potter, respectively, (ii) an
additional cash bonus will be paid to the stockholder-officers of Allison-
Smith, and (iii) the stockholders of Henderson will receive all of
Henderson's income from August 15, 1998 through the consummation of the
Offering.
18
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Nationwide will acquire the Acquired Companies simultaneously with and as a
condition to the consummation of the Offering. For financial statement
presentation purposes, Nationwide, which includes Parsons, has been identified
as the "accounting acquiror." The following selected historical financial data
for Parsons (Predecessor) as of December 31, 1993 through 1997 and for each of
the five years in the period ended December 31, 1997 and the period January 1
to February 27, 1998 have been derived from the audited financial statements
of Parsons. The following selected historical financial data of Nationwide
(which includes Parsons from date of acquisition effective February 27, 1998)
as of March 31, 1998 and for the period September 23, 1997 to March 31, 1998
and for the three month period ended June 30, 1998 have been derived from the
audited and unaudited combined financial statements of Nationwide. The results
of operations for the period September 23, 1997 to March 31, 1998 should not
be regarded as indicative of the results that may be expected for the full
year.
The selected unaudited pro forma combined financial data below present
certain data for the Company, adjusted for (i) the Acquisitions, (ii) the
effects of certain other pro forma adjustments to the historical financial
statements and (iii) the consummation of the Offering and the application of
the net proceeds therefrom. The unaudited pro forma combined income statement
data assume that the Acquisitions, the Offering and related transactions were
closed on April 1, 1997, and are not necessarily indicative of the results the
Company would have obtained had these events actually then occurred or of the
Company's future results. During the periods presented below, Nationwide,
including Parsons, and the Acquired Companies were not under common control or
management and, therefore, the data presented may not be comparable to or
indicative of post-combination results to be achieved by the Company. The
unaudited pro forma combined income statement data should be read in
conjunction with the other financial information included elsewhere in this
Prospectus. See Unaudited Pro Forma Combined Financial Statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR NATIONWIDE
-------------------------------------------------------- ------------------------
SEPTEMBER 23,
YEAR ENDED DECEMBER 31, JANUARY 1 TO 1997 TO APRIL 1 TO
------------------------------------------ FEBRUARY 27, MARCH 31, JUNE 30,
1993 1994 1995 1996 1997 1998 1998 1998
------- ------- ------- ------- ------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL INCOME
STATEMENT DATA:
Revenue................. $37,738 $42,128 $52,017 $58,563 $58,004 $9,700 $4,305 $13,448
Cost of services,
excluding depreciation
shown separately below. 32,132 36,401 43,662 49,162 47,347 7,830 3,602 11,137
------- ------- ------- ------- ------- ------ ------ -------
Gross profit............ 5,606 5,727 8,355 9,401 10,657 1,870 703 2,311
Selling, general and
administrative
expenses............... 4,741 4,874 5,776 6,234 6,985 1,310 898 1,723
Depreciation............ 272 400 395 435 447 63 33 73
Goodwill amortization... -- -- -- -- -- -- 8 67
------- ------- ------- ------- ------- ------ ------ -------
Operating income (loss). 593 453 2,184 2,732 3,225 497 (236) 448
Interest and other
income (expense), net.. 168 (135) (205) (121) (191) (17) (81) (161)
Income tax benefit
(expense).............. -- -- -- -- -- -- 121 (115)
------- ------- ------- ------- ------- ------ ------ -------
Net income (loss)....... 761 318 1,979 2,611 3,034 480 (196) 172
Pro forma provision for
income taxes........... 319 134 831 1,097 1,274 192 -- --
------- ------- ------- ------- ------- ------ ------ -------
Pro forma net income
(loss)................. $ 442 $ 184 $ 1,148 $ 1,514 $ 1,760 $ 288 $ (196) $ 172
======= ======= ======= ======= ======= ====== ====== =======
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
THREE MONTHS ENDED MARCH 31,
JUNE 30, 1998 1998
------------------ -------------------
<S> <C> <C>
PRO FORMA COMBINED:
Revenue................................. $38,474 $145,821
Cost of services, excluding depreciation
shown separately below................. 31,773 121,046
------- --------
Gross profit............................ 6,701 24,775
------- --------
Selling, general and administrative
expenses(1)............................ 4,004 14,911
Depreciation............................ 187 862
Goodwill amortization(2)................ 151 603
------- --------
Operating income........................ 2,359 8,399
Interest and other income (expense),
net(3)................................. 177 444
------- --------
Income before income tax................ 2,536 8,843
Income tax(4)........................... 1,075 3,773
------- --------
Income before a nonrecurring, noncash
charge directly attributable to the
transaction(1)......................... $ 1,461 $ 5,070
======= ========
Income per share before a nonrecurring,
noncash charge directly attributable to
the transaction(1)--basic and diluted.. $ 0.15 $ 0.50
======= ========
Shares used in computing pro forma
income per share(5)--basic and diluted. 10,049 10,049
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------
PREDECESSOR NATIONWIDE PRO FORMA
--------------------------------------- ------------------ ----------------------------
YEAR ENDED DECEMBER 31, JUNE 30, 1998
--------------------------------------- MARCH 31, JUNE 30, ----------------------------
1993 1994 1995 1996 1997 1998 1998 COMBINED(6) AS ADJUSTED(7)
------- ------- ------- ------- ------- --------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit).............. $ 2,637 $ 3,240 $ 4,618 $ 5,485 $ 5,399 $ 610 $ (108) $(3,176)(8) $43,762
Total assets............ 13,104 12,373 18,017 16,096 20,959 23,368 23,460 68,203 89,045
Long-term debt, net of
current maturities..... -- 412 362 312 262 -- -- 1,149 --
Redeemable Preferred
Stock.................. -- -- -- -- -- 6,000 6,150 6,263 --
Total stockholders'
equity................. 4,663 4,676 6,108 6,959 6,500 837 941 12,450 66,800
</TABLE>
- --------
(1) The unaudited pro forma combined statement of operations data reflect an
aggregate of approximately $1,190,000 for the twelve months ended March
31, 1998 and $109,000 for the three months ended June 30, 1998 in pro
forma reductions in salary, bonus and benefits of the owners of the
Acquired Companies to which they have agreed prospectively. Also, reflects
results of operations of one of the Acquired Companies for which
historical financial statements are not included. Additionally, reflects
adjustments to expenses associated with certain non-operating assets that
will be transferred from the Acquired Companies prior to the Acquisitions
and certain other transactions, including the elimination of activities
related to assets not purchased from the shareholders of Parsons (see Note
5a of Notes to Unaudited Pro Forma Combined Financial Statements).
Under certain restricted stock purchase agreements, the Company has sold
315,000 shares of Common Stock to management, two outside directors and one
director nominee. As a result, the Company will record a nonrecurring,
noncash compensation charge of $3.3 million and related benefit of $1.3
million or $2.0 million ($0.20 per share) in the first reportable quarter
following consummation of the Offering, representing the difference between
the amount paid for the shares and the estimated fair value thereof (a fair
value that is discounted ten percent from the assumed initial public
offering price). This nonrecurring compensation charge is not included in
the Unaudited Pro Forma Combined Financial Statements.
(2) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions, as well as Parsons' acquisition, over a 40-year period.
20
<PAGE>
(3) Reflects the reduction for interest expense of approximately $600,000 for
the twelve months ended March 31, 1998 and $200,000 for the three months
ended June 30, 1998 attributable to the repayment of approximately $10.8
and $9.9 million, respectively, of historical debt of Nationwide and the
Acquired Companies, with proceeds from the Offering. Additionally,
reflects reductions in expenses associated with certain non-operating
assets that will be transferred to the Acquired Companies prior to the
Acquisitions, as well as activities related to assets not purchased from
the shareholders of Parsons.
(4) Assumes all pretax income before non-deductible goodwill and other
permanent items is subject to a statutory 40% tax rate.
(5) Includes (i) 3,948,330 shares of Common Stock issued or to be issued to
certain management personnel and the existing stockholders, (ii) 1,100,416
shares of Common Stock to be issued to the owners of the Acquired
Companies, (iii) 3,331,500 of the 5,000,000 shares of Common Stock to be
sold in the Offering to pay the cash portion of the Acquisition
Consideration, to repay expenses incurred in connection with the
organization of Nationwide and the Offering and to retire debt and redeem
the Redeemable Preferred Stock and (iv) 1,668,500 of the 5,000,000 shares
sold in the Offering to provide net cash to Nationwide expected to be used
for working capital and future acquisitions of businesses. Excludes
options to purchase approximately 220,000 shares of Common Stock that are
expected to be granted upon consummation of the Offering. See
"Management--1998 Stock Option Plans."
(6) Reflects the Acquisitions and related transactions as if they had occurred
on June 30, 1998 as described in the Notes to the Unaudited Pro Forma
Combined Financial Statements. The unaudited pro forma combined balance
sheet data should be read in conjunction with the other financial
information and historical financial statements and notes thereto included
elsewhere in this Prospectus.
(7) Reflects the closing of the Offering and the Company's application of the
net proceeds therefrom to fund the cash portion of the Acquisition
Consideration and to repay certain indebtedness of the Acquired Companies.
See "Use of Proceeds" and "Certain Transactions."
(8) Includes approximately $16.9 million payable to owners of the Acquired
Companies, representing the actual cash portion of the Acquisition
Consideration to be paid from a portion of the net proceeds of the
Offering.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the
actual events or results may differ materially from the results discussed in
the forward looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk
Factors," as well as those discussed elsewhere in this Prospectus. The
historical results set forth in this discussion and analysis are not
indicative of trends with respect to any actual or projected future financial
performance of the Company. This discussion and analysis should be read in
conjunction with the Company's Unaudited Pro Forma Combined Financial
Statements, and Parson's and the Acquired Companies' and Nationwide's
Financial Statements and the related notes thereto included elsewhere in this
Prospectus.
INTRODUCTION
The Company's revenues are derived primarily from electrical contracting and
maintenance services provided to commercial, industrial and institutional
markets. The Company's services include installation and design for new
construction, renovation and retrofit projects as well as long-term and per
call maintenance and repair services. In addition, the Company offers design-
build expertise and specialized services that typically provide higher margins
than general electrical contracting and maintenance services as well as
enhance the value received by its customer. Specialized services include
installation of wiring or cabling for the following: data cabling for computer
networks; fiber optic cable systems; telecommunications systems; energy
management systems which control the amount of power used in facilities; fire
alarm and security systems; building management systems that integrate
computer, energy management, security, safety, comfort and telecommunication
systems; lightning protection systems; computer rooms; back-up electrical
systems and uninterruptible power supplies; and high voltage distribution.
Following the Offering, the Company also plans to offer value added services
such as energy efficiency, quality power and preventive maintenance.
The Company's customers include general contractors and builders,
architects, managers, operators and owners of commercial, industrial and
institutional properties (including manufacturers and service providers),
retail store chains, real estate developers and governmental entities. The
Company had pro forma combined revenues of $145.8 million for the twelve
months ended March 31, 1998 and $38.5 million for the three months ended June
30, 1998. Of such pro forma fiscal 1998 revenues, approximately 28% were
derived from "design-build" new construction projects, 26% were derived from
"bid-to-spec" new construction projects, 26% were derived from retrofit and
renovation projects, 11% were derived from maintenance and repair services and
9% were derived from specialized and value-added services.
The Company believes that it can reduce total operating expenses of the
Acquired Companies by eliminating duplicative administrative functions in
smaller acquisitions that are integrated into the Company's operations as well
as by consolidating certain administrative functions performed separately by
each company prior to its acquisition. Additionally, the Company believes that
its scale should lead to reduced costs in many other areas, without
compromising quality, particularly in the areas of (i) procurement best
practices and volume discounts from negotiating national agreements that
reflect combined purchasing power, (ii) fleet management, (iii) equipment
maintenance, (iv) financing, (v) insurance and bonding and (vi) employee
benefits. It is possible that costs related to the Company's new corporate
management, its status as a public company and integrating the Acquisitions
could offset a portion of these savings. The Company believes that neither
these savings nor the costs associated therewith can be quantified because the
Acquisitions have not yet occurred, and there have been no combined operating
results upon which to base any assumptions. As a result, these savings and
associated costs have not been included in the pro forma financial information
included herein.
22
<PAGE>
Under certain restricted stock purchase agreements, the Company has sold
315,000 shares of Common Stock to management, two outside directors and one
director nominee. As a result, the Company will record a non-recurring, non-
cash compensation charge of $3.3 million in the first reportable quarter
following consummation of the Offering, representing the difference between
the amount paid for the shares and the estimated fair value thereof (a fair
value that is discounted ten percent from the assumed initial public offering
price). This non-recurring compensation charge is not included in the
Unaudited Pro Forma Combined Financial Statements.
The Acquisitions will be accounted for using the purchase method of
accounting. Nationwide has been designated the "accounting acquiror" in the
Acquisitions. Accordingly, the excess of the fair value of the consideration
paid for the Acquisitions of $14.6 million over the fair value of the net
assets acquired by Nationwide from the Acquired Companies will be recorded as
"goodwill." In addition, goodwill totaling $4.3 million was recorded in
connection with the cash purchase of Parsons. Together, this goodwill,
totaling $18.9 million, will be amortized over its useful life of 40 years as
a non-cash charge to operating income. The pro forma effect of this
amortization expense is expected to be approximately $432,000 per year. For
purposes of the transactions discussed above, the Company utilized a $10.20
per share value for the Common Stock. This valuation reflects a 15% discount
from the assumed initial public offering price. The difference between the
discount used and a nominal discount of 10% is immaterial. See "Certain
Transactions--Organization of the Company." In addition, $425,000 of payments
made pursuant to non-compete agreements with key managers at Parsons will be
amortized over lives ranging from 21-36 months as a non-cash charge to
operating income, or $170,000 per year.
A brief description of the accounting terms used to present the results of
operations of Parsons and the significant Acquired Companies is as follows:
Revenues. The Company enters into contracts either on a negotiated basis or
based on competitive bids (the final terms and prices of which are frequently
negotiated with the customer). Although the terms of the contracts undertaken
by the Company vary considerably, the contracts are usually based on either a
lump sum or fixed fee. Most installation projects are completed within one
year, while maintenance and repair work is frequently provided under open-
ended service agreements which are renewable annually and are based on an
hourly labor rate and an agreed mark-up on materials. Revenues from lump sum
contracts are generally recorded on a percentage-of-completion basis, using
the cost-to-cost method based on the percentage of total costs incurred to
date in proportion to total estimated costs to complete the contract. The
Company recognizes revenue when services are performed except when work is
being performed under a fixed price or cost-plus-fee contract. Such contracts
generally provide that once the customer accepts completion of progress to
date, it is obligated to compensate the Company for services which have been
rendered, measured typically in terms of units installed, hours expended or
some other measure of progress. Certain of the Company's customers require the
Company to post performance and payment bonds upon execution of the contract,
depending upon the nature of the work to be performed. The Company's fixed
price contracts often include payment provisions pursuant to which the
customer withholds a 5% to 10% retainage from each progress payment and
forwards the retainage to the Company upon final completion and approval of
the work.
Cost of services. Cost of services consists primarily of salaries and
benefits to non-management employees, materials, parts and supplies, fuel and
other vehicle expenses, equipment rentals, and subcontracted services. The
Company's gross margin, which is gross profit expressed as a percentage of
revenues, is typically higher on projects where labor, rather than materials,
constitutes a greater portion of the cost of services. Labor costs can be
calculated with relatively less accuracy than materials costs. Therefore, to
compensate for the potential variability of labor costs, the Company seeks to
maintain higher margins on its labor-intensive projects.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of compensation and related benefits
to management, administrative salaries and benefits, marketing, office rent
and utilities, depreciation, communications and professional fees.
23
<PAGE>
The Acquired Companies have operated throughout the periods presented as
independent, privately-owned entities, and their results of operations reflect
varying tax structures (Parsons was an S corporation and the other Acquired
Companies are C corporations) which have influenced the historical level of
owners' compensation. Gross profits and selling, general and administrative
expenses as a percentage of revenues may not be comparable among the
individual Acquired Companies. In connection with the Acquisitions, certain
owners of Parsons and the Acquired Companies have agreed to reductions in
their compensation and related benefits for the pro forma twelve months ended
March 31, 1998 totaling $1,190,000. Such reductions have been reflected as a
pro forma adjustment in the Pro Forma Combined Financial Statements and in the
terms of the employment agreements which such persons have agreed to enter
with the Company.
REGULATORY MATTERS
The Company's operations are subject to the authority of various state and
municipal regulatory bodies concerned with the licensing of contractors. The
Company has experienced no material difficulty in complying with the
requirements imposed on it by such regulatory bodies. See "Business--
Regulation."
SEASONALITY; FLUCTUATIONS OF QUARTERLY RESULTS
The Company's results of operations can be subject to seasonal variations.
Historically, during the winter months, demand related to new projects and
maintenance services may be lower due to reduced construction activity during
inclement weather while demand for electrical contracting and maintenance
services may be higher due to damage caused by such weather. Additionally, the
industry can be highly cyclical. As a result, the Company's volume of business
may be adversely affected by declines in new projects in various geographic
regions in the U.S. The Company believes, however, that such seasonality will
be substantially mitigated by its emphasis on acquiring businesses in growing
markets as well as the geographic diversity and significant contracts of the
Acquired Companies in place. Quarterly results may also be materially affected
by the timing of acquisitions, variations in the profit margins of projects
performed during any particular quarter, the timing and magnitude of
acquisition assimilation costs and regional economic conditions. Accordingly,
the Company's operating results in any particular quarter may not be
indicative of the results that can be expected for any other quarter or for
the entire year.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
Upon consummation of the Acquisitions and after applying the net proceeds of
the Offering as discussed under "Use of Proceeds," the Company will have $25.6
million of pro forma cash and cash equivalents, $43.8 million of pro forma
working capital and no outstanding indebtedness. It is anticipated that the
Acquired Companies' indebtedness of $2.2 million, along with $7.7 million of
Nationwide indebtedness, will be repaid from the proceeds of the Offering. See
discussion of individual Acquired Companies' liquidity and capital resources
included elsewhere herein.
The Company has entered into a preliminary agreement with Harris Trust and
Savings Bank and Norwest Bank of Minnesota, N.A., acting as co-agents, under
which it expects to enter into a credit facility, subject to negotiation of a
mutually acceptable credit agreement, effective immediately following and
conditioned upon consummation of the Offering. The terms and conditions of the
facility would provide for an unsecured three year $30 million revolving
credit facility to provide funds to be used for working capital, to finance
acquisitions and for other general corporate purposes. Amounts borrowed under
the proposed credit facility will bear interest at a rate equal to the Prime
Rate or, alternatively, LIBOR plus 1.00% to 1.75%. Commitment fees of 0.25% to
0.35% (based on certain financial ratios) are due on the credit facility. The
Company's existing and future subsidiaries will guarantee the repayment of all
amounts due under the facility and the facility restricts pledges on all
material assets. The Company expects that the credit facility will require
usual and customary covenants for a credit facility of this nature including
the consent of the lenders for acquisitions utilizing the line of credit and
exceeding a certain size.
24
<PAGE>
As part of its growth strategy, the Company intends to pursue an acquisition
program. The timing, size or success of any acquisition effort and the
associated potential capital commitments cannot be predicted. The Company
expects to fund future acquisitions primarily with a portion of the net
proceeds of the Offering, working capital, issuances of additional equity,
borrowings, including any unborrowed portion of the proposed credit facility,
as well as cash flow from operations. The Company anticipates that its cash
flow from operations and proceeds from the Offering will provide sufficient
cash to enable the Company to meet its working capital needs, debt service
requirements and planned capital expenditures for property and equipment
through at least fiscal 1999. On a combined basis, the Acquired Companies made
capital expenditures of approximately $500,000 in fiscal 1998.
Parsons utilizes a purchased, integrated management information system that
management believes is Year 2000 compliant. The present intention is to
install this system at the Acquired Companies. The cost associated with the
installations has not been determined.
IMPACT OF INFLATION
Due to relatively low levels of inflation experienced during the years ended
December 31, 1995, 1996 and 1997, inflation did not have a significant effect
on the combined results of the Acquired Companies in those periods.
RESULTS OF OPERATIONS--NATIONWIDE AND PREDECESSOR
Nationwide was organized in February 1998 to undertake the Acquisitions and
the Offering. On February 27, 1998, the Company acquired Parsons, also
referred to herein as the Company's Predecessor, in a cash purchase
transaction.
The following table sets forth selected historical statement of operations
data and such data as a percentage of revenues for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR
THREE MONTHS THREE MONTHS
ENDED JUNE ENDED JUNE
30, 1997 30, 1998
(UNAUDITED) (UNAUDITED)
------------- -------------
<S> <C> <C> <C> <C>
Revenue........................................... $14,115 100.0% $13,448 100.0%
Cost of services.................................. 11,724 83.1% 11,137 82.8%
------- ----- ------- -----
Gross profit.................................... 2,391 16.9% 2,311 17.2%
Selling, general and administrative expense....... 1,707 12.1% 1,863 13.9%
------- ----- ------- -----
Operating income.................................. $ 684 4.8% $ 448 3.3%
======= ===== ======= =====
</TABLE>
Nationwide results for the three months ended June 30, 1998 compared to the
Predecessor results for the three months ended June 30, 1997
Revenues. Revenues decreased $667,000, or 4.7%, from $14.1 million for the
three months ended June 30, 1997 to $13.4 million for the three months ended
June 30, 1998, primarily due to the exclusion of welding distribution sales of
$1.0 million which were included in the 1997 period. The welding distribution
business previously operated by Predecessor was not purchased by the Company.
Excluding welding distribution sales from the Predecessor results for the
three months ended June 30, 1997, revenues would have increased $333,000 or
2.4%, in the 1998 period compared to the 1997 period.
Gross Profit. Gross profit decreased $80,000, or 3.3%, from $2.4 million for
the three months ended June 30, 1997 to $2.3 million for the three months
ended June 30, 1998. As a percentage of revenues, gross profit increased from
16.9% to 17.2%. The gross profit associated with welding distribution sales
for the three months ended June 30, 1997 was $187,000. Excluding the welding
distribution gross profit from the 1997 period, gross profit increased
$107,000 or 4.9%, in the 1998 period compared to the 1997 period. The increase
in gross profit and gross margin was primarily attributable to a greater
portion of revenues being generated by maintenance and repair services.
25
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $156,000, or 9.1%, from $1.7 million for the
three months ended June 30, 1997 to $1.9 million for the three months ended
June 30, 1998, primarily due to $226,000 of Nationwide organizational and
administrative expenses incurred in the 1998 period in connection with the
Acquisitions and Offering. As a percentage of revenues, selling, general and
administrative expenses increased from 12.1% to 13.9%.
Other income (expense). Other income for the three months ended June 30,
1997 and June 30, 1998 consists principally of employee vehicle reimbursement.
Income tax expense. Income tax expense increased $115,000 for the three
months ended June 30, 1998 from nothing for the three months ended June 30,
1997. For the period in 1997, the Predecessor had elected to be taxed as a Sub
chapter S Corporation.
Net income. The change in net income for the three month period is the
result of the other changes noted above.
Nationwide Liquidity and Capital Resources. Nationwide generated $523,000 of
net cash from operating activities for the three months ended June 30, 1998.
Net cash used in investing activities was $375,000, primarily for the purchase
of property, plant and equipment. Net cash used in financing activities was
$855,000, primarily used to repay debt.
At June 30, 1998, Nationwide had negative working capital of $108,000 and no
long-term debt.
The Predecessor used $652,000 of net cash from operating activities for the
three months ended June 30, 1997. Net cash used in investing activities was
$53,000, primarily for the purchase of property plant and equipment. Net cash
provided by financing activities of $727,000 resulted from net borrowings
under the Predecessor's line of credit used for operating activities,
purchases of property and equipment and distributions to shareholders.
At June 30, 1997, the Predecessor had working capital of $5.9 million and
total long-term debt of $337,000 outstanding.
RESULTS OF OPERATIONS--PARSONS
Parsons was founded in 1927 and is headquartered in Minneapolis, Minnesota.
During the twelve months ended March 31, 1998, Parsons provided services to
customers primarily in Minnesota, as well as in Alabama, Arkansas, Illinois,
Iowa, North Dakota, Oregon, South Dakota, Texas, Virginia and Wisconsin.
Parsons is a union contractor with over 300 employees providing electrical
contracting and maintenance services, including design and installation, new
construction and retrofit/renovation for commercial, industrial and
institutional customers.
The following table sets forth selected historical statement of operations
data and such data as a percentage of revenues for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue........................... $52,017 100.0% $58,563 100.0% $58,005 100.0%
Cost of services.................. 43,662 83.9% 49,162 83.9% 47,348 81.6%
------- ----- ------- ----- ------- -----
Gross profit.................... 8,355 16.1% 9,401 16.1% 10,657 18.4%
Selling, general and
administrative expense........... 6,171 11.9% 6,669 11.4% 7,432 12.8%
------- ----- ------- ----- ------- -----
Operating income.................. $ 2,184 4.2% $ 2,732 4.7% $ 3,225 5.6%
======= ===== ======= ===== ======= =====
</TABLE>
26
<PAGE>
Parsons results for the year ended December 31, 1997 compared to the year
ended December 31, 1996
Revenues. Revenues decreased $558,000, or 1.0%, from $58.6 million for the
year ended December 31, 1996 to $58.0 million for the year ended December 31,
1997, primarily as a result of a decrease in demand for services associated
with a large "bid-to-spec" contract on the new Federal Reserve building in
Minneapolis in 1996, which decrease was partially offset by increased demand
for design-build services.
Gross profit. Gross profit increased $1.3 million, or 13.4%, from $9.4
million for the year ended December 31, 1996 to $10.7 million for the year
ended December 31, 1997. As a percentage of revenues, gross profit increased
from 16.1% to 18.4%. The increase in gross profit and gross margin is
primarily a result of Parsons replacing lower margin bid work with higher
margin design-build services.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $763,000, or 11.4%, from $6.7 million for
the year ended December 31, 1996 to $7.4 million for the year ended December
31, 1997, primarily due to increases in administrative salaries and benefits.
As a percentage of revenues, selling, general and administrative expenses
increased from 11.4% to 12.8%.
Other income (expense). Other income in 1997 and 1996 consists principally
of employee vehicle reimbursement.
Net Income. The change in net income for the year is the result of the other
changes noted above.
Parsons results for the year ended December 31, 1996 compared to the year
ended December 31, 1995.
Revenues. Revenues increased $6.6 million, or 12.6%, from $52.0 million for
the year ended December 31, 1995 to $58.6 million for the year ended December
31, 1996, primarily as a result of securing and executing a significant
portion of one large "bid-to-spec" contract for the Federal Reserve building
in Minneapolis.
Gross profit. Gross profit increased $1.0 million, or 12.5%, from $8.4
million for the year ended December 31, 1995 to $9.4 million for the year
ended December 31, 1996, primarily as a result of the increased demand for
services during the year. As a percentage of revenues, gross profit was
unchanged at 16.1%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $498,000, or 8.1%, from $6.2 million for the
year ended December 31, 1995 to $6.7 million for the year ended December 31,
1996, primarily due to increases in administrative salaries and benefits and
costs associated with the implementation of new information systems. As a
percentage of revenues, selling, general and administrative expenses decreased
from 11.9% to 11.4%.
Other income (expense). Other income in 1996 and 1995 consists principally
of employee vehicle reimbursement.
Net Income. The change in net income for the year is the result of the other
changes noted above.
Parsons Liquidity and Capital Resources. Parsons used $541,000 of net cash
from operating activities for the year ended December 31, 1997. Net cash used
in investing activities was $428,000, primarily for the purchase of property
plant and equipment and receivables from related parties. Net cash provided by
financing activities of $560,000 resulted from net borrowings under Parsons'
line of credit for purchases of property and equipment and distributions to
shareholders.
At December 31, 1997, Parsons had working capital of $5.4 million and total
long-term debt of $262,000 outstanding.
27
<PAGE>
Parsons generated $4.2 million in net cash from operating activities for the
year ended December 31, 1996. Net cash used in investing activities was
$364,000, principally for the purchase of property and equipment. Net cash
used in financing activities of $3.4 million resulted from repayments of the
line of credit and distributions to shareholders.
At December 31, 1996, Parsons had working capital of $5.5 million and total
long-term debt of $312,000 outstanding.
RESULTS OF OPERATIONS--ALLISON-SMITH
Allison-Smith was founded in 1943 and is headquartered in Atlanta, Georgia.
Allison-Smith has provided services to customers in Kansas, Georgia, Florida
and Texas, as well as the United Kingdom and Canada during the past twelve
months. Allison-Smith earned revenues of approximately $31 million for the
fiscal year ended June 30, 1998 with approximately 80% derived from repeat
customers. Allison-Smith also has significant design-build capability,
particularly, an established capability to complete these projects on a "fast
track" basis.
The following table sets forth selected historical statement of operations
data and such data as a percentage of revenues for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue........................... $32,392 100.0% $28,000 100.0% $31,373 100.0%
Cost of services.................. 27,324 84.4% 22,801 81.4% 25,452 81.1%
------- ----- ------- ----- ------- -----
Gross profit.................. 5,068 15.6% 5,199 18.6% 5,921 18.9%
Selling, general and
administrative expenses.......... 2,502 7.7% 2,660 9.5% 3,302 10.5%
------- ----- ------- ----- ------- -----
Operating income.................. $ 2,566 7.9% $ 2,539 9.1% $ 2,619 8.4%
======= ===== ======= ===== ======= =====
</TABLE>
Allison-Smith results for the year ended June 30, 1998 compared to the year
ended June 30, 1997
Revenues. Revenues increased $3.4 million, or 12.0%, from $28.0 million for
the year ended June 30, 1997 to $31.4 million for the year ended June 30,
1998, primarily due to increased demand for specialized and value-added
services, including fast-track design-build services for telecommunications
customers.
Gross profit. Gross profit increased $722,000, or 13.9%, from $5.2 million
for the year ended June 30, 1997 to $5.9 million for the year ended June 30,
1998. As a percentage of revenues, gross profit increased from 18.6% to 18.9%,
primarily due to the increased proportion of revenues attributable to
specialized and value-added services which have a higher margin than the
general contracting services provided by Allison-Smith.
Selling, general and administrative expense. Selling, general and
administrative expenses increased $642,000, or 24.1%, from $2.7 million for
the year ended June 30, 1997 to $3.3 million for the year ended June 30, 1998,
primarily due to an increase in owner's compensation for the year ended June
30, 1998. As a percentage of revenues, selling, general and administrative
expenses increased from 9.5% to 10.5%.
Other income (expense). Other income and expense was insignificant for each
of the years ended June 30, 1998 and June 30, 1997.
Net Income. The change in net income for the period is the result of the
other changes noted above.
Allison-Smith results for the year ended June 30, 1997 compared to the year
ended June 30, 1996
Revenues. Allison-Smith experienced an abnormally high demand for general
contracting services in the year ended June 30, 1996 due to the building
activity associated with the Olympics. Primarily due to
28
<PAGE>
the fact that the unusual demand from the Olympics did not reoccur in 1997,
revenues decreased $4.4 million, or 13.6%, from $32.4 million for the year
ended June 30, 1996 to $28.0 million for the year ended June 30, 1997.
Gross profit. Gross profit increased $131,000, or 2.6%, from $5.1 million
for the year ended June 30, 1996 to $5.2 million for the year ended June 30,
1997. As a percentage of revenues, gross profit increased from 15.6% to 18.6%,
primarily due to a shift in business toward the higher margin renovation and
retrofit projects which replaced some of the lower margin general contracting
services provided by Allison-Smith.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $158,000, or 6.3%, from $2.5 million for the
year ended June 30, 1996 to $2.7 million for the year ended June 30, 1997,
primarily due to increased personnel costs associated with the increased
revenues achieved in 1996 and increased administrative salaries and owner
compensation. As a percentage of revenues, selling, general and administrative
expenses increased from 7.7% to 9.5%.
Other income (expense). Other income (expense) was not significant for the
year ended June 30, 1997. Other expense for the year ended June 30, 1996
primarily consists of loss on disposals of fixed assets.
Net Income. The change in net income for the year is the result of the other
changes noted above.
Allison-Smith Liquidity and Capital Resources
Allison-Smith generated $3.4 million of net cash from operating activities
for the year ended June 30, 1998. Net cash used in investing activities was
$90,000 primarily for the purchase of property, plant and equipment. Net cash
used in financing activities of $1.1 million resulted from repayments of long-
term debt.
At June 30, 1998, Allison-Smith had working capital of $7.4 million and
total long-term debt of $1.0 million outstanding.
Allison-Smith generated $142,000 in net cash from operating activities for
the year ended June 30, 1997. Cash from operating activities can be
significantly impacted by the timing of billings and collections of billings.
Net cash used in investing activities was $152,000, principally for the
purchase of property and equipment. Net cash used in financing activities of
$94,000 resulted from repayments of the long-term debt.
At June 30, 1997, Allison-Smith had working capital of $6.0 million and
total long-term debt of $1.1 million outstanding.
RESULTS OF OPERATIONS--HENDERSON
Henderson and Eagle have been reported on a consolidated basis.
Henderson was founded in 1919 as a union contractor, is headquartered in
Louisville, Kentucky and maintains an additional office in Lexington,
Kentucky. During the past twelve months Henderson has provided services to
customers in Kentucky and Indiana. In 1986 Henderson established Eagle as a
wholly-owned open-shop subsidiary which is headquartered in Cincinnati, Ohio.
During the past twelve months, Eagle provided services to customers in
Indiana, Kansas, Kentucky, Ohio and Wisconsin. Henderson provides electrical
contracting and maintenance services, as well as installation of wiring or
cabling for computer, telecommunications and security systems, and has
significant design-build capability.
29
<PAGE>
The following table sets forth selected historical statement of operations
data and such data as a percentage of revenues for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1998
------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue................................. $ 8,836 100.0% $ 11,459 100.0%
Cost of services........................ 7,926 89.7% 9,702 84.7%
--------- --------- --------- --------
Gross profit.......................... 910 10.3% 1,757 15.3%
Selling, general and administrative
expense................................ 895 10.1% 1,010 8.8%
--------- --------- --------- --------
Operating income........................ $ 15 0.2% $ 747 6.5%
========= ========= ========= ========
</TABLE>
Henderson results for the three months ended June 30, 1998 compared to the
three months ended June 30, 1997
Revenues. Revenues increased $2.6 million, or 29.7%, from $8.8 million for
the three months ended June 30, 1997 to $11.5 million for the three months
ended June 30, 1998, primarily as a result of increased demand for "bid-to-
spec" new construction services in the food processing and distribution and
automotive markets.
Gross profit. Gross profit increased $847,000, or 93.1%, from $910,000 for
the three months ended June 30, 1997 to $1.8 million for the three months
ended June 30, 1998, primarily as a result of increased revenues and the
completion of some jobs at better than expected margins. As a percentage of
revenues, gross profit increased from 10.3% to 15.3%, primarily due to the
completion of some jobs at better than anticipated margins and to a lesser
degree a more favorable mix of jobs.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $115,000, or 12.8%, from $895,000 for the
three months ended June 30, 1997 to $1.0 million for the three months ended
June 30, 1998, primarily due to headcount additions resulting in increased
salaries and benefits. As a percentage of revenues, selling, general and
administrative expenses decreased from 10.1% to 8.8%.
Other income (expense). During 1998, the Company received a one-time workers
compensation insurance refund in the amount of $124,000.
Net Income. The change in net income for the three months is the result of
the other changes noted above.
The following table sets forth selected historical statement of operations
data and such data as a percentage of revenues for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... $27,337 100.0% $36,409 100.0% $44,000 100.0%
Cost of services.................. 23,188 84.8% 31,025 85.2% 37,952 86.3%
------- ----- ------- ----- ------- -----
Gross profit.................. 4,149 15.2% 5,384 14.8% 6,048 13.7%
Selling, general and
administrative expense........... 3,230 11.8% 3,439 9.5% 4,376 9.9%
------- ----- ------- ----- ------- -----
Operating income.................. $ 919 3.4% $ 1,945 5.3% $ 1,672 3.8%
======= ===== ======= ===== ======= =====
</TABLE>
Henderson results for the year ended March 31, 1998 compared to the year ended
March 31, 1997
Revenues. Revenues increased $7.6 million, or 20.8%, from $36.4 million for
the year ended March 31, 1997 to $44.0 million for the year ended March 31,
1998, primarily as a result of increased demand for "bid-to-spec" new
construction services in the food processing and distribution, and
institutional markets.
30
<PAGE>
Gross profit. Gross profit increased $664,000, or 12.3%, from $5.4 million
for the year ended March 31, 1997 to $6.0 million, primarily as a result of
increased revenues. As a percentage of revenues, gross profit decreased from
14.8% to 13.7%, primarily due to the increased proportion of "bid-to-spec" new
construction services provided by Henderson which generally generate lower
gross margins than the "design-build" services provided by Henderson.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $937,000, or 27.2%, from $3.4 million for
the year ended March 31, 1997 to $4.3 million for the year ended March 31,
1998, primarily due to increases in administrative salaries and bonuses. As a
percentage of revenues, selling, general and administrative expenses increased
from 9.5% to 9.9%.
Other income (expense). Other income and expense primarily included joint
venture income during 1998 and 1997 of $202,233 and $139,909, respectively. In
addition, during 1997 the Company sold its interest in a partnership which
developed and leased property and recognized a gain on the sale of $120,417.
Net Income. The change in net income for the year is the result of the other
changes noted above.
Henderson results for the year ended March 31, 1997 compared to the year ended
March 31, 1996
Revenues. Revenues increased $9.1 million, or 33.2%, from $27.3 million for
the year ended March 31, 1996 to $36.4 million for the year ended March 31,
1997, primarily as a result of increased demand for "bid-to-spec" services
associated with the automotive market.
Gross profit. Gross profit increased $1.2 million, or 29.8%, from $4.2
million for the year ended March 31, 1996 to $5.4 million for the year ended
March 31, 1997, primarily as a result of the increase in revenues. As a
percentage of revenues, gross profit decreased 0.4%, from 15.2% for the year
ended March 31, 1996 to 14.8% for the year ended March 31, 1997. The decrease
in gross margin was primarily a result of an increased portion of "bid-to-
spec" new construction services during the year, which generally generate
lower gross margins than the "design-build" services provided by Henderson.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $209,000, or 6.5%, from $3.2 million for the
year ended March 31, 1996 to $3.4 million for the year ended March 31, 1997,
primarily due to increases in administrative salaries and benefits. As a
percentage of revenues, selling, general and administrative expenses decreased
from 11.8% to 9.5%.
Other income (expense). The Company recognized joint venture income during
1997 of $139,909 and there were no joint venture activities during 1996.
During 1997, the Company sold its interest in a partnership which developed
and leased property and recognized a gain on the sale of $120,417.
Net Income. The change in net income for the year is the result of the other
changes noted above.
Henderson Liquidity and Capital Resources
Henderson used $254,000 of net cash for operating activities for the three
months ended June 30, 1998. Net cash generated by investing activities was
$44,000, primarily from collections of loans to related parties offset by
purchases of property, plant and equipment. Net cash used for financing
activities of $24,000 resulted from net borrowings for the period.
At June 30, 1998, Henderson had working capital of $6.7 million and total
long-term debt of $350,000 outstanding.
Henderson provided $1.0 million of net cash from operating activities for
the three months ended June 30, 1997. Net cash used in investing activities
was $323,000, primarily for related parties and
31
<PAGE>
purchase of property,plant and equipment. Net cash used for financing
activities of $260,000 resulted from the net repayment of outstanding debt.
Henderson provided $857,000 of net cash for operating activities for the
year ended March 31, 1998. Net cash used in investing activities was $571,000,
primarily for the purchase of property, plant and equipment. Net cash used for
financing activities of $520,000 resulted from net repayment of outstanding
notes.
At March 31, 1998, Henderson had working capital of $6.2 million and total
long-term debt of $369,000 outstanding.
Henderson generated $443,000 in net cash from operating activities for the
year ended March 31, 1997. Net cash used in investing activities was $234,000,
principally for the purchase of property and equipment. Net cash generated in
financing activities of $26,000 resulted from net borrowings for the period.
At March 31, 1997, Henderson had working capital of $3.3 million and total
long-term debt of $514,000 outstanding.
32
<PAGE>
BUSINESS
GENERAL
Nationwide is a leading provider of electrical contracting and maintenance
services to commercial, industrial and institutional customers. The Company
provides a wide array of electrical contracting services ranging from the
design and installation of electrical systems for new facilities, the
renovation and retrofit of existing electrical systems, specialized and value-
added services, as well as long-term and on-call maintenance and repair
services. The Company believes that its focused operating strategy, emphasis
on providing design-build, specialized and value-added services, prominence
within its markets and the experience of its executive management team will
provide the Company with significant competitive advantages as it pursues its
growth strategy.
For the twelve months ended March 31, 1998, Nationwide provided specialty
electrical contracting and maintenance services primarily in Minnesota, as
well as in Alabama, Arkansas, Illinois, Iowa, North Dakota, Oregon, South
Dakota, Texas, Virginia and Wisconsin. Concurrently with the closing of the
Offering, Nationwide will expand its business through the Acquisitions, making
it one of the largest providers of electrical contracting and maintenance
services in the U.S. The Company maintains six offices in five states and
performed work in 19 states, as well as in the United Kingdom and Canada, in
the fiscal year ended March 31, 1998. During that fiscal year, the Company
generated pro forma combined revenues, operating income and net income of
$145.8, $8.4 and $5.1 million, respectively and $38.5, $2.4 and $1.5 million,
respectively, for the three months ended June 30, 1998. Operating income and
net income do not include a nonrecurring, noncash compensation charge of $3.3
million ($2.0 million, net of tax) directly attributable to the transactions
contemplated by the Offering, which will be recorded in the first reportable
quarter following the consummation of the Offering. Of such fiscal 1998 pro
forma revenues, approximately 28% were derived from "design-build" new
construction projects, 26% were derived from "bid-to-spec" new construction
projects, 26% were derived from retrofit and renovation projects, 11% were
derived from maintenance and repair services, and 9% were derived from
specialized and value-added services. The Company's customers include general
contractors, property managers, operators and owners of commercial, industrial
and institutional properties, real estate developers and governmental
entities. See "Business--Services" and "--Customers and Marketing."
INDUSTRY OVERVIEW
According to industry estimates, annual revenues generated by the electrical
contracting industry grew from approximately $39.3 billion in 1990 to
approximately $49.1 billion in 1995. Approximately 81% of the annual revenues
in 1995 were derived from non-residential customers.
Industry sources indicate that the overall industry revenue mix has shifted
over the past 30 years as modernization, or retrofit work, and the percentage
of services provided on a negotiated rather than bid basis have increased.
According to industry sources, during the period from 1967 through 1993, the
percentage of revenues from new construction projects generated by the largest
electrical contractors (those with annual sales in excess of $1,000,000 who
traditionally are most heavily involved in new construction projects) has
declined from 83% to 56%. On an industry-weighted basis, approximately 30% of
revenues in 1993 were attributable to electric modernization, or retrofit
work, and approximately 20% of revenues were derived from maintenance and
repair services. Thirty years ago, approximately 75% of electrical
contractors' work was obtained through the traditional competitive bid
process. It is estimated that 50% of such work currently is obtained through
competitive bidding with the remainder being obtained on a negotiated basis.
The Company believes that growth in the commercial, industrial and
institutional markets reflects a number of factors, including (i) increased
levels of construction and renovation activity; (ii) the effects of more
stringent electrical codes which establish minimum power and wiring
requirements; (iii) increases
33
<PAGE>
in use of electrical power due to new technologies, creating needs for
increased capacity and outlets, as well as data cabling and fiber optics; (iv)
requirements for enhanced safety systems resulting in large part from
enactment of the Americans with Disabilities Act; (v) new demands for
uninterruptible power in high-tech environments; (vi) increased complexity of
systems requiring specialized technical expertise; (vii) networking of local
area and wide area computer systems; (viii) minimization of downtime through
predictive and preventive maintenance; (ix) revised national energy standards
that dictate the use of more energy-efficient lighting fixtures and other
equipment; (x) continuing demand to build out lease spaces in office buildings
and to reconfigure space for new tenants; and (xi) installation of electrical
capacity in excess of minimum code requirements by building owners and
developers to improve the marketability of their properties.
In addition, the Company believes that the impending deregulation of the
electric utility industry will lead to new demands for the Company's services.
As suppliers of power are generating and supplying electricity to the power
distribution system and as customers choose suppliers other than their local
utility monopoly, the Company believes a market perception will result that
power will become less reliable. The Company believes further that, as a
result of this perception, customers will take more responsibility to ensure
the quality and reliability of their power. Such customers will increase
demand for a number of the Company's specialized services including:
uninterruptible power systems, surge suppression systems, and diesel and
battery back-up systems, among others.
The Company believes that the highly fragmented nature of this industry
presents substantial consolidation and growth opportunities. According to the
industry sources, there are approximately 60,000 electrical contracting
businesses in the U.S., consisting of a small number of regional or national
providers and a large number of relatively small, owner-operated businesses
that have limited access to capital and that offer a limited range of
services. The Company believes that its disciplined acquisition strategy,
financial strength, experienced management, decentralized operating
philosophy, performance incentive programs and opportunities for advancement
within the Company will enable it to attract and acquire electrical
contractors with leading reputations in their regional or local markets.
STRATEGY
The Company plans to enhance its position as a leading provider of
electrical contracting and maintenance services to commercial, industrial and
institutional customers by implementing its operating strategy, emphasizing
continued internal growth and expanding through acquisitions.
OPERATING STRATEGY. The Company believes there are significant opportunities
to increase revenues and profitability of Parsons, the Acquired Companies and
subsequently acquired businesses. The key elements of the Company's operating
strategy are:
Operate on a Decentralized Basis. The Company intends to manage the
Acquired Companies and subsequently acquired businesses on a decentralized
basis, with local management retaining responsibility for the day-to-day
operations, profitability and internal growth of each local 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,
specialized skills and customer relationships of Parsons and the Acquired
Companies, as well as retain the entrepreneurial spirit 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 expanding services, operating and purchasing
expertise, marketing, recruiting and risk management. In addition, certain
Company-wide standards will be implemented pertaining to safety, training
and other matters designed to ensure integration and uniformly high quality
and reliability.
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Achieve Operating Efficiencies. Certain administrative functions will be
centralized following the Offering. In addition, by eliminating redundant
operations of the Acquired Companies and subsequently acquired businesses,
the Company expects to achieve more efficient asset utilization and realize
savings in overhead and other expenses. The Company intends to use its
"best practices" procurement methods and increased purchasing power to
negotiate national purchasing agreements providing substantial volume
discounts in areas such as vehicles and equipment, electrical materials,
marketing, bonding, employee benefits and insurance. In addition, the
Company will seek to realize cost savings and increase efficiency and
productivity through the implementation of "best practices" for operating
management, pricing, working capital management, bidding and other business
practices and through the sharing of licenses and systems. As used in this
prospectus, the term "best practices" means those business practices
designed by the Company that are intended to optimize the efficient use of
capital and human resources and reduce costs consistent with maintaining
uniformly high quality of service and materials, in each case to the
greatest extent reasonably practicable. The Company intends to develop
further and expand the use of management information systems to facilitate
financial control, project costing and asset utilization. At some
locations, the larger combined workforce will provide additional staffing
flexibility.
Focus on Commercial, Industrial and Institutional Customers and National
Accounts. The Company believes that commercial, industrial and
institutional customers and national accounts are attractive because of (i)
the potential for preferred relationships with such customers, particularly
those that are expanding nationally and regionally, (ii) the opportunity to
create recurring revenues through long-term service and maintenance
contracts, (iii) the increasing importance of such customers due to the
consolidation of real estate ownership by real estate investment trusts
("REITS") and other national real property owners, and (iv) the opportunity
to create greater profitability through more negotiated jobs, repeat
business and national pricing arrangements. The Company believes that its
expanded geographic presence and technical capabilities will position it to
meet the significant demands of such customers seeking to reduce the number
of vendors they do business with.
INTERNAL GROWTH. A principal component of the Company's strategy is to
continue its internal growth in revenues and profitability by improving job
selection and leveraging its technical expertise, increasing focus on
specialized and value-added services, increasing its market penetration and
geographic scope. The key elements of the Company's internal growth strategy
are:
Improve Job Selection and Sharing of Technical Expertise. The Company
believes that it can improve the job selection processes of the Acquired
Companies by pursuing opportunities presenting the most desirable
combination of revenue and profit potential. These processes will
facilitate access to technical expertise and referrals among the Acquired
Companies in order to leverage such expertise and existing resources.
Increase Focus on Specialized and Value-Added Services. The Company
believes that it can expand the scope of the traditional services offered
by electrical contractors by providing specialized and value-added
services. These services include: design and engineering for, and
installation of, wiring and switching systems for computers and data
transmission, uninterruptible power and surge suppression systems; energy
efficiency technologies; and preventive and predictive maintenance
programs. Such services, typically sold on a negotiated bid basis directly
to the customer, rather than through a general contractor or other
intermediary, can provide higher margins than general electrical
contracting services.
Increase Market Penetration and Geographic Scope. The Company also
intends to expand its market share and the markets it serves by (i)
increasing the volume and scope of services provided to existing customers,
(ii) broadening its customer base, and (iii) expanding its geographic
service area. The Company believes it will be able to expand the services
it offers in its markets by leveraging the specialized strengths of Parsons
and individual Acquired Companies as well as strengthen its preferred
provider relationships with its national and regional customers.
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ACQUISITIONS. The Company intends to pursue an aggressive but disciplined
acquisition strategy, in conjunction with its operating strategy, to increase
revenue growth, improve profitability, capitalize on procurement and operating
efficiencies, and improve its position to serve customers with national,
regional or local scope. The Company expects that it will have significant
opportunities to pursue its acquisition strategy due to (i) the highly
fragmented nature of the electrical contracting industry, (ii) the desire of
property managers, owners and other existing and potential clients with
locations in multiple markets to limit the number of vendors that can serve
their needs, (iii) the need for economies of scale, access to capital to
expand and operating expertise to remain competitive, and (iv) the desire of
business owners for liquidity. The Company believes that its financial
strength, experienced management, decentralized operating philosophy,
performance incentive programs and opportunities for advancement within the
Company will be attractive to acquisition candidates. The key elements of the
Company's acquisition strategy are:
Enter New Geographic Markets. The Company intends to expand into
geographic markets not currently served by the Acquired Companies. Based on
its analysis of growth rate, size and other demographic trends in regions
of the U.S., the Company has prioritized expansion in the Southeast,
Southwest and Midwest U.S. The Company may also pursue acquisitions as
opportunities arise in other regions where consistent with its financial
and strategic goals. The Company will target one or more electrical
contractors that are leaders in their respective regional markets or have
unique market positions, as well as possess the critical mass and committed
senior management necessary to operate on a decentralized basis and to
become a hub into which other, smaller operations in the geographic market,
can be consolidated. The Company also expects that increasing its
geographic diversity will (i) enable it to better serve the needs of large
national and regional customers, (ii) mitigate market-related risks such as
local and regional economic cycles as well as weather related or seasonal
variations in business, and (iii) enable it to flexibly pool and
effectively deploy its human and financial resources.
Expand Within Existing Markets. The Company will seek acquisition
opportunities in the geographic markets it already serves as well as in
geographic markets served by businesses the Company may acquire in the
future. The Company believes that these acquisitions would enable it to
expand the Company's share in that market, broaden its range of service
offerings, add customers, and amortize over a broader base the fixed costs
associated with establishing a presence in that market. The Company also
will pursue "tuck-in" acquisitions of smaller electrical contractors whose
operations can be integrated effectively into existing operations in that
market and create additional leverage of existing resources and technical
expertise.
ACQUISITION PROGRAM
The Company believes that it will be regarded by acquisition candidates as
an attractive acquiror because of (i) its operating and growth strategies that
are intended to maintain and further its status as a national, comprehensive
and professionally managed provider of traditional, specialized and value
added electrical contracting services, (ii) its emphasis on development of
long-term customer relationships at the national, regional and local levels
using enhanced and proactive marketing programs that build brand identity and
loyalty in conjunction with maintaining existing business names and identities
to retain goodwill for marketing purposes, (iii) the opportunity to leverage
existing customer relationships by cross-selling the technical expertise and
niche capabilities of Parsons and the Acquired Companies, (iv) the Company's
decentralized operating philosophy that will capitalize on local and regional
market knowledge and retain entrepreneurial spirit and initiative, (v) the
potential for owners of the acquired businesses to participate in the
Company's growth through stock ownership, attractive performance-based
bonuses, stock options and other incentives, and advancement within the
Company, (vi) the Company's increased access to financial resources as a
public company to support internal growth and fund acquisitions, (vii) the
opportunity to realize liquidity through sales of Company stock, (viii) the
potential for a reduced and more competitive cost structure due to purchasing
economies and other economies of scale, the
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implementation of "best practices," enhanced management information and other
system capabilities, and centralization of certain administrative functions,
and (ix) the founding investment in the Company by Kansas City Power & Light
Company ("KCP&L"), a publicly traded electric utility which, after the
Offering, will have an ownership interest in the Company through its indirect,
wholly-owned subsidiary, KLT Energy Services, Inc.
The Company has developed a set of financial, geographic and management
criteria to establish a disciplined approach to evaluating acquisition
candidates. These criteria contain a variety of factors, including, but not
limited to: (i) historical and projected financial performance, including
growth of revenues, profits and cash flow, (ii) internal rate of return and
return on assets, (iii) valuation of assets, balance sheet strength and
quality and adequacy of equipment, facilities and other infrastructure, (iv)
size, growth rate and other demographic trends of the relevant local and
regional market and whether that market will enhance the Company's market area
or ability to attract other candidates, (v) reputation and market share of the
candidate in the local and regional market, (vi) size, breadth, depth and
quality of the candidate's customer base, (vii) whether the candidate provides
special skills or services or access to new customer segments, (viii) quality
of management team, (ix) potential synergies obtainable from the acquisition,
and (x) liabilities of the candidate, contingent or otherwise.
The principals of the Acquired Companies have substantial experience in the
commercial, institutional and industrial electrical contracting industry, are
active in industry 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 binding agreements to effect any
acquisitions other than the acquisitions of the Acquired Companies.
As consideration for future acquisitions, the Company intends to use various
combinations of its Common Stock, cash and debt financing. 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 candidate, return on invested capital, asset
valuation, strength of management and the ability of the candidate to
complement or leverage the services already offered by the Company. The
Company has entered into preliminary agreements with Harris Trust and Savings
Bank and Norwest Bank of Minnesota, N.A., acting as co-agents, under which it
expects to enter into an unsecured, three-year $30 million revolving credit
facility, subject to negotiation of a mutually acceptable credit agreement,
effective immediately following and conditioned upon consummation of the
Offering. The facility would be used to finance acquisitions and for working
capital and other general corporate purposes. 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.
SERVICES
The Company provides a wide array of electrical contracting services ranging
from the design and installation of electrical systems for new facilities, the
renovation and retrofit of existing electrical systems, specialized and value
added services, as well as long-term and on-call maintenance and repair
services.
DESIGN, INSTALLATION, RENOVATION AND RETROFIT SERVICES. The Company designs
and installs electrical systems for new construction as well as renovation and
retrofit projects. New construction projects, and renovation and retrofit
projects, for commercial, industrial and institutional customers begin with
either a design request or engineer's plans from the owner or general
contractor. Initial meetings with the parties allow the contractor to prepare
preliminary and then more detailed design specifications, engineering drawings
and cost estimates. Once a project is awarded, it is conducted in scheduled
phases, and progress billings are rendered to the owner for payment,
oftentimes less a retainage of 5% to 10% of the construction cost of the
project. Actual field work (ordering of equipment and materials, fabrication
or assembly of certain components, delivery of materials and components to the
job site, scheduling of
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work crews and inspection and quality control) is coordinated during these
phases. The Company generally provides the materials to be installed as a part
of these contracts, which vary significantly in size from a few hundred
dollars to in excess of $10 million and vary in duration from less than a day
to approximately two years.
MAINTENANCE AND REPAIR SERVICES. The Company's maintenance services are
supplied on a long-term and on call basis. Such services generally provide
recurring revenues and high margins that are relatively independent of
construction activity levels. The Company's long-term maintenance services are
typically provided by Company personnel who remain on-site at the customer's
premises. The Company believes that such continuous on-site presence provides
it with a preferred position to obtain opportunities for renovation or
retrofit projects from such customers.
The Company's on call maintenance services are initiated when a customer
requests repair service or the Company calls the client to schedule periodic
maintenance work. Service technicians are scheduled for the call or routed to
the customer's business by the dispatcher. Service personnel work out of the
Company's service vehicles, which carry an inventory of equipment, tools,
parts and supplies needed to complete the typical variety of jobs. The
technician assigned to a service call travels to the business, interviews the
customer, diagnoses the problem, prepares and discusses a price quotation,
performs the work and often collects payment from the customer. Most work is
warrantied for one year.
SPECIALIZED AND VALUE ADDED SERVICES. The Company also offers specialized
and value-added services that differentiate it from competitors and typically
provide higher margins than general electrical contracting and maintenance
services. Specialized services include design and engineering for, and
installation of, wiring or cabling for the following: data cabling and
switching systems for computer networks; fiber optic cable systems;
telecommunications systems; energy management systems; fire alarm and security
systems; building management systems; lightning protection systems; computer
rooms; and high voltage distribution. Value-added services include design and
engineering for, and installation of uninterruptible power and surge
suppression systems, energy efficiency technologies, and preventive and
predictive maintenance programs.
CUSTOMERS AND MARKETING
Parsons and the Acquired Companies have historically marketed their services
by building long-term relationships with their customers by seeking to provide
high quality, responsive services, and customer satisfaction as well as
developing rapport at a personal level with the decision-makers and
influencers within the customer's organization who are involved in the
selection of electrical contractors for their work. The Company plans to
capitalize on these long-standing relationships by engaging in a proactive
sales and marketing program that is focused on increasing penetration of its
design-build, specialized and value-added services. This program will
emphasize the Company's distinctive knowledge, technical capabilities, track
record, staffing flexibility, resources, geographic reach, and implementation
of best practices. These strengths will also be promoted in marketing
materials and personal visits targeted to national and regional customers to
seek to become a preferred vendor in a broader geographic service area. In
addition, the Company will 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.
The Company has a diverse customer base, including general contractors,
property managers, owners and operators of commercial, industrial and
institutional properties, real estate developers and governmental entities.
The Company's long-standing relationships with leading general contractors in
each of the regions in which it does business are particularly important
because general contractors frequently select the electrical contractor for
projects. The Company's commercial customers include managers and owners of
office buildings, apartments, condominiums, theaters, race tracks, casinos,
hotels, retail stores,
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shopping centers, and banks. Industrial customers served by the Company
include manufacturing plants, processing facilities and warehouses. The
Company's institutional customers include hospitals, schools, universities,
churches, airports, arenas, convention centers, governmental agencies at the
national, state and local levels, and military facilities. No single customer
accounted for more than 10% of the Company's pro forma combined revenues for
the fiscal year ended March 31, 1998.
Parsons and each of the Acquired Companies have been responsible for
developing and maintaining successful long-term relationships with key
customers by emphasizing customer satisfaction and high quality service which
will be a continuing priority. The Company relies heavily on repeat customers
and uses both the written and oral referrals of its satisfied customers to
help generate new business. Many of the Company's customers or prospective
customers have a qualification procedure for becoming an approved bidder or
vendor based upon the satisfaction of particular performance and safety
standards set by the customer. Such customers often maintain a list of vendors
meeting such standards and award contracts for individual jobs only to such
vendors. The Company strives to maintain its status as a preferred or
qualified vendor to such customers as well as to national and regional
accounts.
EMPLOYEES
As of March 31, 1998, the Company had approximately 125 salaried employees,
including executive officers, project managers, engineers, job
superintendents, staff and clerical personnel and approximately 950 hourly
rated employees, the number of which fluctuates depending upon the number and
size of the projects undertaken by the Company at any particular time. The
Company does not anticipate any overall reductions in staff as a result of the
consolidation of the Acquired Companies, although there may be some job
realignments and new assignments in an effort to eliminate overlapping and
redundant positions.
The Company has organized two separate subsidiaries to conduct its
operations, one of which will operate as a union contractor and the other of
which will operate as an open-shop contractor. The Acquired Companies that are
union contractors will be merged into or owned by the former and the Acquired
Companies that are open-shop contractors will be merged into or owned by the
latter. While there are no legal restrictions on the Company's ability to
operate in the same geographic market on both a union and open-shop basis, the
Company does not currently intend to operate on a dual basis in any particular
geographic market.
Certain of the Acquired Companies are signatories to master collective
bargaining agreements with the International Brotherhood of Electrical Workers
(the "IBEW"). One is a signatory to various local IBEW agreements as well as
local agreements with the Laborers International Union and the Operating
Engineers Union. Under these agreements, the Acquired Companies agree to pay
specified wages to their union employees, observe certain workplace rules and
make employee benefit payments to multi-employer pension plans and employee
benefit trusts rather than administering the funds on behalf of their
employees. IBEW covered employees are represented by numerous local unions
under various agreements with varying terms and expiration dates. Such local
agreements are entered into by and between the IBEW local and the National
Electrical Contractors Association ("NECA"), of which the Company's union
subsidiary is a member. The majority of the collective bargaining agreements
contain provisions that prohibit work stoppages, slow-downs or strikes, even
during specified negotiation periods relating to agreement renewal, and
provide for binding arbitration dispute resolution in the event of prolonged
disagreement; however, there can be no assurance that work stoppages, slow-
downs or strikes will not occur at any given time.
Each of the Acquired Companies provides a variety of health, welfare and
benefit plans for its employees who are not covered by collective bargaining
agreements. Following consummation of the Acquisitions, the Company may
replace these various employee benefit plans with a single plan covering all
of the Company's non-bargaining employees.
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The electrical contracting industry is currently experiencing a shortage of
skilled craftsmen. In response to the shortage, the Company seeks to take
advantage of various IBEW and NECA referral programs and hire graduates of the
joint IBEW/NECA apprenticeship program for training qualified electricians for
its union subsidiary.
None of the Acquired Companies has experienced any strikes, work stoppages
or slow-downs in the past five years. The Company believes its relationships
with its employees and union representatives is satisfactory.
TRAINING, QUALITY ASSURANCE AND SAFETY
The Company is committed to providing the highest level of customer service
through the development of a highly trained workforce. Following completion of
the Offering, management intends to establish Company-wide training and
educational programs, as well as comprehensive safety policies and
regulations, and to share "best practices" throughout its operations. These
programs and practices will supplement the training for union technicians
through joint IBEW/NECA apprenticeship programs and for its non-union
technicians through the Bureau of Apprenticeship and Training of the
Department of Labor and similar state agencies.
Employees will be encouraged through compensation increases, course funding,
and opportunities for advancement to complete a progressive training program
to advance their technical competencies and to ensure that they understand and
follow the applicable codes, the Company's safety practices and other internal
policies. More highly trained employees serve as foremen, estimators and
project managers. The Company's master electricians are licensed in one or
more cities or states in order to obtain the permits required in the Company's
business, and certain master electricians have also obtained specialized
licenses in areas such as security systems and fire alarm installation. In
some areas, licensing boards have set continuing education requirements for
maintenance of licenses. Because of the lengthy and difficult training and
licensing process for electricians, the Company believes that the number,
skills and licenses of its employees constitute a competitive strength in the
industry.
The Company screens applicants for its technical positions and will
establish programs to recruit apprentice technicians for its non-union
subsidiary directly from high schools and vocational-technical schools. Prior
to employment, the Company will make an assessment of the technical competence
level of all potential new employees, confirm background references, conduct
random drug testing and check criminal and driving records.
Although the Company is committed to a policy of operating safely and
prudently, the Company has been and is subject to claims by employees,
customers and third parties for property damage and personal injuries
resulting from performance of the Company's services.
EQUIPMENT AND FACILITIES
The Company operates a fleet of approximately 230 owned and leased service
trucks, vans and support vehicles. The Company believes that these vehicles
generally are well-maintained and adequate for its present operations. After
the consummation of the Offering, the Company expects to locate its corporate
headquarters in Kansas City, Missouri. The Company operates six sites in
Minneapolis, Minnesota; Atlanta, Georgia; Louisville, Kentucky; Lexington,
Kentucky; Cincinnati, Ohio; and Las Vegas, Nevada. These sites are used for
offices, warehousing, storage and vehicle shops. The Company will lease all of
the facilities it occupies. The Company believes that its facilities are
sufficient for its current needs. See "Certain Transactions."
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PROCUREMENT
As a result of economies of scale derived through the Acquisitions and
implementation of procurement best practices, the Company believes it will be
able to purchase electrical materials, equipment, parts and supplies at
substantial volume discounts to historical levels. Because materials, parts
and supplies generally constitute approximately 40% of revenues, the Company
believes that these procurement savings have the potential to significantly
enhance profitability of the Acquired Companies and subsequently acquired
businesses. In addition, the Company believes its size will also lower its
costs for (i) the purchase or lease and maintenance of vehicles; (ii) bonding,
casualty and liability insurance; (iii) health insurance and related benefits;
(iv) retirement benefits administration; (v) office and computer equipment;
(vi) marketing and advertising; (vii) long distance services and (viii) a
variety of accounting, financial management and legal services.
Substantially all the equipment and component parts the Company sells or
installs are purchased from manufacturers and other outside suppliers. The
Company is not materially dependent on any of these outside sources.
REGULATION
The Company's operations are subject to various federal, state and local
laws and regulations including (i) licensing requirements applicable to
electricians and engineers, (ii) building and electrical codes, (iii)
permitting and inspection requirements applicable to construction projects,
(iv) regulations relating to worker safety and environmental protection and
(v) special bidding and procurement requirements on government projects.
Licenses in certain states cover operations throughout the state while laws in
other states and cities require separate licenses in each jurisdiction. The
Company plans to share licenses among its operations wherever possible to
reduce expense and increase its responsiveness to market opportunities.
The Company believes that it has all the required licenses to conduct its
current operations and is in substantial compliance with applicable regulatory
requirements. Failure of the Company to comply with applicable regulations
could result in substantial fines and/or revocation of the Company's operating
licenses. Many state and local regulations governing electrical construction
require permits and licenses to be held by individuals who typically have
passed an examination or met other requirements. The Company intends to
implement a policy to ensure that, where possible, any such permits or
licenses that may be material to the Company's operations are held by at least
two Company employees.
COMPETITION
The electrical contracting industry is highly fragmented and competitive.
Most of the Company's competitors are small, owner-operated companies that
typically operate in a limited geographic area. There are few public companies
focused on providing electrical contracting services. In the future,
competition may be encountered from new entrants, such as public utilities and
other companies attempting to consolidate electrical contracting service
companies. Competitive factors in the electrical contracting industry include
(i) the availability of qualified and licensed electricians, (ii) safety
record, (iii) cost structure, (iv) relationships with customers, (v)
geographic diversity, (vi) ability to reduce project costs, (vii) access to
technology, (viii) experience in specialized markets and (ix) ability to
obtain bonding.
There are relatively few, if any, barriers to entry into the markets in
which the Company operates and, as a result, any organization that has
adequate financial resources and access to technical expertise may become a
competitor to the Company. There can be no assurance that the Company's
competitors will not develop the expertise, experience and resources to
provide services that are equal or superior in both price and quality to the
Company's services, or that the Company will be able to maintain or enhance
its competitive position. The Company may also face competition from the in-
house service organizations
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of its existing or prospective customers, which employ personnel who perform
some of the same types of services as those provided by the Company. Although
a significant portion of these services is currently outsourced, there can be
no assurance that existing or prospective customers of the Company will
continue to outsource services in the future.
The Company may face competition for acquisition targets from entities
including, but not limited to, the small number of large companies in the
electrical contracting and maintenance services industry. 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.
RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS
The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. The Company maintains automobile and
general liability insurance for third party bodily injury and property damage
and workers' compensation coverage which it considers sufficient to insure
against these risks, subject to self-insured amounts. After the consummation
of the Offering, the Company intends to consolidate the purchase of insurance,
which management believes will result in savings from the amounts paid by the
Acquired Companies prior to the Acquisitions.
Contracts in the electrical contracting industry may require performance
bonds or other means of financial assurance to secure contractual performance.
If the Company is unable to obtain surety bonds or letters of credit in
sufficient amounts or at acceptable rates, it may be precluded from entering
into additional contracts with certain of its customers.
LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation or administrative
proceedings that arise in the normal course of its business. The Company
believes it does not have pending any litigation that, separately or in the
aggregate, if adversely determined, would have a material adverse effect on
the Company's results of operations, financial condition or cash flows.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning each of the
Company's current executive officers, directors and key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gregory J. Orman........ 29 Chairman of the Board and Director
Frederick C. Green, IV*. 41 President, Chief Executive Officer and Director Nominee
Frank R. Clark.......... 53 Vice President, Chief Financial Officer,
Secretary and Treasurer
John B. Wood............ 40 Vice President, Acquisitions
David W. Smith.......... 39 Vice President, Operations
Robert B. Allison*...... 55 President, Allison-Smith Division and Director Nominee
Bruce M. Henderson...... 48 President, Henderson Division
Rodney J. Henderson..... 51 Chief Executive Officer, Henderson Division
Stephen L. Howell....... 42 President, Eagle Division
Joel T. Moryn........... 35 President, Parsons Division
Ralph L. Pangonis....... 62 President, Potter Division
Bernard J. Beaudoin..... 58 Director
Robert H. Hoffman....... 54 Director
Andrew V. Johnson....... 42 Director
Wade C. Lau*............ 37 Director Nominee
Ronald G. Wasson........ 53 Director
</TABLE>
- --------
*To be elected as a director of the Company, effective upon consummation of the
Offering.
Gregory J. Orman, Founder of the Company, also serves as its Chairman of the
Board. Mr. Orman also holds the following positions: President and Director of
KLT Energy Services, Inc., an unregulated subsidiary of Kansas City Power &
Light (since November 1996), Chief Executive Officer and President of Custom
Energy, LLC, a national energy services provider (since January 1997), Chairman
of ELC Electric, Inc., a licensed electrical contractor (since January 1994),
and Chairman of Energy Financing Corp., a captive leasing company (since
January 1994). Previously, Mr. Orman was Chairman and Chief Executive Officer
of Environmental Lighting Concepts (ELC), a company he co-founded in 1992 and a
majority of the stock of which was subsequently sold to KLT Energy Services,
Inc. From September 1991 to December 1994, Mr. Orman was an Associate at
McKinsey & Company, Inc., an international management consulting firm. Mr.
Orman holds a Bachelor's Degree in Economics from Princeton University.
Frederick C. Green, IV, President and Chief Executive Officer, joined the
Company in April 1998. From 1996 to 1998, Mr. Green served as President and
Chief Executive Officer of Product Safety Resources, Inc., ("PROSAR") a venture
capital funded start-up company focused on electronic product safety
information consolidation and distribution. Prior to joining PROSAR, he served
as President and Chief Operating Officer of Plum Building Systems, Inc., a
wholly-owned subsidiary of Great Plains Companies, Inc. From 1988 to 1996, Mr.
Green also filled several executive roles with the Fisher-Rosemount Group of
Emerson Electric. He has also served as an Engagement Manager with McKinsey &
Company, Inc., an international management consulting company, and as a design
engineer for General Motors. Mr. Green holds a Master's of Management from the
J.L. Kellogg Graduate School of Management at Northwestern University and a
Bachelor's of Science Degree in Mechanical Engineering from Stanford
University.
Frank R. Clark, Chief Financial Officer, joined the Company at the time of
its formation. From 1994 until 1997, Mr. Clark served as Executive Vice
President, Chief Financial Officer and Treasurer of Performance Contracting,
Inc., a multi-location specialty contractor. From 1985 to 1994, Mr. Clark
served
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as Chief Financial Officer and Treasurer of Layne Christensen Company, a
publicly traded company. Mr. Clark is a CPA and holds a Bachelor's Degree in
Accounting from Drake University.
John B. Wood joined the Company as Vice President of Acquisitions at the
time of its formation. From 1996 to 1997, Mr. Wood was a Partner and Founder
of Fiscal Financial Services, LLC, a leasing/investment-banking firm, and from
1995 to 1996 was Regional Vice President of Grigsby Brandford. From 1993 to
1995 he was a Regional Vice President for Dain Bosworth, Inc. Mr. Wood holds a
Bachelor's Degree in Finance and Accounting from Missouri State University.
David W. Smith, Vice President of Operations, joined the Company at the time
of its formation. From 1994 to 1997, Mr. Smith served Great Plains Companies,
Inc. ("Great Plains") in the capacities of Executive Vice President and Chief
Financial Officer, and as President of Plum Building Systems, Inc. From 1989
to 1994, Mr. Smith was President of Griffin Real Estate Company. Mr. Smith
holds a Master's Degree in Business Administration from the Harvard Business
School, and a Bachelor's Degree in Economics from Macalester College.
Robert B. Allison, Director nominee, has been President and Chief Executive
Officer of Allison-Smith since 1990. Mr. Allison has been employed by Allison-
Smith for 30 years, including in prior positions as Project Manager (from 1968
to 1980), and Vice President and Treasurer (from 1980 to 1990). Mr. Allison
holds a Bachelor's Degree from Presbyterian College.
Bruce M. Henderson has been President of Henderson since 1989. Mr. Henderson
has been employed by Henderson for 23 years. Mr. Henderson holds a Master's
degree in Electrical Engineering from the University of Louisville. Mr.
Henderson is the brother of Rodney J. Henderson.
Rodney J. Henderson has been Chief Executive Officer of Henderson since
1989. Mr. Henderson has been employed by Henderson for 31 years. Mr. Henderson
holds a Bachelor's of Science in Commerce from the University of Louisville.
Mr. Henderson is the brother of Bruce M. Henderson.
Stephen L. Howell is President of Eagle. He has been employed by Eagle for
12 years, beginning as Purchasing Agent, subsequently appointed Vice President
before becoming President.
Joel T. Moryn has recently been named President of Parsons. He joined
Parsons in 1981, and has held several positions during his tenure, including
Vice President and General Manager; Vice President, Operations; Project
Manager; and Estimator. Mr. Moryn holds a Bachelor's of Science degree in
Electrical Engineering from the University of Minnesota, and a Master's Degree
in Business Administration from the University of St. Thomas.
Ralph L. Pangonis, Sr. has been President of Potter since October 1996, when
he acquired the Company. He joined Potter in 1986 as General Manager in charge
of operations.
Bernard J. Beaudoin, Director, has served since 1996 as Executive Vice
President and Chief Financial Officer of Kansas City Power & Light ("KCPL").
He has served in several management positions with KCPL subsidiaries since
joining KCPL in 1980, including Senior Vice President (1991-1994), Senior Vice
President--Finance and Business Development (1994-1995), and President of KLT
Inc., a wholly-owned subsidiary of KCPL (1995-1996). Mr. Beaudoin holds a
Bachelor's of Arts Degree from Bowdoin College and a Bachelor's Degree in
Electrical Engineering and a Master's Degree in Industrial Management from
Massachusetts Institute of Technology ("MIT").
Robert H. Hoffman, Director, is Group Vice President (since 1988) of Taylor
Corporation, a privately held national printing company. Mr. Hoffman is
responsible for overseeing the Commercial Printing Division of Taylor
Corporation and has had operational responsibility for completion of 15
acquisitions in the past ten years. Mr. Hoffman holds Bachelor's and Master's
Degrees in Science from Mankato State University and a Doctorate in Management
from Utah State University.
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<PAGE>
Andrew V. Johnson, Director, is Senior Vice President of Market Development
at Fingerhut Companies Inc., a publicly-traded direct marketing company
("Fingerhut") and President of Andy's Garage Sale, a wholly-owned subsidiary
of Fingerhut. He joined Fingerhut in 1978 and has held various roles, most
recently as the Senior Vice President of Marketing. Mr. Johnson holds a degree
in Business Administration from the University of Minnesota.
Wade C. Lau, Director nominee, is Executive Managing Director (since May
1998) of CB Richard Ellis, a publicly-traded international commercial real
estate services firm, where he oversees property and asset management services
for the Central Division. From July 1997 to May 1998, Mr. Lau served as
Executive Vice President and Central Division Manager for CB Commercial/Koll
Management Services, from October 1996 to July 1997, as Regional President (of
the Minnesota Region) of Koll Management Services, Inc., and from 1993 to 1996
as Executive Vice President of Shelard, Inc. Mr. Lau holds a Bachelor's Degree
in Economics from Harvard College and a Master's Degree in Business
Administration from the Harvard Business School.
Ronald G. Wasson, Director, has served as President and Director of KLT
Inc., a wholly-owned subsidiary of Kansas City Power & Light since 1996. He
has served in several management positions with KCPL and its subsidiaries
since joining KCPL in 1966, including Vice President of Purchasing of KCPL
(1983-1986), Vice President of Administrative Services of KCPL (1986-1991),
Senior Vice President of Administrative and Technical Services of KCPL (1991-
1995) and Executive Vice President of KLT, Inc. (1995-1996). Mr. Wasson holds
Bachelor's and Master's Degrees in Electrical Engineering from the University
of Missouri at Columbia. He also holds a Master's Degree in Business
Administration from Central Missouri State University.
STAGGERED BOARD OF DIRECTORS
The Company's Board of Directors currently consists of eight directors and
is divided into three classes. The initial term of the first class expires at
the annual meeting of stockholders to be held in 1999, the initial term of the
second class expires in 2000, and the initial term of the third class expires
in 2001. Messrs. Wasson and Allison are included in the first class, Messrs.
Lau, Hoffman and Beaudoin are included in the second class, and Messrs. Orman,
Green and Johnson are included in the third class. At each succeeding annual
meeting of stockholders beginning in 2000, the stockholders will elect
directors for a term of three years who will serve until his or her successor
is elected and qualified or until earlier resignation, removal, retirement,
disqualification or death.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Amended and Restated Bylaws establish an Audit Committee and a
Compensation Committee. The Audit Committee will examine and consider matters
relating to the financial affairs of the Company, including reviewing the
Company's annual financial statements, the scope of the independent annual
audit and internal audits and the independent auditor's letter to management
concerning the effectiveness of the Company's internal financial and
accounting controls. Messrs. Lau and Hoffman will serve on the Company's Audit
Committee. The Compensation Committee will consider and make recommendations
to the Company's Board of Directors with respect to compensation matters and
policies and employee benefit and incentive plans, exercise authority granted
to it to administer such plans, and administer the Company's stock option and
equity based plans and grant stock options and other rights under such plans.
Messrs. Orman, Johnson and Wasson will serve on the Compensation Committee.
DIRECTORS' COMPENSATION
Directors who also are employees of the Company or any of its subsidiaries
or affiliates will not receive additional compensation for serving as
directors. Each director who is not an employee of the Company or any of its
subsidiaries will not receive compensation in the future for their service as
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<PAGE>
directors. Directors of the Company will be reimbursed for reasonable out-of-
pocket expenses incurred in attending meetings of the Board of Directors or
the committees thereof, and for other expenses reasonably incurred in their
capacity as directors of the Company. Robert Hoffman, Wade Lau and Andrew
Johnson have each purchased 5,000 shares of Common Stock from the Company at
$0.30 per share.
EXECUTIVE COMPENSATION
The Company was incorporated in February 1998 and until it began operations,
effective February 27, 1998, its activities were solely those related to the
Acquisitions and the Offering. The Company anticipates that during 1998, the
annualized base salaries of its most highly compensated executive officers
will be $168,000 for Mr. Green and $140,000 for each of Messrs. Clark, Wood
and Smith. As part of Mr. Green's employment arrangement with the Company, he
purchased 100,000 shares of Common Stock at $0.30 per share under an Employee
Restricted Stock Purchase Agreement between him and the Company and will
receive an option to purchase 100,000 shares of Common Stock at an exercise
price equal to the initial public offering price. As part of Mr. Clark's
employment arrangement with the Company, he purchased 60,000 shares of Common
Stock at $0.30 per share under an Employee Restricted Stock Purchase Agreement
between him and the Company. As part of Mr. Wood's employment arrangement with
the Company, he purchased 100,000 shares of Common Stock at $0.30 per share
under an Employee Restricted Stock Purchase Agreement between him and the
Company and will receive an option to purchase 10,000 shares of Common Stock
at an exercise price equal to the initial public offering price. As part of
Mr. Smith's employment arrangement with the Company, he purchased 40,000
shares of Common Stock at $0.30 per share under an Employee Restricted Stock
Purchase Agreement between him and the Company and will receive an option to
purchase 10,000 shares of Common Stock at an exercise price equal to the
initial public offering price.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with each executive
officer of the Company that prohibits such individual from disclosing the
Company's confidential information and trade secrets and generally restricts
such individual from competing with the Company for a period of three years
after the expiration or termination of the individual's employment agreement.
Each agreement has an initial term of approximately three years, provides for
an automatic annual extension at the end of its initial term and is terminable
by the Company for "cause" immediately upon written notice by the Company and
without "cause" by either party upon 90 days' written notice. In addition, Mr.
Green's employment agreement provides that if he terminates his employment for
"good reason" (including due to a change of control of the Company), or if the
Company terminates his employment without cause, then the Company is obligated
to pay him all compensation due through the remaining term of the agreement
and all of his options to purchase Common Stock will become fully vested. All
employment agreements provide that in the event of termination (with or
without cause), the noncompete and confidentiality agreements will survive
termination of employment.
1998 STOCK OPTION PLANS
The Board of Directors of the Company has adopted, and the stockholders of
the Company have approved, an Incentive Stock Option Plan ("ISO Plan") and a
Nonqualified Stock Option Plan ("NQSO Plan"; collectively, the "Option
Plans"). Options granted under the ISO Plan are intended to qualify as
incentive stock options pursuant to Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"). The purpose of the Option Plans is to
encourage the key employees of the Company and its subsidiaries to participate
in the ownership of the Company, and to provide additional incentive for such
employees to promote the success of its business through sharing in the future
growth of such business. An aggregate amount of 500,000 shares of Common Stock
of the Company may be granted under options pursuant to each of the ISO Plan
and the NQSO Plan (subject to certain extraordinary changes in
capitalization).
The Option Plans are administered by the Compensation Committee of the Board
of Directors. The Compensation Committee has, subject to the terms of the
respective Option Plans, the sole authority to
46
<PAGE>
grant and set the terms of the options, to construe and interpret the Option
Plans and to make all other determinations for the administration of the
Option Plans.
Only key employees of the Company or its subsidiaries, as the term
"subsidiary" is defined in Section 424(f) of the Code, are eligible to receive
options under the Option Plans. The key employees eligible to receive options
under the Option Plans will be selected by the Compensation Committee from
time to time based on performance of employees. Options shall not be granted
to key employees under the ISO Plan who, immediately prior to grant of the
option, own (either directly or indirectly under the rules of Section 424(d)
of the Code) stock possessing more than five percent of the total combined
voting power of all classes of stock of the Company or any subsidiary.
The Company expects to have outstanding options to purchase approximately
220,000 shares of Common Stock issued immediately following the Offering at an
exercise price equal to the initial public offering price of which 71,500 are
expected to be granted under the Nonqualified Stock Option Plan and 148,500
are expected to be granted under the Incentive Stock Option Plan. In the
discretion of the Compensation Committee, option agreements may provide that
options will become immediately exercisable in the event of certain
extraordinary events or upon a Change of Control (as defined in the Option
Plans) of the Company. Options under the ISO Plan may not be exercised (i)
after the expiration of the later of 30 days following termination of
employment by the Company or its subsidiaries or 90 days after the employee's
death (but in any event no later than the expiration date of such option),
(ii) to the extent that the aggregate fair market value of the stock (at the
time of grant of options) with respect to which options are exercisable by an
individual for the first time during any calendar year under the ISO Plan
exceeds $100,000 or (iii) if seven years have elapsed since the date of grant
of the option. Options under the NQSO Plan may not be exercised (i) after the
expiration of the later of three months following termination of employment
and one year after the employee's death (but in any event no later than the
expiration date of such option) or (ii) if ten years have elapsed since the
date of grant of the option.
STOCK PURCHASE PLANS
The Board of Directors of the Company has adopted the Nationwide Electric,
Inc. Executive Stock Purchase Plan (the "Executive Stock Plan") to provide an
incentive for key executives of the Company and its subsidiaries and the
Nationwide Electric, Inc. Employee Stock Purchase Plan (the "Employee Stock
Plan") in order to allow eligible employees of the Company to commence or
increase their ownership of shares of the Company's Common Stock.
Under the Executive Stock Plan, selected officers and other key employees
will be given the opportunity to purchase up to a total of 250,000 shares of
the Company's Common Stock at a price equal to the then current market value
of the shares sold to such officers and employees less a discount to reflect
the lack of marketability of the shares. Company financing will be available
for up to 85 percent of the stock purchase price. Company loans will be
granted on a full recourse basis with an interest rate equal to the then Prime
Rate. All shares of the Company's Common Stock purchased under the Executive
Stock Plan will be restricted stock for a period of one year following the
date of sale. An officer or key employee who purchases shares of the Company's
Common Stock under the Executive Stock Plan will be immediately vested as to
one-third of the Common Stock purchased. So long as such officer or key
employee remains employed by the Company, an additional one-third of the
Common Stock will vest on the first anniversary of the date of purchase and
the remaining one-third will vest on the second anniversary of such purchase.
Upon termination of such officer's or key employee's employment for any
reason, all shares of Common Stock which have not been vested must be offered
for sale to the Company at the original price paid for such Common Stock. No
shares purchased under the Executive Stock Plan may be conveyed, transferred,
encumbered or otherwise disposed of (any such disposition being referred to as
a "transfer") by the holder thereof unless all shares covered by such plan
owned by the holder first have been offered to the Company at the original
purchase price if the proposed transfer occurs within one year of the date of
purchase of such shares.
Under the Employee Stock Plan, all employees will be given the opportunity
to purchase shares of the Company's Common Stock in the market at a price
equal to the then fair market value without having
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<PAGE>
to pay any brokerage commissions. Shares of the Company's Common Stock sold
under the Employee Stock Plan will not be restricted.
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
Nationwide was founded in February 1998, by KLT Energy Services, Inc.
("KLT"), an unregulated subsidiary of Kansas City Power & Light Company
("KCPL") and Gregory J. Orman (through Reardon Capital, LLC). Each party
purchased 116,665.5 shares of Common Stock, KLT purchased 99,999 shares of
Class A Nonvoting Common Stock (adjusted for the 333.33-for-1 stock split on
March 24, 1998) for nominal consideration and Galt Financial, Inc. ("Galt
Inc.") purchased 950,000 shares of Common Stock (as adjusted for the aforesaid
stock split). Frederick C. Green IV, Frank R. Clark, John B. Wood and David W.
Smith also acted as co-founders of the Company and paid nominal cash
consideration for a total of 300,000 shares of Common Stock. In addition
Robert Hoffman and Andrew Johnson, each of whom are outside directors, and
Wade Lau, director nominee, paid nominal cash consideration for a total of
15,000 shares of Common Stock.
Parsons was acquired on February 27, 1998 by Galt Inc. for cash in the
amount of $11.0 million. Galt Inc. was owned by Reardon Capital, LLC and KLT;
50% of the voting stock interests were held by each, and KLT held 100% of the
non-voting stock interests. Galt Inc. merged with Galt Financial, LLC ("Galt
LLC") on March 4, 1998. Reardon Capital owned 100% of Galt LLC. On June 4,
1998, Galt Inc. was merged into Nationwide in exchange for 2,310,000 shares of
Common Stock, 990,000 shares of Class A Nonvoting Common Stock and 6,000
shares of Redeemable Preferred Stock. KLT has indicated that it will purchase
500,000 of the shares of Common Stock offered hereby at the initial public
offering price.
Simultaneously with the closing of the Offering, the Company will acquire
all of the issued and outstanding capital stock and other equity interests of
the Acquired Companies, at which time each Acquired Company will become a
direct or indirect wholly-owned subsidiary of the Company. The Acquisition
Consideration consists of (i) approximately $16.9 million in cash and (ii)
1,100,416 shares of Common Stock (assuming an initial public offering price of
$12 per share).
The following table sets forth for each Acquired Company the consideration
to be paid by the Company to the stockholders of Allison-Smith and Henderson,
and to Potter with respect to the acquisition of its assets (i) in cash and
(ii) in shares of Common Stock. The actual number of shares of Common Stock to
be issued pursuant to the Acquisitions will be based upon the quotient
determined by dividing (a) $5,454,996 for Allison-Smith, $6,249,996 for
Henderson and $1,500,000 for Potter, by (b) in each case, the actual initial
public offering price.
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
----------- ------------
<S> <C> <C>
Allison-Smith.................................... $10,130,005 454,583
Henderson........................................ 5,250,003 520,833
Potter........................................... 1,500,000 125,000
----------- ---------
Total........................................ $16,880,008 1,100,416
=========== =========
</TABLE>
The foregoing table does not reflect the following additional payments.
Allison-Smith is permitted to pay bonuses to its officers who are also
stockholders in an amount up to 50 percent of the consolidated pre-tax income
of Allison-Smith for the period from July 1, 1997 through June 30, 1998. An
additional earn-out payment, which will be accounted for as a bonus, will be
made to the same officers-stockholders in an amount equal to 25 percent of the
amount by which its earnings before interest and taxes for each of the fiscal
years ending March 31, 1999 and 2000 exceeds $2,500,000. The stockholders of
Henderson will also receive additional cash consideration in an amount equal
to all of the after-tax income of Henderson during the period from August 15,
1998 through the consummation of the Offering. An additional earnout payment
will be made for the acquisition of Potter's assets in an amount equal to 30%
of the amount, if any, by which pre-tax income (after deducting payment of all
bonuses) of Potter exceeds $750,000 in each of the first three fiscal years
following the consummation of the Offering. The Company plans to grant an
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<PAGE>
option (the "Performance Stock Options") to Ralph Pangonis to purchase 120,000
shares of Common Stock, exercisable at the initial public offering price, which
will vest at a rate of 40,000 shares for each year that the net pre-tax income
of Potter, after deducting payment of all bonuses, exceeds $750,000. Any
Performance Stock Options that do not vest in accordance with the performance
test described above will expire three years after the date of grant, and all
Performance Stock Options, whether or not vested, will expire if not exercised
within five years after consummation of the Offering.
The consummation of each Acquisition is subject to customary conditions.
These conditions include, among others, the accuracy on the closing date of the
Acquisitions of the representations and warranties of the Acquired Companies
and, as the case may be, their stockholders and of the Company, the performance
by each of the parties of their respective covenants and the absence of a
material adverse change in the business, results of operations or financial
condition of any of the Acquired Companies.
The agreements relating to the Acquisitions may be terminated under certain
circumstances prior to the consummation of the Offering. Specifically, the
agreements may be terminated (i) by the mutual consent of the Board of
Directors of the Company and each Acquired Company or (ii) if a material breach
or default under the agreements shall exist and is not cured or waived or the
conditions to the closing of the Acquisitions are not fulfilled. There can be
no assurance that the conditions to the closing of the Acquisitions will be
satisfied or waived or that the agreements relating to the Acquisitions will
not be terminated prior to the closing of the Acquisitions. However, if the
Acquisitions are not completed, the Offering will not be completed.
Pursuant to the agreements relating to the Acquisitions, certain stockholders
of each of the Acquired Companies have agreed not to compete with the Company
for a period of five years commencing on the date of closing of the
Acquisitions.
Robert Allison, who will be elected a director of Nationwide upon
consummation of the Offering, will receive the following consideration in
connection with the acquisition of his interest in Allison-Smith: (i)
$7,091,175 cash and (ii) 318,192 shares of Common Stock (the actual number of
shares to be issued is dependent on the actual initial public offering price).
TRANSACTIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS
Certain stockholders of certain of the Acquired Companies who will become
directors, executive officers or key employees of the Company upon consummation
of the Offering have guaranteed indebtedness, performance bonds and other
obligations of each of their respective Acquired Companies. In particular, the
following guarantees of indebtedness of the respective Acquired Companies are
expected to be terminated within 90 days of completion of the Offering due to
the repayment of the underlying indebtedness: Robert Allison (Allison-Smith)--
$1,154,000; Rodney Henderson and Bruce Henderson (Henderson)--$1,047,000; Ralph
Pangonis, Sr. (Potter)--$340,000.
Following completion of the Offering, the Company intends to repay up to $2.2
million of the Acquired Companies' debt which is the subject of the personal
guarantees described in the immediately preceding paragraph, and $7.7 million
of Nationwide's outstanding debt.
The Company plans to enter into certain real property leases with affiliates
of the Acquired Companies. The Company will assume the lease from Placid L.L.C.
(an entity owned 50% by Mr. Pangonis) the administrative office and warehouse
facilities of the Potter Division located in Las Vegas, that will terminate in
the year 2001, and covers approximately 4,000 square feet of office space and
7,000 square feet of warehouse facilities, at a monthly rental rate of $7,000.
The Company will lease from an affiliate of Robert Allison, the
administrative office and warehouse facilities of the Allison-Smith Division
located in Atlanta, for a ten-year term that will terminate in the year 2008,
with an option to renew the lease for an additional five-year term. The lease
covers 16,000 square feet of office space and 17,000 square feet of warehouse
facilities, at a monthly rental rate of $5,000, to increase by 8% each year.
Mr. Allison is President of Allison-Smith, and will become a director of the
Company upon consummation of the Offering.
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<PAGE>
The Company will lease from an affiliate of Bruce Henderson and Rodney
Henderson, the three separate office/warehouse facilities of Henderson located
in Louisville and Lexington, Kentucky, and Cincinnati, Ohio, covering
approximately 38,500 square feet in the aggregate. The lease provides for a
seven year term with an option to renew the lease for an additional five year
term, at a monthly rental rate of $15,000. The lessor company is owned solely
by Bruce Henderson and Rodney Henderson, each of whom will be a key employee of
the Company.
COMPANY POLICY
In the future, any transactions with directors, officers, employees or
affiliates of the Company are anticipated to be minimal and will, in any case,
be approved by a majority of the Board of Directors, including a majority of
disinterested members of the Board of Directors.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Company's Common Stock, after giving effect to the issuance of
shares of Common Stock in connection with the acquisitions of the Acquired
Companies and after giving effect to the Offering, by (i) all persons known to
the Company to be the beneficial owner of 5% or more thereof, (ii) each
director and nominee for director, (iii) each executive officer and (iv) all
executive officers, directors and director nominees as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
-----------------------
SHARES PRIOR TO AFTER
NAME BENEFICIALLY OWNED OFFERING OFFERING
- ---- ------------------ ---------- ----------
<S> <C> <C> <C>
KLT Energy Services, Inc. (1)....... 1,271,666 32.2% 23.5%
Reardon Capital, LLC................ 1,271,666 32.2% 12.7%
Gregory J. Orman (1)(2)............. 1,271,666 32.2% 12.7%
Frederick C. Green, IV (3).......... 100,000 2.5% 1.0%
Frank R. Clark...................... 60,000 1.5% 0.6%
John B. Wood........................ 100,000 2.5% 1.0%
David W. Smith...................... 40,000 1.0% 0.4%
Wade C. Lau......................... 5,000 0.1% --
Robert H. Hoffman................... 5,000 0.1% --
Andrew V. Johnson................... 5,000 0.1% --
Ronald G. Wasson (1)................ -- -- --
Bernard J. Beaudoin (1)............. -- -- --
Robert B. Allison (4)............... 318,192 -- 3.2%
All executive officers, directors
and director nominees as a group
(11 persons) (1)................... 1,904,858 40.2% 19.0%
</TABLE>
- --------
(1) Does not include 1,089,999 shares of Class A Non-voting Common Stock of the
Company beneficially owned by KLT Energy Services, Inc., an indirect
wholly-owned subsidiary of Kansas City Power & Light, which will be
converted into Common Stock concurrently with the consummation of the
Offering. Accordingly, KLT's percentage ownership of outstanding Common
Stock will be 23.5% following such conversion, and 28.5% after giving
effect to KLT's stated intention to purchase 500,000 of the shares of
Common Stock offered hereby at the initial public offering price. Mr.
Orman, Mr. Wasson and Mr. Beaudoin are directors of, and Mr. Orman is
president of, KLT Energy Services, Inc. but disclaim beneficial ownership
of the shares of Common Stock owned by KLT Energy Services, Inc.
(2) Reflects shares owned by Reardon Capital, LLC ("Reardon") because Mr. Orman
owns all of the voting membership interests of Reardon. Mr. Orman owns
approximately 54% of the economic interest in Reardon.
(3) Does not include 49,545 shares attributable to non-voting membership
interests in Reardon.
(4) All shares to be issued at the time of the Acquisition of Allison-Smith.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of (i) 30,000,000
shares of Common Stock, par value $.01 per share, (ii) 1,200,000 shares of
Class A Nonvoting Common Stock, par value $.01 per share, and (iii) 10,000,000
shares of Preferred Stock, par value $.01 per share ("Preferred Stock"). The
authorized but unissued shares of Preferred Stock are issuable in one or more
series, with such designations, preferences and relative participating,
optional or other special rights, if any, and the qualifications, limitations
or restrictions thereof as may be fixed and determined by resolution of the
Company's Board of Directors.
The following summaries of the terms of the Common Stock and the Preferred
Stock do not purport to be complete and are qualified in their entirety by
reference to the terms set forth in the Amended and Restated Certificate of
Incorporation of the Company. The Company's outstanding capital stock is fully
paid and nonassessable and none of the authorized capital stock is entitled to
preemptive rights or subscription rights. Prior to the Offering, there has
been no public market for the Common Stock. The Common Stock has been approved
for listing on the NYSE.
COMMON STOCK
Following the Offering, there will be 10,048,746 shares of Common Stock
outstanding. Subject to certain dividend restrictions of the Company's credit
facility and to the preferential rights of the Preferred Stock, if
outstanding, holders of Common Stock are entitled to dividends as declared
thereon by the Company's Board only out of net income or earned surplus. Upon
issuance of one or more series of Preferred Stock, the Company's Board may
provide for dividend restrictions on the Common Stock as to such series. In
the event of liquidation, holders of Common Stock will be entitled to share
ratably in any assets remaining after the satisfaction in full of the prior
rights of creditors, including lenders under the Company's credit facility and
the aggregate liquidation preference of any Preferred Stock then outstanding.
Except with respect to the Class A Nonvoting Common Stock (which will
automatically convert into Common Stock upon consummation of the Offering),
holders of Common Stock exclusively possess voting power for all purposes and
are entitled at each stockholders' meeting of the Company, as to each matter
to be voted upon, to cast one vote, in person or by proxy, for each share held
of record on the books of the Company. The Company's Board is divided into
three classes, with each class consisting, as nearly as possible, of one-third
of the total number of directors and serving a staggered three-year term. Only
one class is elected each year, and it is elected for a three-year term. The
Company's stockholders are not entitled to cumulative voting rights in the
election of directors. The number of directors will be fixed and a director
may only be removed by the stockholders for cause, by the holders of a
majority of the shares of the capital stock then outstanding and entitled to
vote in the election of directors ("Voting Stock").
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock without further stockholder approval, except as may be required by
applicable stock exchange regulations. The Company's Board will be authorized
to determine, without any further action by the holders of the Common Stock,
the dividend rights, dividend rate, conversion rights, voting rights, rights
and terms of redemption, liquidation preferences and sinking fund terms of any
series of Preferred Stock, the number of shares constituting any such series
and the designation thereof. Should the Board of Directors elect to exercise
its authority, the rights, preferences and privileges of holders of Common
Stock would be subject to the rights, preferences and privileges of the
Preferred Stock.
51
<PAGE>
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Section 203 of the Delaware General Corporation
Law, which generally prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time that the person became an interested
stockholder, unless (i) prior to such time the Board of Directors of the
corporation approved either the business combination or the transaction in
which the person became 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 shares owned by directors who are also officers of the corporation
and by certain employee stock plans, or (iii) at or after such time the
business combination is approved by the Board of Directors of the corporation
and by the affirmative vote of at least 66 2/3% of the outstanding voting
stock of the corporation that is not owned by the interested stockholder. A
"business combination" generally includes mergers, asset sales and similar
transactions between the corporation and the interested stockholder, and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who owns 15% or more of the corporation's
voting stock or who is an affiliate or associate of the corporation and,
together with his or her affiliates and associates, has owned 15% or more of
the corporation's voting stock 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.
OTHER MATTERS
The Amended and Restated Certificate of Incorporation provides that the
number of directors shall be as determined by the Board of Directors from time
to time, but shall be at least three and not more than twelve. It also
provides that directors may be removed only for cause, and then only by the
affirmative vote of the holders of at least a majority of all outstanding
shares of stock entitled to vote in an election of directors. This provision,
in conjunction with the provision of the Amended and Restated Certificate of
Incorporation authorizing the Board of Directors to fill vacant directorships,
will prevent stockholders from removing incumbent directors without cause and
filling the resulting vacancies with their own nominees.
The Amended and Restated Certification of Incorporation provides that
stockholders may act only at an annual or special meeting of stockholders and
may not act by written consent unless such consent is unanimous. The Amended
and Restated Certificate of Incorporation provides that special meetings of
the stockholders can be called only by the Chairman of the Board, the
President, or the Board of Directors pursuant to a resolution approved by a
majority of the whole Board of Directors.
The approval by the affirmative vote of the holders of 66 2/3% of the
Company's outstanding voting stock, and 66 2/3% of the Company's outstanding
voting stock owned by disinterested stockholders, is required to approve
certain business combinations. Further, the affirmative vote of the holders of
80% of the Company's outstanding voting stock is required to approve certain
specified business combinations with "interested stockholders" (i.e.
beneficial owners of 10% or more of the combined voting power of the
outstanding shares) or their affiliates, if either (i) the business
combination is not approved by a majority of the disinterested directors at a
meeting of directors at which at least 80% of the disinterested directors then
in office are present, or (ii) conditions as to the forms of consideration,
minimum price and procedures used are not met.
The Amended and Restated Certificate of Incorporation authorizes the Board
of Directors to take into account (in addition to any other considerations
which the Board of Directors may lawfully take into account) in determining
whether to take or to refrain from taking corporate action on any possible
acquisition proposals, including proposing any related matter to the
stockholders of the Company, the long-term as well as short-term interests of
the Company and its stockholders (including the possibility that these may be
best served by the continued independence of the Company), customers,
employees
52
<PAGE>
and other constituencies of the Company and any subsidiaries, as well as the
effect upon communities in which the Company and any subsidiaries do business.
In considering the foregoing and other pertinent factors, the Board of
Directors is not required, in considering the best interests of the Company,
to regard any particular corporate interest or the interest of any particular
group affected by such action as a controlling interest.
STOCKHOLDER PROPOSALS
The Company's Amended and Restated Bylaws contain provisions (i) requiring
that advance notice be delivered to the Company of any business to be brought
by a stockholder before any meeting of stockholders and (ii) establishing
certain procedures to be followed by stockholders in nominating persons for
election to the Board of Directors. Generally, such advance notice provisions
provide that written notice must be given to the Secretary of the Company by a
stockholder, with respect to director nominations or stockholder proposals,
not less than 50 nor more than 75 days prior to the meeting (except that if
less than 65 days notice or prior public disclosure of the date of the meeting
is given or made to stockholders, then notice by the stockholder, to be
timely, must be received within 15 days of the date on which notice of the
date of the meeting was mailed or such public disclosure was made, whichever
first occurs). Such notice must set forth specific information regarding such
stockholder and such business or director nominee, as described in the
Company's Amended and Restated Bylaws. The foregoing summary is qualified in
its entirety by reference to the Company's Amended and Restated Bylaws, which
are included as an exhibit to the Registration Statement of which this
Prospectus is a part.
LIMITATIONS ON DIRECTOR/OFFICER LIABILITY
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors are accountable for monetary damages for conduct constituting
gross negligence in the exercise of their duty of care. Delaware law enables
corporations to limit available relief to equitable remedies such as
injunction or rescission. The Amended and Restated Certificate of
Incorporation limits the liability of directors of the Company to the Company
or its stockholders to the fullest extent permitted by Delaware law.
Specifically, directors of the Company will not be personally liable to the
Company or its stockholders for monetary damages for breach of a director's
fiduciary duty as a director, except for liability for breach of the duty of
loyalty, for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, for unlawful payments of dividends
or unlawful stock repurchases or redemptions as provided in Section 174 of the
Delaware General Corporation Law, or for any transaction in which a director
has derived an improper personal benefit.
The Company's Amended and Restated Bylaws require the Company to indemnify
to the fullest extent permitted by Delaware law any person who is a party or
is threatened to be made a party to any action, suit or proceeding by reason
of the fact that such person is or was a director, officer, employee or agent
of the Company, or is serving as a director, officer, employee or agent of
another enterprise at the Company's request. Indemnification is not, however,
permitted under the Amended and Restated Bylaws unless the person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the Company's best interests and, with respect to any criminal
action or proceeding, that such person had no reasonable cause to believe such
person's conduct was unlawful. The Company's Bylaws further provide that the
Company shall not indemnify any person for any liabilities or expenses
incurred by such person in connection with an action, suit or proceeding by or
in the right of the Company in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Company, unless
and only to the extent that the court in which the action, suit or proceeding
is brought
53
<PAGE>
determines that the person is entitled to indemnity for such expenses. The
indemnification provided by the Amended and Restated Bylaws is not exclusive
of any other rights to which those seeking indemnification may be otherwise
entitled.
The Company plans to enter into indemnification agreements (the
"Agreements") with each of the Company's directors and officers prior to the
Offering. The Agreements will provide that the Company will indemnify the
directors and officers against all liabilities and expenses actually and
reasonably incurred in connection with any action, suit or proceeding
(including an action by or in the right of the Company) to which any of them
is, was or at any time becomes a party, or is threatened to be made a party,
by reason of their status as a director or officer of the Company, or by
reason of their serving or having served at the request or on behalf of the
Company as a director, officer, trustee or in any other comparable position of
any other enterprise to the fullest extent allowed by law. No indemnity will
be provided under the Agreements for any amounts for which indemnity is
provided by any other indemnification obligation or insurance maintained by
the Company or another enterprise or otherwise. Nor will indemnity be provided
to any director or officer on account of conduct which is finally adjudged by
a court to have been knowingly fraudulent, deliberately dishonest or willful
misconduct. In addition, no indemnification will be provided if a final court
adjudication shall determine that such indemnification is not lawful, or in
respect to any suit in which judgment is rendered against any director or
officer for an accounting of profits made from a purchase or sale of
securities of the Company in violation of Section 16(b) of the Securities
Exchange Act of 1934 or of any similar law, or on account of any remuneration
paid to any director or officer which is adjudicated to have been paid in
violation of law.
The Company also intends to obtain director's and officer's liability
insurance.
The foregoing limitations on liability and indemnification obligations may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their fiduciary duties, even though
such an action, if successful, might otherwise have benefitted the Company and
its stockholders.
TRANSFER AGENT AND REGISTRAR
Norwest Bank of Minnesota, N.A. is the Transfer Agent and Registrar for the
Common Stock.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Acquisitions and completion of this Offering, the
Company will have outstanding 10,048,746 shares of Common Stock (10,798,746 if
the Underwriters' over-allotment option is exercised in full) of which the
5,000,000 shares sold in the Offering (5,750,000 if the Underwriters' over-
allotment option is exercised in full) will be freely tradable without
restriction or further registration under the Securities Act, except for those
held by "affiliates" (as defined in the Securities Act) of the Company, which
shares will be subject to the resale limitations of Rule 144 under the
Securities Act. The remaining 5,048,746 shares of Common Stock are deemed
"restricted securities" under Rule 144 in that they were originally issued and
sold by the Company in private transactions in reliance upon exemptions under
the Securities Act, and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 promulgated under the
Securities Act as described below.
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of restricted
securities from the issuer or from any affiliate of the issuer the acquiror or
subsequent holder would be entitled to sell within any three-month period a
number of those shares that does not exceed the greater of one percent of the
number of shares of such class of stock then outstanding or the average weekly
trading volume of the shares of such class of stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain requirements pertaining to the
manner of such sales, notices of such sales and the availability of current
public information concerning the issuer. In addition, if a period of at least
two years has elapsed since the later of the date of acquisition of restricted
securities from the issuer or from any affiliate of the issuer, and the
acquiror or subsequent holder thereof is deemed not to have been an affiliate
of the issuer of such restricted securities at any time during the 90 days
preceding a sale, such person would be entitled to sell such restricted
securities under Rule 144(k) without regard to the requirement described
above. Rule 144 does not require the same person to have held the securities
for the applicable periods. The foregoing summary of Rule 144 is not intended
to be a complete description thereof. The Securities and Exchange Commission
(the "Commission") has proposed certain amendments to Rule 144 that would,
among other things, eliminate the manner of sale requirements and revise the
notice provisions of that rule. The Commission has also solicited comments on
other possible changes to Rule 144, including possible revisions to the one-
and two-year holding periods and the volume limitations referred to above.
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 the grant of employee stock
options (up to a maximum of 1,000,000 shares) under the 1998 Stock Option
Plans and for shares issued (i) in connection with acquisitions of businesses
and (ii) pursuant to the Nationwide Executive Stock Purchase Plan (up to a
maximum of 250,000 shares). Further, the Company's directors, officers and
certain stockholders who will beneficially own 5,048,746 shares in the
aggregate after the Offering have agreed not to directly or indirectly sell or
offer for sale or otherwise dispose of any Common Stock for a period of one
year after the date of this Prospectus without the prior written consent of BT
Alex. Brown Incorporated. BT Alex. Brown Incorporated has indicated that it
does not currently foresee any circumstances under which it would consent to
the sale of Common Stock or options by the Company or existing stockholders of
the Company beyond the exceptions stated above in this paragraph.
Prior to the Offering, there has been no established public market for the
Common Stock. No prediction can be made as to the effect, if any, that the
sale of shares under Rule 144, or otherwise, or the availability of shares for
sale will have on the market price for the Common Stock prevailing from time
to time after the Offering. The Company is unable to estimate the number of
shares that may be sold in the public market under Rule 144, or otherwise,
because such amount will depend on the trading volume in, and market price
for, the Common Stock of the Company and the Company's future ability to raise
equity capital and complete any additional acquisitions for Common Stock. See
"Underwriting."
55
<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 and Piper Jaffray Inc. (together, the
"Representatives"), have severally agreed to purchase from the Company the
following respective number of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on
the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
BT Alex. Brown Incorporated.....................................
Piper Jaffray Inc...............................................
---------
Total....................................................... 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of Common Stock offered hereby if any of such
shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share to certain other dealers. After commencement
of the initial public offering, the offering price and other selling terms may
be changed by the Representatives.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 750,000
additional shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it in the above table bears to 5,000,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters.
The Underwriters may exercise such option only to cover over-allotments made
in connection with the sale of the Common Stock offered hereby. If purchased,
the Underwriters will offer such additional shares on the same terms as those
on which the 5,000,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company regarding certain liabilities,
including liabilities under the Securities Act.
To facilitate the Offering, the Underwriters may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Specifically, the Underwriters may over-allot shares of the Common Stock in
connection with the Offering, thereby creating a short position in the
Underwriters' syndicate account. Additionally, to cover such over-allotments
or to stabilize the market
56
<PAGE>
price of the Common Stock, the Underwriters may bid for, and purchase, shares
of the Common Stock in the open market. Any of these activities may maintain
the market price of the Common Stock at a level above that which might
otherwise prevail in the open market. The Underwriters are not required to
engage in these activities, and, if commenced, any such activities may be
discontinued at any time. The Representatives, on behalf of the Underwriters,
also may reclaim selling concessions allowed to an Underwriter or dealer, if
the syndicate repurchases shares distributed by that Underwriter or dealer.
The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period
of 180 days after the date of this Prospectus without the prior written
consent of BT Alex. Brown Incorporated, except for the grant of employee stock
options (up to a maximum of 1,000,000 shares) under the 1998 Stock Option
Plans and for shares issued (i) in connection with acquisitions of businesses
and (ii) pursuant to the Nationwide Executive Stock Purchase Plan (up to a
maximum of 250,000 shares). Further, the Company's directors, officers and
certain stockholders who will beneficially own 5,048,746 shares in the
aggregate after the Offering have agreed not to directly or indirectly sell or
offer for sale or otherwise dispose of any Common Stock for a period of one
year after the date of this Prospectus without the prior written consent of BT
Alex. Brown Incorporated. BT Alex. Brown Incorporated has indicated that it
does not currently foresee any circumstances under which it would consent to
the sale of Common Stock or options by the Company or existing stockholders of
the Company beyond the exceptions stated above in this paragraph.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock
will be determined by negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations are
prevailing market conditions, the results of operations of Parsons and the
Acquired 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.
The Common Stock issued in connection with the Acquisitions may not be sold
to the public and the holder of those shares are restricted from selling those
shares to the public for a period of at least one year after the consummation
of the Acquisitions.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Stinson, Mag & Fizzell, P.C., Kansas City, Missouri. Certain legal
matters in connection with the sale of the Common Stock offered hereby will be
passed upon for the Underwriters by Piper & Marbury L.L.P., Baltimore,
Maryland.
EXPERTS
The combined financial statements of Nationwide Electric, Inc. as of March
31, 1998 and for the period from September 23, 1997 through March 31, 1998
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The financial statements of Parsons Electric Co. as of February 27, 1998 and
December 31, 1997 and 1996 and for the two-month period ended February 27,
1998 and for each of the three years in the period
57
<PAGE>
ended December 31, 1997 included in this Prospectus have been audited by
McGladrey & Pullen LLP, independent accountants, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements of The Allison Company and subsidiary
as of June 30, 1998 and 1997 and for each of the three years in the period
ended June 30, 1998 included in this prospectus have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of Henderson Electric Co., Inc. and
subsidiaries as of March 31, 1998 and 1997 and for each of the three years in
the period ended March 31, 1998 included in this prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all exhibits, schedules and amendments relating thereto,
the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, filed as part of the
Registration Statement, does not contain all the information contained in the
Registration Statement, certain portions of which have been omitted in
accordance with rules and regulations of the Commission. Statements contained
in this Prospectus as to the contents of any contract, agreement or other
document filed as an exhibit to the Registration Statement accurately
describes the material provisions of such document and are qualified in their
entirety by reference to such exhibits for complete statements of their
provisions. All of these documents may be inspected without charge at the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the following regional
offices of the Commission: Seven World Trade Center, 13th Floor, New York, New
York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Commission maintains a web site that contains reports,
proxy and information statements regarding registrants that file
electronically with the Commission. 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 Commission,
upon payment of the prescribed fees.
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Upon effectiveness of the Registration Statement, the Company will
become subject to the informational and periodic reporting requirements of the
Exchange Act, and in accordance therewith, will file periodic reports, proxy
statements and other information with the Commission. Such periodic reports,
proxy statements and other information will be available for inspection and
copying at the public reference facilities and other regional offices referred
to above. The Company intends to register the securities offered by the
Registration Statement under the Exchange Act simultaneously with the
effectiveness of the Registration Statement and to furnish its stockholders
with annual reports containing audited financial statements and such other
reports as may be required from time to time by law or the NYSE.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NATIONWIDE ELECTRIC, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS
Basis of Presentation.................................................. F-2
Unaudited Pro Forma Combined Balance Sheet............................. F-3
Unaudited Pro Forma Combined Statement of Operations................... F-4
Notes to Unaudited Pro Forma Combined Financial Statements............. F-6
NATIONWIDE ELECTRIC, INC. AND AFFILIATES COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report........................................... F-12
Combined Balance Sheet................................................. F-13
Combined Statement of Operations....................................... F-14
Combined Statement of Stockholders' Equity............................. F-15
Combined Statement of Cash Flows....................................... F-16
Notes to Combined Financial Statements................................. F-17
NATIONWIDE ELECTRIC, INC. AND AFFILIATES COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
Combined Balance Sheets................................................ F-25
Combined Statements of Operations...................................... F-26
Combined Statements of Cash Flows...................................... F-27
Notes to Unaudited Combined Financial Statements....................... F-28
PARSONS ELECTRIC CO.
Independent Auditors' Report........................................... F-29
Balance Sheets......................................................... F-30
Statements of Income................................................... F-31
Statements of Retained Earnings........................................ F-32
Statements of Cash Flows............................................... F-33
Notes to Financial Statements.......................................... F-34
ACQUIRED COMPANIES
THE ALLISON COMPANY
Independent Auditors' Report........................................... F-39
Consolidated Balance Sheets............................................ F-40
Consolidated Statements of Operations and Retained Earnings............ F-41
Consolidated Statements of Cash Flows.................................. F-42
Notes to Consolidated Financial Statements............................. F-43
HENDERSON ELECTRIC CO. INC. AND SUBSIDIARIES
Independent Auditors' Report........................................... F-49
Consolidated Balance Sheets............................................ F-50
Consolidated Statements of Operations and Retained Earnings............ F-51
Consolidated Statements of Cash Flows.................................. F-52
Notes to Consolidated Financial Statements............................. F-53
</TABLE>
F-1
<PAGE>
NATIONWIDE ELECTRIC, INC. AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to (i) the acquisitions by Nationwide Electric, Inc. ("Nationwide"), of the
outstanding capital stock of Henderson Electric Company ("Henderson") and The
Allison Company ("Allison-Smith") and certain assets of Potter Electric Co.,
Inc. ("Potter") (together, the Acquired Companies), and (ii) the offering. The
acquisitions (the "Acquisitions") will occur simultaneously with and are
contingent upon the closing of Nationwide's initial public offering (the
"Offering") and will be accounted for using the purchase method of accounting.
Nationwide, which purchased Parsons Electric Co. effective in February 1998
for cash, has been designated the accounting acquiror for financial statement
presentation purposes.
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and related transactions, and the Offering, as if they had
occurred on June 30, 1998. The unaudited pro forma combined statements of
operations gives effect to these transactions as if they had occurred on April
1, 1997 but does not reflect a nonrecurring, noncash compensation charge, net
of tax, directly attributable to this transaction.
Nationwide has preliminarily analyzed the savings that are expected to be
realized from reductions in salaries, bonuses and certain benefits to the
owners. To the extent the owners of the Acquired Companies and Parsons have
contractually agreed to prospective reductions in salary, bonuses, benefits
and lease payments, these reductions have been reflected in the unaudited pro
forma combined statements of operations. It is anticipated that these savings
will be offset by costs related to Nationwide's new corporate management and
by the costs associated with being a public company not reflected herein. With
respect to other potential cost savings, Nationwide cannot quantify these
savings until completion of the Acquisitions. Because these costs cannot be
accurately quantified at this time, they have not been included in the pro
forma financial information of Nationwide.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that Company management deems appropriate
and may be revised as additional information becomes available. The pro forma
financial data do not purport to represent what Nationwide's financial
position or results of operations would actually have been if such
transactions in fact had occurred on those dates and are not necessarily
representative of Nationwide's financial position or results of operations for
any future period. Since the Acquired Companies were not under common control
or management, historical combined results may not be comparable to, or
indicative of, future performance. The unaudited pro forma combined financial
statements should be read in conjunction with the other financial statements
and notes thereto included elsewhere in this Prospectus. See also "Risk
Factors" included elsewhere herein.
F-2
<PAGE>
NATIONWIDE ELECTRIC, INC. AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA POST MERGER
ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
ASSETS NATIONWIDE ALLISON HENDERSON (NOTE 3) COMBINED (NOTE 4) TOTAL
------ ---------- ------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents........... $ 339 $ 2,442 $ 194 $ 1,799 $ 4,774 $ 20,842 $25,616
Contract receivables,
net................... 12,264 8,813 7,803 2,884 31,764 -- 31,764
Costs and estimated
earnings in excess of
billings.............. 3,048 605 3,337 194 7,184 -- 7,184
Inventories............ 454 31 102 -- 587 -- 587
Advances to
stockholders.......... -- 60 1,841 (1,901) -- -- --
Prepaid expenses....... 33 101 -- 60 194 -- 194
Deferred income tax.... 121 14 322 -- 457 -- 457
------- ------- ------- -------- ------- -------- -------
Total current assets. 16,259 12,066 13,599 3,036 44,960 20,842 65,802
Property and equipment,
net.................... 1,888 646 1,955 (1,279) 3,210 -- 3,210
Goodwill, net........... 4,227 -- -- 14,623 18,850 -- 18,850
Oher assets, net........ 1,085 -- 247 (149) 1,183 -- 1,183
------- ------- ------- -------- ------- -------- -------
Total................ $23,459 $12,712 $15,801 $ 16,231 $68,203 $ 20,842 $89,045
======= ======= ======= ======== ======= ======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current portion long-
term debt............. $ -- $ 115 $ 274 $ (118) $ 271 $ (271) $ --
Accounts payable....... 3,132 1,698 2,530 1,465 8,825 -- 8,825
Accrued expenses....... 2,201 1,153 1,630 1,049 6,033 -- 6,033
Other current
liabilities........... 921 -- -- -- 921 (480) 441
Billings in excess of
costs and estimated
earnings.............. 2,413 1,667 2,035 626 6,741 -- 6,741
Line of credit......... 7,700 -- 400 365 8,465 (8,465) --
Payables to Acquired
Companies
stockholders.......... -- -- -- 16,880 16,880 (16,880) --
------- ------- ------- -------- ------- -------- -------
Total current
liabilities......... 16,367 4,633 6,869 20,267 48,136 (26,096) 22,040
Long-term debt.......... -- 1,012 350 (213) 1,149 (1,149) --
Long-term commitments... -- -- 150 -- 150 -- 150
Deferred income taxes... 2 -- 53 -- 55 -- 55
Redeemable preferred
stock.................. 6,150 -- -- 113 6,263 (6,263) --
STOCKHOLDERS' EQUITY:
Common stock, $.01
par................... 28 406 27 (422) 39 61 100
Class A common, $.01
par................... 11 -- -- -- 11 (11) --
Additional paid-in
capital............... 1,155 -- -- 11,166 12,321 54,300 66,621
Retained earnings
(deficit)............. (204) 6,661 8,580 (14,908) 129 -- 129
Less treasury
stock/shareholder
notes................. (50) -- (228) 228 (50) -- (50)
------- ------- ------- -------- ------- -------- -------
Total stockholders'
equity.............. 940 7,067 8,379 (3,936) 12,450 54,350 66,800
------- ------- ------- -------- ------- -------- -------
Total................ $23,459 $12,712 $15,801 $ 16,231 $68,203 $ 20,842 $89,045
======= ======= ======= ======== ======= ======== =======
</TABLE>
F-3
<PAGE>
NATIONWIDE ELECTRIC, INC. AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED MARCH 31,1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
NATIONWIDE ALLISON HENDERSON (NOTE 5) TOTAL
---------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue.................... $60,651 $32,072 $44,000 $9,098 $145,821
Cost of services, excluding
depreciation shown
separately below.......... 49,493 25,998 37,952 7,603 121,046
------- ------- ------- ------ --------
Gross profit........... 11,158 6,074 6,048 1,495 24,775
Operating expenses:
Selling, general and
administrative expenses. 7,613 3,149 4,104 45 14,911
Depreciation............. 443 97 272 50 862
Goodwill amortization.... -- -- -- 603 603
------- ------- ------- ------ --------
Operating expenses......... 8,056 3,246 4,376 698 16,376
------- ------- ------- ------ --------
Operating income....... 3,102 2,828 1,672 797 8,399
Interest and other income
(expense):
Interest expense......... (323) (140) (115) 578 --
Other income (expense),
net..................... 59 1 386 (2) 444
------- ------- ------- ------ --------
Income before tax...... 2,838 2,689 1,943 1,373 8,843
Income tax (benefit)....... (121) 1,031 776 2,087 3,773
------- ------- ------- ------ --------
Income before a
nonrecurring, noncash
charge directly
attributable to the
transaction(2)........ $ 2,959 $ 1,658 $ 1,167 $ (714) $ 5,070
======= ======= ======= ====== ========
Income per share before a
nonrecurring, noncash
charge directly
attributable to the
transaction(2)--basic and
diluted................... $ 0.50
========
Shares used in computing
pro forma income per
share--basic and
diluted(1)................ 10,049
</TABLE>
- --------
(1) Includes (a) 3,948,330 shares issued to certain management personnel and
the existing stockholders of Nationwide, (b) 1,100,416 shares issued to
owners of the Acquired Companies, (c) 3,331,500 of the 5,000,000 shares
sold in the Offering to pay the cash portion of the Acquisition
consideration, expenses of the Offering and retirement of debt and (d)
1,668,500 of the 5,000,000 shares sold in the Offering to provide net cash
to Nationwide expected to be used for working capital and future
acquisitions of businesses.
(2) Income before a nonrecurring charge attributable to the transaction
excludes a nonrecurring, noncash compensation charge of $3.3 million and
related income tax benefits of $1.3 or $2.0 million--Note 1 or $0.20 per
share.
F-4
<PAGE>
NATIONWIDE ELECTRIC, INC. AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
NATIONWIDE ALLISON HENDERSON (NOTE 5) TOTAL
---------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
Revenue....................... $13,448 $9,308 $11,459 $4,259 $38,474
Cost of services, excluding
depreciation shown separately
below........................ 11,137 7,355 9,703 3,578 31,773
------- ------ ------- ------ -------
Gross profit.............. 2,311 1,953 1,756 681 6,701
Operating expenses:
Selling, general and
administrative expenses.... 1,723 923 939 419 4,004
Depreciation................ 73 32 70 12 187
Goodwill amortization....... 67 -- -- 84 151
------- ------ ------- ------ -------
Operating expenses............ 1,863 955 1,009 515 4,342
------- ------ ------- ------ -------
Operating income.......... 448 998 747 166 2,359
Interest and other income
(expense):
Interest expense............ (172) (12) (18) 202 --
Other income (expense), net. 11 -- 160 6 177
------- ------ ------- ------ -------
Income before tax......... 287 986 889 374 2,536
Income tax.................... 115 392 356 212 1,075
------- ------ ------- ------ -------
Income before a
nonrecurring, noncash
charge directly
attributable to the
transaction(2)--basic and
diluted.................. $ 172 $ 594 $ 533 $ 162 $ 1,461
======= ====== ======= ====== =======
Income per share before a
nonrecurring, noncash charge
directly attributable to the
transaction(2)--basic and
diluted...................... $ 0.15
=======
Shares used in computing pro
forma income per share--basic
and diluted(1)............... 10,049
=======
</TABLE>
- --------
(1) Includes (a) 3,948,330 shares issued to certain management personnel and
the initial stockholders of Nationwide, (b) 1,100,416 shares issued to
owners of the Acquired Companies and (c) 3,331,500 of the 5,000,000 shares
sold in the Offering to pay the cash portion of the Acquisition
consideration, expenses of the Offering and retirement of debt and (d)
1,668,500 of the 5,000,000 shares sold in the Offering to provide net cash
to Nationwide expected to be used for working capital and future
acquisitions of businesses.
(2) Income before a nonrecurring charge attributable to the transaction
excludes a nonrecurring, noncash compensation charge of $3.3 million and
related income tax benefits of $1.3 or $2.0 million--Note 1 or $0.20 per
share.
F-5
<PAGE>
NATIONWIDE ELECTRIC, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
Nationwide Electric, Inc. ("Nationwide") was founded to create a leading
provider of electrical contracting and maintenance services to commercial,
industrial and institutional customers. Nationwide acquired Parsons Electric
Co. effective February 27, 1998 and conducted no operations prior to that
acquisition. Subsequent to March 31, 1998, Nationwide merged with a related
company that had common ownership and became the designated "accounting
acquiror" in the Acquisitions. Nationwide will acquire the Acquired Companies
concurrently with and as a condition of the closing of this Offering.
Under certain restricted stock purchase agreements, the Company has sold
315,000 shares of Common Stock to management, two outside directors and one
director nominee. As a result, the Company will record a nonrecurring, noncash
compensation charge of $3.3 million and related tax benefit of $1.3 million or
$2.0 million ($0.20 per share) in the first reportable quarter following
consummation of the Offering, representing the difference between the amount
paid for the shares and the estimated fair value thereof (a fair value that is
discounted ten percent from the assumed initial public offering price). This
nonrecurring compensation charge is not included in the Unaudited Pro Forma
Combined Financial Statements.
The historical financial statements reflect the financial position and
results of operations of the Acquired Companies and were derived from the
respective Acquired Companies' financial statements where indicated. The
periods included in these unaudited pro forma financial statements for the
individual Acquired Companies are as of and for the twelve months ended March
31, 1998. The audited historical financial statements included elsewhere
herein have been included in accordance with Securities and Exchange
Commission (SEC) Staff Accounting Bulletin No. 80, which sets forth the
requirements to provide audited financial statements of constituent businesses
involved in an initial public offering that remain substantially intact after
acquisition.
2. ACQUISITION OF ACQUIRED COMPANIES:
Concurrently with and as a condition to the closing of the Offering,
Nationwide will acquire all of the outstanding capital stock of Allison-Smith
and Henderson and the assets of Potter. The acquisitions will be accounted for
using the purchase method of accounting with Nationwide being designated as
the accounting acquiror.
Nationwide acquired Parsons Electric Co. ("Parsons") through a merger with
Galt Financial, Inc. ("Galt") the parent company of Parsons effective February
27, 1998. Galt was owned by the same shareholders who own Nationwide.
Accordingly, the merger was accounted for similar to a pooling of interests.
The merger was completed with Nationwide issuing its stock to the shareholders
of Galt in return for all of Galt's outstanding stock. Galt acquired Parsons
in an all cash transaction accounted for using the purchase method of
accounting. The goodwill which resulted in this transaction is being amortized
using a 40-year life. In addition, $425,000 of payments pursuant to a non-
compete agreements with key managers at Parsons will be amortized over lives
ranging from 21-36 months as a non-cash charge to operating income or $170,000
per year.
The following table sets forth the consideration to be paid (a) in cash and
(b) in shares of Common Stock to the common stockholders of each of the
Acquired Companies. For purposes of computing the estimated purchase price for
accounting purposes, the value of the shares was determined using an estimated
fair value of $10.20 per share (or $11.2 million), which is less than the
assumed initial public offering price of $12.00 per share. The number of
shares constituting the Acquisition Consideration will
F-6
<PAGE>
NATIONWIDE ELECTRIC, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
depend upon the actual initial public offering price. This valuation reflects
a 15% discount from the assumed initial public offering price. The difference
between the discount used and a nominal discount of 10% is immaterial. The
total estimated purchase price of $28.1 million for the acquisitions is based
upon preliminary estimates and is subject to certain downward purchase price
adjustments at and following closing. The table does not reflect distributions
totaling $480,000 consisting of Parsons undistributed earnings previously
taxed to its stockholders (S Corporation Distributions) prior to the
Acquisitions.
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
------- ------------
(IN THOUSANDS)
<S> <C> <C>
The Allison Company.................................. $10,130 454
Henderson Electric Co. Inc. and Subsidiaries......... 5,250 521
Other Acquired Company (Potter Electric Co., Inc.)... 1,500 125
------- -----
Total............................................ $16,880 1,100
======= =====
</TABLE>
The foregoing table does not reflect the following additional payments.
Allison-Smith is permitted to pay bonuses to its officers who are also
stockholders in an amount up to 50 percent of the consolidated pre-tax income
of Allison-Smith for the period from July 1, 1997 through June 30, 1998. An
additional earn-out payment, which will be accounted for as a bonus, will be
made to the same officers-stockholders in an amount equal to 25 percent of the
amount by which its earnings before interest and taxes for each of the fiscal
years ending March 31, 1999 and 2000 exceeds $2,500,000. The stockholders of
Henderson will also receive additional cash consideration in an amount equal
to all of the after-tax income of Henderson during the period from August 15,
1998 through the consummation of the Offering. An additional earnout payment
will be made for the acquisition of Potter in an amount equal to 30% of the
amount, if any, by which pre-tax income (after deducting payment of all
bonuses) of the Potter Division exceeds $750,000 in each of the first three
fiscal years following the consummation of the Offering. The Company also
plans to grant options (the "Performance Stock Options") to Ralph Pangonis to
purchase 120,000 shares of Common Stock, exercisable at the initial public
offering price. The Performance Stock Options will vest at a rate of 40,000
shares for each year that the pre-tax income of Potter, after certain
specified deductions, exceeds $750,000. Any Performance Stock Options that do
not vest in accordance with the performance test described above will expire
three years after the date of grant, and all Performance Stock Options,
whether or not vested, will expire if not exercised within five years after
consummation of the Offering.
F-7
<PAGE>
NATIONWIDE ELECTRIC, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ASSETS (A) (B) (C) (D) (E) ADJUSTMENTS
- ------ ------- ------ ----- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents............. $ 338 $1,913 $(664) $ -- $ 212 $ 1,799
Contract receivables..... -- -- -- -- 2,884 2,884
Costs and estimated
earnings in excess of
billings................ -- -- -- -- 194 194
Advances to Stockholders. -- (1,913) -- -- 12 (1,901)
Prepaid expenses......... -- -- -- -- 60 60
------- ------ ----- ------- ------ --------
Total current assets... 338 -- (664) -- 3,362 3,036
Property and
equipment, net............ (1,475) -- -- -- 196 (1,279)
Goodwill, net.............. -- -- -- 14,623 -- 14,623
Other assets, net.......... (149) -- -- -- -- (149)
------- ------ ----- ------- ------ --------
Total.................. $(1,286) $ -- $(664) $14,623 $3,558 $ 16,231
======= ====== ===== ======= ====== ========
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
- --------------------
<S> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Current portion long-term
debt.................... $ (118) $ -- $ -- $ -- $ -- $ (118)
Accounts payable......... -- -- -- -- 1,465 1,465
Accrued expenses......... -- -- -- -- 1,049 1,049
Due to related parties... -- -- -- -- -- --
Billings in excess of
costs and estimated
earnings................ -- -- -- -- 626 626
Line of credit........... -- -- -- -- 365 365
Payables to Acquired
Company stockholders.... -- -- -- 16,880 -- 16,880
------- ------ ----- ------- ------ --------
Total current
liabilities........... (118) -- -- 16,880 3,505 20,267
Long-term debt............. (213) -- -- -- -- (213)
Redeemable preferred stock. -- -- -- 113 -- 113
Stockholders' Equity:
Common stock:
Voting, $.01 par....... -- -- -- (437) 15 (422)
Additional paid-in
capital................. -- -- -- 11,166 -- 11,166
Retained earnings
(deficit)............... -- -- (664) (14,282) 38 (14,908)
Less treasury
stock/shareholder notes. (955) -- -- 1,183 -- 228
------- ------ ----- ------- ------ --------
Total stockholders'
equity................ (955) -- (664) (2,370) 53 (3,936)
------- ------ ----- ------- ------ --------
Total.................. $(1,286) $ -- $(664) $14,623 $3,558 $ 16,231
======= ====== ===== ======= ====== ========
</TABLE>
- --------
(a) Records the purchase of Henderson treasury shares in consideration of
certain assets, prior to consummation of the Offering. The Company shall
retain all remaining assets after giving effect to the related party
settlement described in 3(b) below.
(b) Records the cash settlement of all related party accounts.
(c) Records the payment of additional bonuses to owners who are also officers
of Allison-Smith in accordance with the purchase agreement concurrently
with the consummation of the Offering.
(d) Records the purchase of the Acquired Companies by Nationwide consisting of
payables to Acquired Company stockholders of $16.9 million (to reflect the
cash consideration payable to the Acquired Companies) and 1.1 million
shares of Common Stock valued at $10.20 per share (or $11.2 million) for a
total estimated purchase price of $28.1 million resulting in excess
purchase price of $14.6 million over the net assets acquired of $14.1
million (see Note 2).
F-8
<PAGE>
NATIONWIDE ELECTRIC, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following reconciles the historical net assets to the Acquired
Companies net assets acquired (in thousands):
<TABLE>
<CAPTION>
TOTAL LESS ACQUIRED
COMBINED NATIONWIDE COMPANIES
-------- ---------- ---------
<S> <C> <C> <C>
Historical net assets....................... $14,820 $940 $13,880
======= ==== =======
</TABLE>
(e) Records the accounts of another acquired company (Potter Electric Co.,
Inc.) for which historical financial statements are not included.
4. UNAUDITED PRO FORMA POST MERGER ADJUSTMENTS:
(IN THOUSANDS)
<TABLE>
<CAPTION>
POST MERGER
ASSETS (A) (B) ADJUSTMENTS
- ------ ------- -------- -----------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents...................... $54,350 $(33,508) $ 20,842
------- -------- --------
Total current assets......................... 54,350 (33,508) 20,842
------- -------- --------
Total........................................ $54,350 $(33,508) $ 20,842
======= ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C>
Current Liabilities:
Current portion long term debt................. $ -- $ (271) $ (271)
Other current liabilities...................... -- (480) (480)
Line of credit................................. -- (8,465) (8,465)
Payables to Acquired Company stockholders...... -- (16,880) (16,880)
------- -------- --------
Total current liabilities.................... -- (26,096) (26,096)
Long-term debt................................. -- (1,149) (1,149)
Redeemable preferred stock....................... -- (6,263) (6,263)
Stockholders' Equity:
Common stock................................... 61 -- 61
Class A common, $.01 par....................... (11) -- (11)
Additional paid-in capital..................... 54,300 -- 54,300
------- -------- --------
Total stockholders' equity................... 54,350 -- 54,350
------- -------- --------
Total........................................ $54,350 $(33,508) $ 20,842
======= ======== ========
</TABLE>
- --------
(a) Records the cash proceeds of $54.4 million from the issuance of 5,000,000
shares of Nationwide Common Stock, net of underwriting discount of $4.2
million and estimated offering costs of $1.45 million (at an assumed
issuance price of $12 per share). Offering costs primarily consist of
accounting fees, legal fees and printing expenses.
(b) Records payment of the cash portion of the consideration to the
stockholders of the Acquired Companies of $16.9 million in connection with
the Acquisitions, redemption of $6.3 million of Redeemable Preferred
Stock, repayment of outstanding short-term and long-term debt totaling
$9.9 million and $480,000 distributions payable.
F-9
<PAGE>
NATIONWIDE ELECTRIC, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) TOTAL
(IN THOUSANDS) ------- ------- ----- ---- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ -- $(2,315) $ -- $-- $11,413 $ -- $9,098
Cost of services........ -- (1,905) -- -- 9,508 -- 7,603
------- ------- ----- ---- ------- ------- ------
Gross profit........ -- (410) -- -- 1,905 -- 1,495
Operating expenses:
Selling, general and
administrative
expenses............. (1,030) (468) -- -- 1,543 -- 45
Depreciation.......... (52) -- -- -- 102 -- 50
Goodwill amortization. -- -- 603 -- -- -- 603
------- ------- ----- ---- ------- ------- ------
Operating expenses...... (1,082) (468) 603 -- 1,645 -- 698
------- ------- ----- ---- ------- ------- ------
Operating income.... 1,082 58 (603) -- 260 -- 797
Interest and other
income (expense):
Interest expense...... -- 9 -- 569 -- -- 578
Other income, net..... (10) (4) -- -- 12 -- (2)
------- ------- ----- ---- ------- ------- ------
Income before tax... 1,072 63 (603) 569 272 -- 1,373
Income taxes............ -- -- -- -- -- 2,087 2,087
------- ------- ----- ---- ------- ------- ------
Net income (loss)... $ 1,072 $ 63 $(603) $569 $ 272 $(2,087) $ (714)
======= ======= ===== ==== ======= ======= ======
</TABLE>
- --------
(a) Reflects the $1,190,000 reduction in salaries, bonuses and benefits to the
owners of the Acquired Companies. These reductions in salaries, bonuses
and benefits have been agreed to prospectively in accordance with the
terms of employment agreements. Such employment agreements are primarily
for three years, contain restrictions related to competition and provide
severance for termination of employment in certain circumstances.
Additionally, reflects adjustments to expenses associated with certain
non-operating assets that will be transferred from the Acquired Companies
prior to the Acquisitions and certain other transactions (additional rent
expense of $180,000, $52,000 reduced depreciation, $10,000 reduced
related-company income and $20,000 reduced owner expense).
(b) Reflects the elimination of activities related to assets not purchased
from the shareholder of Parsons. Such assets include inventory and fixed
assets of Parson's welding supplies distribution operations.
(c) Reflects the amortization of goodwill to be recorded as a result of these
Acquisitions and the amortization of goodwill to be recorded as a result
of the acquisition of Parsons over a 40-year life, as well as amortization
to be recorded as a result of non-compete agreements with key managers at
Parsons over lives ranging from 21-36 months.
(d) Reflects elimination of interest expense of $10.8 million of debt to be
repaid using proceeds from the Offering.
(e) Reflects results of operations of another acquired company (Potter
Electric Co., Inc.) for which historical financial statements are not
included.
(f) Reflects the incremental provision for federal and state income taxes at
an approximate 40.0% overall tax rate before non-deductible goodwill and
other permanent items, relating to the other statements of operations
adjustments and for income taxes on S corporation income not provided for
in the historical financial statements.
F-10
<PAGE>
NATIONWIDE ELECTRIC, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) TOTAL
(IN THOUSANDS) ---- ----- ---- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................ $-- $ -- $-- $4,259 $ -- $4,259
Cost of services....................... -- -- -- 3,578 -- 3,578
---- ----- ---- ------ ----- ------
Gross profit....................... -- -- -- 681 -- 681
Operating expenses:
Selling, general and administrative
expenses............................ (64) -- -- 483 -- 419
Depreciation......................... (13) -- -- 25 -- 12
Goodwill amortization................ -- 84 -- -- -- 84
---- ----- ---- ------ ----- ------
Operating expenses..................... (77) 84 -- 508 -- 515
---- ----- ---- ------ ----- ------
Operating income................... 77 (84) -- 173 -- 166
Interest and other income (expense):
Interest expense..................... -- -- 209 (7) -- 202
Other income, net.................... -- -- -- 6 -- 6
---- ----- ---- ------ ----- ------
Income before Tax.................. 77 (84) 209 172 -- 374
---- ----- ---- ------ ----- ------
Income taxes........................... -- -- -- 69 143 212
---- ----- ---- ------ ----- ------
Net income (loss).................. $ 77 $(84) $209 $ 103 $(143) $ 162
==== ===== ==== ====== ===== ======
</TABLE>
- --------
(a) Reflects the $109,000 reduction in salaries, bonuses and benefits to the
owners of the Acquired Companies. These reductions in salaries, bonuses
and benefits have been agreed to prospectively in accordance with the
terms of employment agreements. Such employment agreements are primarily
for three years, contain restrictions related to competition and provide
severance for termination of employment in certain circumstances.
Additionally, reflects adjustments to expenses associated with certain
non-operating assets that will be transferred from the Acquired Companies
prior to the Acquisitions (additional rent expense of $45,000 and $13,000
reduced depreciation).
(b) Reflects the amortization of goodwill to be recorded as a result of these
Acquisitions and the amortization of goodwill to be recorded as a result
of the acquisition of Parsons over a 40-year life, as well as amortization
to be recorded as a result of non-compete agreements with key managers at
Parsons over lives ranging from 21 to 36 months.
(c) Reflects elimination of interest expense of $9.9 million of debt to be
repaid using proceeds from the Offering.
(d) Reflects results of operations of another acquired company (Potter
Electric Co., Inc.) for which historical financial statements are not
included.
(e) Reflects the incremental provision for federal and state income taxes at
an approximate 40.0% overall tax rate before non-deductible goodwill and
other permanent items, relating to the other statements of operations
adjustments and for income taxes on S corporation income not provided for
in the historical financial statements.
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
Nationwide Electric, Inc.:
We have audited the accompanying combined balance sheet of Nationwide
Electric, Inc. and affiliates (the "Company") as of March 31, 1998 and the
related combined statements of operations, stockholders' equity and cash flows
for the period September 23, 1997 to March 31, 1998. The combined financial
statements include the accounts of Nationwide Electric, Inc. and affiliated
companies, Parsons Electric Co., Galt Financial, LLC and Galt Financial, Inc.,
which are under common control. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the 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 combined 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, such combined financial statements present fairly, in all
material respects, the financial position of Nationwide Electric, Inc. and
affiliates as of March 31, 1998 and the results of their operations and their
cash flows for the period September 23, 1997 to March 31, 1998 in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
June 12, 1998
F-12
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
COMBINED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 1,046,253
Contract receivables, net of an allowance for doubtful accounts
of $40,000...................................................... 12,088,891
Costs and estimated earnings in excess of billings on uncompleted
contracts....................................................... 3,320,678
Inventories...................................................... 479,396
Prepaid expenses................................................. 45,833
Deferred income taxes............................................ 122,000
-----------
Total current assets.......................................... 17,103,051
-----------
Property and equipment, net....................................... 1,597,687
Goodwill, net..................................................... 4,254,090
Other assets, net................................................. 413,278
-----------
Total......................................................... $23,368,106
===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
CURRENT LIABILITIES:
Accounts payable................................................. $ 3,236,631
Accrued expenses................................................. 1,814,958
Other current liabilities........................................ 915,365
Billings in excess of costs and estimated earnings on uncompleted
contracts....................................................... 1,925,651
Line of credit................................................... 8,600,000
-----------
Total current liabilities..................................... 16,492,605
Commitments and contingencies (Note 8 and 14)
Deferred income taxes............................................. 1,500
Redeemable preferred stock; Series A nonvoting convertible; par
value $1.00; 6,000 shares authorized, issued and outstanding..... 6,037,500
STOCKHOLDERS' EQUITY:
Nationwide Electric, Inc.:
Common stock; par value $.01:
Voting, 15,000,000 shares authorized; 233,331 shares issued
and outstanding.............................................. 2,333
Class A nonvoting, 150,000 shares authorized; 99,999 shares
issued and outstanding....................................... 1,000
Galt Financial, Inc.:
Common stock; par value $1.00:
Voting, 1,000 shares authorized; 700 shares issued and
outstanding.................................................. 700
Class A nonvoting, 1,000 shares authorized; 300 shares issued
and outstanding.............................................. 300
Additional paid-in capital...................................... 1,095,667
Accumulated deficit............................................. (263,499)
-----------
Total stockholders' equity.................................... 836,501
-----------
Total......................................................... $23,368,106
===========
</TABLE>
See notes to combined financial statements.
F-13
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS
FOR THE PERIOD SEPTEMBER 23, 1997 TO MARCH 31, 1998
<TABLE>
<S> <C>
Contract revenues................................................... $4,304,818
Costs of services................................................... 3,601,651
----------
Gross profit....................................................... 703,167
Selling, general and administrative expenses........................ 968,208
----------
Loss from operations................................................ (265,041)
Interest and other income (expense):
Interest expense................................................... (124,448)
Other income, net.................................................. 42,990
----------
(81,458)
----------
Loss before benefit for income taxes................................ (346,499)
Income tax benefit.................................................. 120,500
----------
Net loss............................................................ $ (225,999)
==========
Net loss per share--basic and diluted............................... $ (0.68)
==========
Shares used in computing net loss per share--basic and diluted...... 333,330
==========
</TABLE>
See notes to combined financial statements.
F-14
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD SEPTEMBER 23, 1997 TO MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
CLASS A
VOTING NONVOTING ADDITIONAL
-------------- -------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ ------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 23,
1997................... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of Nationwide
common stock........... 233,331 2,333 99,999 1,000 996,667 -- 1,000,000
Issuance of Galt, Inc.
common stock........... 700 700 300 300 99,000 -- 100,000
Dividends on preferred
stock.................. -- -- -- -- -- (37,500) (37,500)
Net loss................ -- -- -- -- -- (225,999) (225,999)
------- ------ ------- ------ ---------- --------- ---------
BALANCE, MARCH 31, 1998. 234,031 $3,033 100,299 $1,300 $1,095,667 $(263,499) $ 836,501
======= ====== ======= ====== ========== ========= =========
</TABLE>
See notes to combined financial statements.
F-15
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD SEPTEMBER 23, 1997 TO MARCH 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................ $ (225,999)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation................................................... 32,532
Amortization of intangible assets.............................. 21,729
Provision for deferred income taxes............................ (120,500)
Changes in operating assets and liabilities, excluding assets
acquired and liabilities assumed in acquisitions:
Contract receivables.......................................... 1,453,415
Costs and estimated earnings in excess of billings............ (462,079)
Inventory..................................................... (26,943)
Prepaid expenses.............................................. 154,667
Accounts payable.............................................. 132,283
Accrued expenses.............................................. (1,687,033)
Other current liabilities..................................... 688,693
Billings in excess of costs and estimated earnings............ (276,531)
------------
Net cash used in operating activities........................ (315,766)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................. (29,663)
Purchase of Parsons Electric Co................................. (11,000,000)
Purchase of employee non-compete agreements..................... (200,000)
------------
Net cash used in investing activities........................ (11,229,663)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of preferred stock................... 6,000,000
Proceeds from the issuance of common stock...................... 1,000,000
Net borrowings under line-of-credit............................. 5,800,000
Capital contributions........................................... 100,000
Payments on long term-debt...................................... (308,318)
------------
Net cash provided by financing activities.................... 12,591,682
------------
Net increase in cash and cash equivalents........................ 1,046,253
Cash and cash equivalents, at September 23, 1997................. --
------------
Cash and cash equivalents, at March 31, 1998..................... $ 1,046,253
============
Cash payments for interest....................................... $ 65,552
============
NON-CASH FINANCING TRANSACTION--
Dividends on redeemable preferred stock......................... $ 37,500
============
</TABLE>
See notes to combined financial statements.
F-16
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--The combined financial statements presented herein represent the
combined balance sheets of Nationwide Electric, Inc. ("Nationwide") and Galt
Financial, Inc. ("Galt, Inc.") as of March 31, 1998. The combined statements
of operations, stockholders' equity and cash flows for the period from
September 23, 1997 through March 31, 1998 include Galt Financial, LLC ("Galt
LLC") from date of organization on September 23, 1997, Galt Financial, Inc.
("Galt, Inc.") from date of organization on February 25, 1998, and Nationwide
Electric, Inc. ("Nationwide") from date of organization on February 17, 1998.
Galt LLC was merged into Galt, Inc. on March 4, 1998. Such companies are under
common control and management. Nationwide acquired Galt, Inc. on June 4, 1998
and as of that date is the sole surviving entity. Parsons Electric Co.
("Parsons") was acquired on February 27, 1998 by Galt, Inc. for cash in the
amount of $11,000,000 in a transaction which has been accounted for under the
purchase method of accounting. Galt, Inc.'s operating results include the
operations of Parsons from the date of acquisition through March 31, 1998.
(Operating results for Nationwide, Galt, Inc. and Galt LLC prior to January 1,
1998 were not significant.)
Nationwide is majority owned by KLT Energy Services, Inc. (KLT), a
deregulated subsidiary of Kansas City Power & Light Company (KCPL) and Reardon
Capital, LLC (Reardon). Galt, Inc. and Galt LLC were also owned by KLT and
Reardon.
Nature of Operations--The Company's primary operations are commercial and
industrial electrical contracting with corporate offices in Kansas City,
Missouri and operating offices in Minneapolis, Minnesota. The work is
generally performed under fixed-price contracts. The length of the Company's
contracts varies, but generally are less than one year. The Company's
operations are primarily conducted within the state of Minnesota. The
Company's fiscal year ends on March 31.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the balance
sheet and the reported amount of reserves and expenses during the period.
Actual results could differ from those estimates.
Cash Equivalents--The Company considers all highly-liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Contract Receivables--The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides
allowances for contract receivables it deems to be uncollectible based on
management's best estimates. Recoveries are recognized in the period they are
received. The ultimate amount of contract receivables that become
uncollectible could differ from those estimated.
Credit Policy--In the normal course of business, the Company provides credit
to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and
well known local companies whose reputation is known to the Company. Advance
payments and progress payments are generally required for significant
projects. Credit checks are performed for significant new customers that are
not known to the Company. The Company generally has the ability to file liens
against the property if it is not paid on a timely basis.
Collective Bargaining Agreements--The Company is a party to various
collective bargaining agreements with certain of its employees. These
agreements require the Company to pay specified wages and provide certain
benefits to its union employees. These agreements will expire at various times
through April 2000.
F-17
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Inventories--Inventories consist primarily of materials and supplies and are
valued at the lower of cost or market using the first-in, first-out method.
Property and Equipment--Property and equipment is stated at cost less
accumulated depreciation. Routine repairs and maintenance are expensed as
incurred; improvements are capitalized at cost and are amortized over the
remaining useful life of the related asset. Depreciation is recorded using
straight-line methods over the estimated useful lives of the related assets.
Depreciation is provided over the following estimated useful lives:
<TABLE>
<S> <C>
Service equipment............................................ 5 years
Leasehold improvements....................................... 10 years
Machinery and equipment...................................... 5 to 7 years
Office furniture and equipment............................... 5 to 7 years
</TABLE>
Goodwill--Goodwill is being amortized over 40 years and the amount existing
at March 31, 1998 is deductible for tax purposes. Total accumulated
amortization at March 31, 1998 was $8,880.
Other assets--Other assets at March 31, 1998 consists primarily of non-
compete agreements with two key employees that are being amortized over 21 to
36 months. Total accumulated amortization at March 31, 1998 was $12,849.
Revenue and Cost Recognition--Revenue from contracts is recognized under the
percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs for each contract.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor,
supplies, and tools. Selling, general, and administrative costs are charged to
expense as incurred. Costs for materials incurred at the inception of a
project which are not reflective of effort are excluded from costs incurred
for purposes of determining revenue recognition and profits.
Estimates made with respect to uncompleted projects are subject to change as
the project progresses and better estimates of project costs become available.
Revisions in cost and profit estimates during the course of the work are
reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated
loss is recognized in the period in which it is determined that a loss will
occur, regardless of the stage of completion. Revenues from claims are
recorded only when the amounts have been received.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
Income from time and materials and maintenance-type contracts is recognized
when billed.
Income Taxes--The Company reports income taxes pursuant to Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related to certain income and expenses
recognized in different periods for financial and income tax reporting
purposes. Deferred tax assets and liabilities represent the future tax
consequences of those differences. Deferred taxes are also recognized for
operating losses and tax credits that are available to offset future taxable
income and income taxes, respectively. A valuation allowance is provided if it
is more likely than not that some portion or all of the deferred tax assets
will not be realized.
F-18
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Long-Lived Assets--The Company reviews long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment is recognized to the extent that the sum
of undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. No impairment has been recognized
through March 31, 1998.
Goodwill--Goodwill represents costs in excess of the fair value of net
assets acquired and is amortized using the straight-line method over 40 years.
The Company periodically assesses the recoverability of intangibles based on
its expectations of future profitability and undiscounted cash flow of the
related operations. These factors, along with management's plans with respect
to the operations are considered in assessing the recoverability of goodwill
and other purchased intangibles. If the Company determines, based on such
measures, that the carrying amount is impaired, the goodwill will be written
down to its recoverable value with a corresponding charge to earnings.
Recoverable value is calculated as the amount of estimated future cash flows
for the remaining amortization period. During the period presented, no such
impairment was incurred.
Loss Per Common Share--Loss to common stockholders reflecting dividends on
Redeemable Preferred Stock and loss per common share are not presented due to
the recent reorganization described herein which makes such information not
relevant.
New Accounting Pronouncements--In June 1997, SFAS No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about
the Company's operating segments. SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997. Adoption of SFAS Nos. 130 and
131 did not have any significant effect on the Company's combined financial
statements.
2. PARSONS ACQUISITION
On February 27, 1998 the Company acquired for cash all of the issued and
outstanding stock of Parsons Electric Co. The total purchase price was
$11,000,000, of which $4,600,000 was financed by additional borrowings under
Parson's line of credit (Note 6). Total assets acquired and liabilities
assumed were approximately $18,400,000 and $11,900,000, respectively.
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their respective fair values
resulting in goodwill of approximately $4.3 million, which is being amortized
to expense over 40 years using the straight-line method.
In addition, the Company entered into non-compete agreements with two key
employees of Parsons Electric Co. Payments of $425,000 are being made under
those agreements and are being amortized on a straight-line basis over 21 to
36 months.
The accompanying statement of operations reflect the results of operations
of Parsons from the date of acquisition through March 31, 1998. The unaudited
pro forma results of operations as if Parsons was acquired on January 1, 1998
are as follows:
<TABLE>
<S> <C>
Revenues..................................................... $14,004,368
===========
Net loss..................................................... $ (39,800)
===========
</TABLE>
F-19
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<S> <C>
Current accounts............................................. $10,623,725
Retention.................................................... 1,505,166
-----------
Subtotal..................................................... 12,128,891
Less allowance for doubtful accounts......................... 40,000
-----------
Contract receivables, net.................................... $12,088,891
===========
</TABLE>
4. CONTRACTS IN PROGRESS
Costs and estimated earnings on uncompleted contracts are summarized as net
balances in process as follows:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts...................... $45,317,999
Estimated earnings........................................... 5,405,927
-----------
Total........................................................ 50,723,926
Less billings to date........................................ 49,328,899
-----------
Net under billings........................................... $ 1,395,027
===========
</TABLE>
The net balances in process are classified on the balance sheet as follows:
<TABLE>
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 3,320,678
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (1,925,651)
-----------
Total...................................................... $ 1,395,027
===========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<S> <C>
Service equipment............................................. $ 39,455
Leasehold improvements........................................ 785,560
Machinery and equipment....................................... 470,534
Office furniture and equipment................................ 334,670
----------
Subtotal...................................................... 1,630,219
Less accumulated depreciation................................. 32,532
----------
Property and equipment, net................................... $1,597,687
==========
</TABLE>
6. LINE OF CREDIT
The Company has a $10,000,000 revolving line of credit with a bank, bearing
interest at the prime rate (8.5% at March 31, 1998) and is secured by
substantially all assets of the Company. The balance outstanding on the
revolving line of credit at March 31, 1998 was $8,600,000. The revolving line
of credit expires March 1, 1999, if not renewed. Under the terms of the line
of credit, the Company must maintain certain minimum net worth and financial
ratio requirements.
F-20
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<S> <C>
Accrued expenses consist of the following:
Accrued payroll and related expenses........................ $1,215,404
Accrued union dues and benefits............................. 525,959
Other accrued expenses...................................... 73,595
----------
$1,814,958
==========
Other current liabilities consist of the following:
Payable to former shareholder............................... $ 479,523
Non-compete agreements payable.............................. 225,000
Severance and bonus payable................................. 210,842
----------
$ 915,365
==========
</TABLE>
In connection with the acquisition of Parsons, the Company entered into non-
compete agreements with two employees for $425,000, of which $225,000 remains
payable at March 31, 1998. In March 1998, an employee submitted his
resignation and is eligible for $210,842 of severance and bonus pay, all of
which remains payable at March 31, 1998.
8. OPERATING LEASES
The Company leases an office building and warehouse facilities. The lease is
classified as an operating lease and expires on November 30, 2006.
Annual minimum lease payments under these noncancellable operating leases as
of March 31, 1998, are as follows:
<TABLE>
<S> <C>
1999 through 2003................................................ $148,368
Thereafter....................................................... 544,016
</TABLE>
In addition, the Company leases automobiles under agreements classified as
operating leases. Lease expense was approximately $47,000 for the three months
ended March 31, 1998.
9. INCOME TAXES
The Company's income tax benefit consists of the following:
<TABLE>
<S> <C>
Deferred:
Federal...................................................... $(102,500)
State........................................................ (18,000)
---------
$(120,500)
=========
</TABLE>
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<S> <C> <C>
Statutory federal rate--loss............................. $(117,810) (34)%
State tax, net of federal benefit........................ (20,790) (6)
Permanent differences.................................... 14,760 4
Other.................................................... (3,340) 1
--------- ---
$(120,500) (35)%
========= ===
</TABLE>
F-21
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
LONG-
CURRENT TERM TOTAL
-------- ------- --------
<S> <C> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards.................. $122,000 $ -- $122,000
-------- ------- --------
Total deferred income tax assets................ 122,000 -- 122,000
-------- ------- --------
Deferred income tax liabilities:
Goodwill.......................................... -- (1,500) (1,500)
-------- ------- --------
Total deferred income tax liabilities........... -- (1,500) (1,500)
-------- ------- --------
Net deferred income tax assets...................... $122,000 $(1,500) $120,500
======== ======= ========
</TABLE>
For income tax purposes, the Company has a net operating loss carryforward
of $305,000 which, if not utilized, expires in 2014.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts and notes receivable, accounts payable and current debt. The carrying
value of cash and cash equivalents, accounts and notes receivable and accounts
payable approximates fair value because of their short duration. The carrying
value of current debt approximates fair value based on current rates for
borrowings of similar quality and terms.
Other financial instruments, which potentially subject the Company to
significant concentrations of credit risk, consist primarily of contract
receivables. The Company's customers are concentrated in the Minnesota market.
The Company believes this concentration of credit risk is mitigated by the
diversity of industries represented by the Company's customer base.
11. SHAREHOLDERS' EQUITY
Common Stock--The Company's common stock is comprised of the combined Voting
Common Stock and Class A Nonvoting Common Stock of Nationwide and Galt, Inc.
At March 31, 1998, KLT and Reardon each owned 116,665.5 shares of Nationwide
Voting Common and 350 shares of Galt, Inc. Voting Common Stock. In addition,
KLT owned 300 shares of Class A Nonvoting Common Stock of Galt, Inc. and
99,999 shares of Nationwide Class A Nonvoting Common Stock.
Class A Nonvoting Common Stock has all of the powers, preferences and rights
of the Common Stock, except for voting rights. Each share of nonvoting
converts into voting upon the sale of shares of Common Stock or debt
securities in a public offering or in the case of any consolidation or merger
of the Company with or into another corporation or the sale of all or
substantially all of the assets of the Company. The Class A Nonvoting Common
Stock contains anti-dilution provisions.
Certain events require the approval of two-thirds of the outstanding Class A
Nonvoting Common Stock. Common share data has been restated to reflect a
333.33 for 1 common stock split on March 23, 1998.
Redeemable Preferred Stock--The Company has outstanding 6,000 shares of
Series A Redeemable Preferred Stock which is nonvoting and mandatorily
redeemable over thirty six months commencing March 1999 together with any
accrued but unpaid dividends. The Redeemable Preferred Stock is also
mandatorily redeemable upon the sale of Common Stock or debt securities in a
public offering or upon the sale or disposition of a majority of the Company's
assets.
F-22
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Annual dividends at $75 per share are cumulative and payable in arrears when
and as declared by the Board of Directors (dividends accrued through October
1998 are not payable until such shares are redeemed as discussed above).
Commencing August 1, 1998, the preferred stock may be converted into common
stock. The number of shares of common stock is determined by dividing the
redemption price by $1,000 and multiplying such amount by 3,000.
The preferred stock has a liquidation preference as to its subscription
price plus accrued but unpaid dividends and contains restrictive provisions on
the payment of dividends or merging or consolidating or selling all or
substantially all of the Company's assets.
12. MAJOR CUSTOMERS AND CONCENTRATION OF RISK
At March 31, 1998, $545,720 was due from one customer of the Company.
In addition, the Company grants credit, generally without collateral, to its
customers, which are usually general contractors. Consequently, the Company is
subject to potential credit risk related to changes in business and economic
factors. However, management believes that its contract acceptance, billing
and collection policies are adequate to minimize the potential credit risk.
13. EMPLOYEE BENEFIT PLAN
Parsons has a defined contribution pension plan and a contributory profit
sharing plan covering substantially all of its nonunion employees. An employee
becomes eligible for these plans after one year of service and must be 21
years of age. Employer contributions required for the defined contribution
pension plan are 3% of eligible wages. Annual contributions to the
contributory profit sharing plan are at the discretion of the Board of
Directors.
Parsons also contributes to union-sponsored, multi-employer defined benefit
pension plans in accordance with negotiated labor contracts. The passage of
the Multi-Employer Pension Plan Amendments Act of 1980 (the Act) may, under
certain circumstances, cause Parsons to become subject to liabilities in
excess of contributions made under collective bargaining agreements.
Generally, liabilities are contingent upon the termination, withdrawal, or
partial withdrawal from the plans. As of March 31, 1998, Parsons has not
undertaken to terminate, withdraw, or partially withdraw from any of these
plans. Under the Act, liabilities would be based upon Parsons proportionate
share of each plan's unfunded vested benefits. Parsons has not received
information from the plans' administrators to determine its share of unfunded
vested benefits, if any. During the period from the date of acquisition to
March 31, 1998, Parsons contributed $200,319 to these multi-employer union
pension plans.
14. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome
cannot presently be determined with certainty, the Company believes, based in
part upon advice from its legal counsel, that the ultimate liability
associated with such claims, if any, will not have a material adverse effect
on the Company's financial position, results of operations or cash flows.
15. SUBSEQUENT EVENTS
On April 14, 1998, Nationwide sold 300,000 shares of common stock to
management of Nationwide which was paid for with a combination of $40,000 cash
and $50,000 of shareholder notes. These shares may, at the Company's option,
be repurchased at the price they were sold if the Offering is not consummated.
On June 4, 1998, Galt, Inc. was merged into Nationwide in exchange for
3,300,000 shares of Common Stock (including 990,000 shares of Class A Non-
voting) (adjusted for the stock split as described in Note 12) and 6,000
shares of Redeemable Preferred Stock.
F-23
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
On May 31, 1998, the Company sold an aggregate of 15,000 shares of common
stock to two outside directors and an outside director nominee for $4,500
cash. These shares may, at the Company's option, be repurchased at the price
they were sold if the Offering is not consummated.
On June 4, 1998, an amendment to Nationwide's Certificate of Incorporation
was effected, whereby the number of authorized shares of Voting Common Stock
was increased to 30,000,000, and the number of authorized shares of Class A
Nonvoting Common Stock was increased to 1,200,000. In addition, the number of
authorized shares of Preferred Stock was increased to 10,000,000.
In June 1998, the Company entered into agreements and plans of merger to
acquire, subject to completion of an initial public offering, three companies
engaged in commercial and industrial electrical contracting. The aggregate
purchase price consists of $16.9 million cash and 1,100,416 shares of common
stock. The amount of this acquisition consideration does not include the
following amounts. Allison-Smith is permitted to pay bonuses to its officers
who are also stockholders in an amount up to 50 percent of the consolidated
pre-tax income of Allison-Smith for the period from July 1, 1997 through June
30, 1998. An additional earn-out payment, which will be accounted for as a
bonus, will be made to the same officers-stockholders in an amount equal to 25
percent of the amount by which its earnings before interest and taxes for each
of the fiscal years ending March 31, 1999 and 2000 exceeds $2,500,000. The
stockholders of Henderson will also receive additional cash consideration in
an amount equal to all of the after-tax income of Henderson during the period
from August 15, 1998 through the consummation of the Offering. An additional
earnout payment will be made for the acquisition of Potter Electric Co., Inc.
(Potter) in an amount equal to 30% of the amount, if any, by which pre-tax
income (after deducting payment of all bonuses) of Potter exceeds $750,000 in
each of the first three fiscal years following the consummation of the
Offering. The Company also plans to grant options (the "Performance Stock
Options") to Ralph Pangonis to purchase 120,000 shares of Common Stock,
exercisable at the initial public offering price. The Performance Stock
Options will vest at a rate of 40,000 shares for each year that the pre-tax
income of Potter, after deducting payment of all bonuses, exceeds $750,000.
Any Performance Stock Options that do not vest in accordance with the
performance test described above will expire three years after the date of
grant, and all Performance Stock Options, whether or not vested, will expire
if not exercised within five years after consummation of the Offering.
Upon the closing of the initial public offering, the Company intends to
grant options, at the initial public offering price, to purchase approximately
220,000 shares of Common Stock, pursuant to the Company's 1998 Stock Option
Plans (the "Option Plans"). The aggregate number of shares issuable pursuant
to the Option Plans shall be 1,000,000.
Under certain restricted stock purchase agreements noted above, the Company
has sold 315,000 shares of Common Stock to executive officers, two independent
directors and one director nominee. As a result, the Company will record a
nonrecurring, noncash compensation charge of $3.3 million and related benefit
of $1.3 million or $2.0 million ($0.20 per share) in the first reported
quarter following consummation of the Offering, representing the difference
between the amount paid for the shares and the estimated fair value thereof (a
fair value that is discounted ten percent from the initial public offering
price). This nonrecurring compensation charge is not included in the Unaudited
Pro Forma Combined Financial Statements.
In June 1998, the Company adopted an Executive Stock Purchase Plan (the
"Executive Stock Plan") and an Employee Stock Purchase Plan (the "Employee
Stock Plan"). A total of up to 250,000 shares are issuable under the Executive
Stock Plan to selected officers and other key employees at a price equal to
the fair market value of the shares sold to such officers and employees.
Financing will be provided by the Company on a nonrecourse basis for up to 85
percent of the stock purchase price. Under the Employee Stock Plan, all
employees will be given the opportunity to purchase unrestricted common stock
in the market at a price equal to the fair market value without having to pay
any brokerage commissions.
* * * * * *
F-24
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
JUNE 30, 1998 (UNAUDITED) AND MARCH 31, 1998
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
ASSETS 1998 1998
------ ----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $ 338,866 $ 1,046,253
Contract receivables, net of an allowance for doubtful
accounts of $40,000.................................... 12,263,924 12,088,891
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 3,048,151 3,320,678
Inventories............................................. 454,078 479,396
Prepaid expenses........................................ 33,333 45,833
Deferred income taxes................................... 120,992 122,000
----------- -----------
Total current assets.................................. 16,259,344 17,103,051
----------- -----------
Property and equipment, net............................... 1,888,223 1,597,687
Goodwill, net............................................. 4,227,450 4,254,090
Other Assets, net......................................... 1,084,637 413,278
----------- -----------
Total................................................. $23,459,654 $23,368,106
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................ $ 3,132,242 $ 3,236,631
Accrued expenses........................................ 2,201,095 1,814,958
Other current liabilities............................... 921,193 915,365
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 2,412,880 1,925,651
Line of credit.......................................... 7,700,000 8,600,000
----------- -----------
Total current liabilities............................. 16,367,410 16,492,605
Commitments and contingencies
Deferred income taxes..................................... 1,500 1,500
Redeemable preferred stock; Series A nonvoting
convertible; par value $.01; 10,000,000 shares
authorized, 6,000 shares issued and outstanding.......... 6,150,000 6,037,500
STOCKHOLDERS' EQUITY:
Nationwide Electric, Inc.:
Common stock; par value $.01:
Voting 30,000,000 shares authorized; 2,858,331 and
233,331 shares issued and outstanding as of June 30
and March 31, 1998, respectively................... 28,583 2,333
Class A nonvoting, 1,200,000 shares authorized;
1,089,999 and 99,999 shares issued and outstanding
as of June 30 and March 31, 1998, respectively..... 10,900 1,000
Galt Financial, Inc.:
Common stock; par value $1.00:
Voting 1,000 shares authorized; 700 shares issued
and outstanding as of March 31, 1998............... -- 700
Class A nonvoting, 1,000 shares authorized; 300
shares issued and outstanding as of March 31, 1998. -- 300
Additional paid-in capital.............................. 1,155,017 1,095,667
Notes receivable from management stockholders........... (50,000)
Accumulated deficit..................................... (203,756) (263,499)
----------- -----------
Total stockholders' equity............................ 940,744 836,501
----------- -----------
Total................................................. $23,459,654 $23,368,106
=========== ===========
</TABLE>
See notes to combined financial statements.
F-25
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Contract revenues.................................................................................. $13,448,078 $14,115,313
Costs of services.................................................................................. 11,136,532 11,723,767
----------- -----------
Gross profit....................................................................................... 2,311,546 2,391,546
Selling, general and administrative expenses....................................................... 1,863,480 1,706,807
----------- -----------
Income from operations............................................................................. 448,066 684,739
Interest and other income (expense):
Interest expense................................................................................. (172,388) (29,120)
Other income, net................................................................................ 11,393 25,474
----------- -----------
(160,995) (3,646)
----------- -----------
Income before provision for income taxes........................................................... 287,071 681,093
Income tax expense................................................................................. 114,828
----------- -----------
Net income......................................................................................... $ 172,243 $ 681,093
=========== ===========
Net income per share--basic and diluted............................................................ $ .08
- --------------------------------------------------
===========
Shares used in computing net income per share--basic and diluted................................... 2,150,912
</TABLE>
See notes to combined financial statements.
F-26
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................................ $ 172,243 $ 681,093
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation..................................................................................... 73,000 114,000
Amortization of intangible assets................................................................ 68,027 --
Loss on sale of property and equipment........................................................... 11,421 --
Provision for deferred income taxes.............................................................. 1,008 --
Changes in operating assets and liabilities:
Contract receivables............................................................................ (175,033) (705,227)
Costs and estimated earnings in excess of billings.............................................. 272,527 (481,506)
Inventory....................................................................................... 25,318 93,113
Prepaid expenses................................................................................ 12,500 --
Other assets.................................................................................... (712,746) --
Accounts payable................................................................................ (104,389) 260,180
Accrued expenses................................................................................ 386,137 599,483
Other current liabilities....................................................................... 5,828 (27,903)
Billings in excess of costs and estimated earnings.............................................. 487,229 (1,185,025)
---------- -----------
Net cash provided by (used in) operating activities............................................ 523,070 (651,792)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................................... (374,957) (52,781)
---------- -----------
Net cash used in investing activities.......................................................... (374,957) (52,781)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under line of credit.................................................... (900,000) 1,500,000
Payments on long-term debt........................................................................ -- (12,501)
Proceeds from issuance of common stock............................................................ 44,500 --
Stockholder distributions......................................................................... -- (760,000)
---------- -----------
Net cash provided by (used in) financing activities............................................ (855,500) 727,499
---------- -----------
Net increase (decrease) in cash and cash equivalents............................................... (707,387) 22,926
Cash and cash equivalents, beginning of period..................................................... 1,046,253 14,276
---------- -----------
Cash and cash equivalents, end of period........................................................... $ 338,866 $ 37,202
========== ===========
Cash payments for interest......................................................................... $ 197,502 $ 29,120
- -------------------------------------------------- ========== ===========
NON-CASH FINANCING TRANSACTION-- ==========
Dividends on redeemable preferred stock........................................................... $ 112,500
</TABLE>
See notes to combined financial statements.
F-27
<PAGE>
NATIONWIDE ELECTRIC, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND JUNE 30, 1997 (UNAUDITED)
1. ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The accompanying unaudited combined financial statements have been prepared
according to Generally Accepted Accounting Principles (GAAP) and rules and
regulations of the Securities and Exchange Commission and include all
adjustments, consisting only of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. Results of operations for
interim periods are not necessarily indicative of results to be expected for a
full year. The accompanying unaudited combined financial statements should be
read in conjunction with the audited financial statements and notes thereto
for the period ended March 31, 1998.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
2. INCOME TAXES
The Predecessor corporation was incorporated under S-Corporation tax laws.
Therefore, taxes on net income of the Company were assessed to the individual
shareholders. Therefore, an income tax provision was not necessary.
3. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome
cannot presently be determined with certainty, the Company believes, based in
part upon advice from its legal counsel, that the ultimate liability
associated with such claims, if any, will not have a material adverse effect
on the Company's financial position, results of operations or cash flows.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Parsons Electric Co.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Parsons Electric Co. as
of February 27, 1998, and December 31, 1997 and 1996, and the related
statements of income, retained earnings, and cash flows for the period from
January 1, 1998, to February 27, 1998, and 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 incudes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also incudes 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 Parsons Electric Co. as of
February 27, 1998, and December 31, 1997 and 1996, and the results of its
operations and its cash flows for the period from January 1, 1998, to February
27, 1998, and for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Minneapolis, Minnesota
June 10, 1998
F-29
<PAGE>
PARSONS ELECTRIC CO.
BALANCE SHEETS
FEBRUARY 27, 1998 AND DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1998 1997 1996
------ ----------- ----------- -----------
<S> <C> <C> <C>
Current Assets (Note 4)
Cash.......................................... $ 191,818 $ 45,947 $ 455,138
Contract receivables, including retainages of
$1,435,204, $1,552,875, and $1,729,820 in
1998, 1997, and 1996, respectively, less
allowance for doubtful accounts of $40,000
(Note 2)..................................... 13,240,229 16,596,180 10,924,870
Related-party receivable (Note 7)............. 302,578 236,565 --
Inventories (Note 7).......................... 452,412 423,078 1,027,404
Costs and earnings in excess of billings on
uncompleted contracts (Note 3)............... 2,858,599 2,293,122 1,902,418
----------- ----------- -----------
Total current assets...................... 17,045,636 19,594,892 14,309,830
Cash Value of Life Insurance, net of policy
loans.......................................... -- -- 212,226
----------- ----------- -----------
Property and Equipment, at cost
Leasehold improvements........................ 1,356,638 1,356,638 1,354,758
Construction and motor shop equipment......... 1,154,266 1,156,859 1,120,543
Office furniture and equipment................ 934,596 920,242 986,812
Trucks and autos.............................. 248,402 268,892 295,996
----------- ----------- -----------
3,693,902 3,702,631 3,758,109
Less accumulated depreciation................. 2,330,921 2,338,988 2,183,997
----------- ----------- -----------
1,362,981 1,363,643 1,574,112
----------- ----------- -----------
Total..................................... $18,408,617 $20,958,535 $16,096,168
=========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
Current Liabilities
Note payable to bank (Note 4)................. $ 2,800,000 $ 4,100,000 $ 1,300,000
Current maturities of long-term debt.......... 50,004 50,004 50,004
Accounts payable.............................. 2,969,982 4,675,114 2,812,452
Distributions payable......................... 479,523 450,000 --
Accrued expenses:
Compensation................................ 1,592,733 1,217,298 802,960
Pension and profit sharing.................. 541,670 467,344 445,110
Union benefits and dues..................... 560,506 541,581 396,860
Other....................................... 453,721 270,036 468,339
Billings in excess of costs and earnings on
uncompleted contracts (Note 3)............... 2,202,164 2,424,677 2,548,849
----------- ----------- -----------
Total current liabilities................. 11,650,303 14,196,054 8,824,574
----------- ----------- -----------
Long-Term Debt, less current maturities (Note
4)............................................. 258,314 262,481 312,485
----------- ----------- -----------
Commitments and Contingencies (Notes 5 and 6)
Stockholder's Equity (Note 8)
Common stock, $100 par value per share;
150,000 shares authorized; 40 shares issued.. 4,000 4,000 4,000
Retained earnings............................. 6,496,000 6,496,000 6,955,109
----------- ----------- -----------
Total stockholders' equity................ 6,500,000 6,500,000 6,959,109
----------- ----------- -----------
Total..................................... $18,408,617 $20,958,535 $16,096,168
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-30
<PAGE>
PARSONS ELECTRIC CO.
STATEMENTS OF INCOME
PERIOD FROM JANUARY 1, 1998 TO FEBRUARY 27, 1998 AND YEARS ENDED
DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1998 1997 1996 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue (Notes 2 and 7).... $9,699,550 $58,004,548 $58,563,050 $52,016,734
Cost of revenue............ 7,829,501 47,347,252 49,161,606 43,661,999
---------- ----------- ----------- -----------
Gross profit........... 1,870,049 10,657,296 9,401,444 8,354,735
Operating expenses......... 1,373,417 7,432,251 6,668,838 6,170,596
---------- ----------- ----------- -----------
Operating income....... 496,632 3,225,045 2,732,606 2,184,139
Nonoperating income
(expense):
Interest expense......... (38,159) (249,398) (167,896) (238,007)
Other income, net........ 21,050 58,043 46,395 32,592
---------- ----------- ----------- -----------
Net income............. $ 479,523 $ 3,033,690 $ 2,611,105 $ 1,978,724
========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-31
<PAGE>
PARSONS ELECTRIC CO.
STATEMENTS OF RETAINED EARNINGS
PERIOD FROM JANUARY 1, 1998 TO FEBRUARY 27, 1998 AND YEARS ENDED
DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1998 1997 1996 1995
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, beginning........... $6,496,000 $ 6,955,109 $ 6,104,004 $4,672,280
Distributions to
shareholder............... (479,523) (3,492,799) (1,760,000) (547,000)
Net income................. 479,523 3,033,690 2,611,105 1,978,724
---------- ----------- ----------- ----------
Balance, ending.............. $6,496,000 $ 6,496,000 $ 6,955,109 $6,104,004
========== =========== =========== ==========
</TABLE>
See Notes to Financial Statements.
F-32
<PAGE>
PARSONS ELECTRIC CO.
STATEMENTS OF CASH FLOWS
PERIOD FROM JANUARY 1, 1998 TO FEBRUARY 27, 1998 AND YEARS ENDED
DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1998 1997 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash Flows From Operating
Activities
Net income............... $ 479,523 $ 3,033,690 $ 2,611,105 $ 1,978,724
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation........... 63,400 446,929 434,601 395,009
(Gain) loss on
disposition of
property and
equipment............. (15,555) 7,931 (4,235) 21
Changes in assets and
liabilities:
(Increase) decrease
in contract
receivables......... 3,355,951 (5,671,310) 2,569,691 (5,187,640)
(Increase) decrease
in inventories...... (29,334) (89,138) 52,008 9,122
Increase in costs and
earnings in excess
of billings on
uncompleted
contracts........... (565,477) (390,704) (318,324) (505,960)
Increase (decrease)
in accounts payable
and accrued
expenses............ (1,052,761) 2,245,652 (954,145) 1,899,949
Decrease in billings
in excess of costs
and earnings on
uncompleted
contracts........... (222,513) (124,172) (213,351) 1,358,306
----------- ----------- ----------- -----------
Net cash provided
by (used in)
operating
activities........ 2,013,234 (541,122) 4,177,350 (52,469)
----------- ----------- ----------- -----------
Cash Flows From Investing
Activities
Proceeds from sales of
equipment............... 20,000 2,000 4,947 1,500
Purchases of property and
equipment............... (67,183) (246,391) (334,638) (369,534)
Increase in cash value of
life insurance.......... -- (37,914) (34,172) (31,293)
Increase in related-party
receivable.............. (66,013) (145,760) -- --
----------- ----------- ----------- -----------
Net cash used in
investing
activities........ (113,196) (428,065) (363,863) (399,327)
----------- ----------- ----------- -----------
Cash Flows From Financing
Activities
Net borrowings (payments)
under line-of-credit
agreement............... (1,300,000) 2,800,000 (1,550,000) 1,000,000
Principal payments on
long-term borrowings.... (4,167) (50,004) (54,171) (45,837)
Cash distributions to
shareholder............. (450,000) (2,190,000) (1,760,000) (547,000)
----------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities........ (1,754,167) 559,996 (3,364,171) 407,163
----------- ----------- ----------- -----------
Increase (decrease)
in cash........... 145,871 (409,191) 449,316 (44,633)
Cash
Beginning................ 45,947 455,138 5,822 50,455
----------- ----------- ----------- -----------
Ending................... $ 191,818 $ 45,947 $ 455,138 $ 5,822
=========== =========== =========== ===========
Supplemental Disclosures of
Cash Flow Information
Cash payments for
interest................ $ 21,263 $ 249,398 $ 185,260 $ 220,643
=========== =========== =========== ===========
Supplemental Schedule of
Noncash Investing and
Financing Activities
Accrued distributions
payable................. $ 479,523 $ 450,000 $ -- $ --
Inventory distributed to
stockholder (Note 7).... -- 693,464 -- --
Related-party receivable
distributed to
stockholder............. -- 159,335 -- --
Related-party receivable
accepted for cash value
of life insurance....... -- 250,140 -- --
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-33
<PAGE>
PARSONS ELECTRIC CO.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Parsons Electric Co. (the "Company") is a commercial and
industrial electrical contractor doing business primarily in Minnesota. The
Company establishes credit terms on an individual customer basis. The Company
conducts significant business with several key contractors. Due to the nature
of the business, these major customers may vary from year to year.
Cash balances: The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
Fair value of financial instruments: The Company's financial instruments
consist of cash and short-term trade receivables and payables for which
current carrying amounts approximate fair market value because of their short-
term nature. Other financial instruments consist of notes payable and long-
term debt, both for which the carrying value is based on current rates for
borrowings of similar quality and terms.
Revenue and cost recognition:
Construction contracts: The financial statements are prepared using the
percentage-of-completion method of accounting which recognizes income during
the periods when the related work is performed. Income is measured by the
percentage of costs incurred to date to estimated total costs for each
contract.
Contract costs include all direct material and labor costs, and those
indirect costs related to contract performance such as indirect labor,
supplies, tools, insurance, subsistence, and payroll-related benefits and
expenses. Operating expenses are charged to expense as incurred. Provisions
for estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions, and
estimated profitability, including those changes arising from contract penalty
provisions and final contract settlements, may result in revisions to costs
and income which are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is
included in revenues when realization is probable and the amount can be
reliably estimated.
The asset, "costs and earnings in excess of billings on uncompleted
contracts," represents revenue recognized in excess of amounts billed. The
liability, "billings in excess of costs and earnings on uncompleted
contracts," represents billings in excess of revenue recognized.
Time and materials contracts: Income from time and materials and
maintenance-type contracts is recognized when billed.
Accounts receivable: In accordance with industry practice, accounts
receivable include retentions, a portion of which may not be realized within
one year.
Inventories: The Company's materials inventories are valued at the lower of
cost (first-in, first-out basis) or market.
Property and equipment: Depreciation, including amortization of leasehold
improvements, is provided using straight-line and accelerated methods over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Leasehold improvements.............................................. 10
Construction and motor shop equipment............................... 3-7
Office furniture and equipment...................................... 5-7
Trucks and autos.................................................... 5
</TABLE>
F-34
<PAGE>
PARSONS ELECTRIC CO.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income taxes: The Company has elected to be taxed as a Subchapter S
Corporation under sections of the federal and state income tax laws which
provide that, in lieu of corporate income taxes, the shareholder separately
accounts for the Company's items of income, deductions, losses and credits.
Therefore, the statements of income do not include any provision for corporate
income taxes.
Distributions: Periodic cash distributions are made to the Company's
shareholder for income taxes or for other purposes.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect 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. See
revenue and cost recognition for estimates on contracts.
New Accounting Pronouncements--In June 1997, SFAS No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about
the Company's operating segments. SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997. The Company believes that
adoption of SFAS Nos. 130 and 131 will not have any significant effect on its
financial statements.
NOTE 2. MAJOR CUSTOMERS AND LARGE TRADE RECEIVABLES
Revenue for the two months ended February 27, 1998, and the years ended
December 31, 1997, 1996, and 1995, includes revenue to the following major
customers, together with the receivables due from those customers:
<TABLE>
<CAPTION>
REVENUE
--------------------------------------------
CUSTOMER 1998 1997 1996 1995
-------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
A............................ $1,953,061 $11,967,264 $8,063,064 $8,859,593
B............................ * 6,275,666 9,116,009 *
C............................ * * * 5,577,293
========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
--------------------------------
CUSTOMER 1998 1997 1996
-------- ---------- ---------- ----------
<S> <C> <C> <C>
A........................................ $2,880,881 $3,610,245 $1,466,813
B........................................ * 601,044 1,371,410
========== ========== ==========
</TABLE>
Because of the nature of the Company's business, the major customers may
vary between years.
- --------
*Customer was not considered to be a major customer in this year.
In addition to the receivables related to the major customers above, the
Company has a receivable of $1,399,687 as of February 27, 1998, from a
customer who is not listed as a major customer.
F-35
<PAGE>
PARSONS ELECTRIC CO.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. UNCOMPLETED CONTRACTS
Information regarding uncompleted contracts as of February 27, 1998, and
December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Total amount of contracts in
process......................... $82,152,554 $80,298,641 $59,491,467
=========== =========== ===========
Costs incurred on uncompleted
contracts....................... $49,369,222 $49,132,943 $33,887,394
Estimated earnings............... 5,044,368 5,687,641 4,155,264
----------- ----------- -----------
54,413,590 54,820,584 38,042,658
Less billings to date............ 53,757,155 54,952,139 38,689,089
----------- ----------- -----------
$ 656,435 $ (131,555) $ (646,431)
=========== =========== ===========
Included in the accompanying
balance sheets under the
following captions:
Costs and earnings in excess of
billings on uncompleted
contracts..................... $ 2,858,599 $ 2,293,122 $ 1,902,418
Billings in excess of costs and
earnings on uncompleted
contracts..................... (2,202,164) (2,424,677) (2,548,849)
----------- ----------- -----------
$ 656,435 $ (131,555) $ (646,431)
=========== =========== ===========
</TABLE>
NOTE 4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable: The Company has a $5,000,000 line of credit with a bank which
bears interest at the prime rate plus 0.5 percent (9.0 percent at February 27,
1998) and is secured by receivables and inventories. All borrowings on this
line of credit are personally guaranteed by the Company's shareholder. The
balance outstanding on the line of credit at February 27, 1998, was $2,800,000
(a).
Long-term debt: At February 27, 1998, and December 31, 1997 and 1996, long-
term debt was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
8% bank note payable, due in monthly
installments of $4,167, plus interest,
through March 1999, when the remaining
balance is due, secured by receivables and
inventories (a).............................. $308,318 $312,485 $362,489
Less current maturities....................... 50,004 50,004 50,004
-------- -------- --------
$258,314 $262,481 $312,485
======== ======== ========
</TABLE>
- --------
(a) Subsequent to the close of business on February 27, 1998, the Company
entered into a new revolving line-of-credit agreement and used the new
line of credit to pay off the existing line of credit and bank term note.
Under the new agreement, the Company may borrow up to $10,000,000, based
upon a percent of eligible receivables plus $2,000,000. Amounts
outstanding under the new revolving credit agreement will bear interest at
the bank's base rate, payable monthly. Borrowings under the agreement are
secured by all assets of the Company. The line of credit expires March 1,
1999, if not renewed. Under the new revolving line, the Company must
maintain certain minimum net worth and financial ratio requirements.
F-36
<PAGE>
PARSONS ELECTRIC CO.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. OPERATING LEASES
The Company leases its office and warehouse facilities from its shareholder.
The Company is paying $12,364 monthly, plus all maintenance, insurance, and
taxes on the building. The total rent and related taxes for 1998, 1997, 1996,
and 1995 approximated $34,000, $217,000, $190,000, and $185,000, respectively.
Minimum annual rental commitments at February 27, 1998, are:
<TABLE>
<S> <C>
Years ending February 27:
1999........................................................ $ 148,368
2000........................................................ 148,368
2001........................................................ 148,368
2002........................................................ 148,368
2003........................................................ 148,368
Later Years................................................... 556,380
----------
$1,298,220
==========
</TABLE>
In addition, the Company leases automobiles under agreements classified as
operating leases the majority of which are cancelable upon 30 day notice. The
total lease expense for 1998, 1997, 1996, and 1995 was approximately $77,000,
$338,000, $315,000, and $284,000, respectively.
NOTE 6. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution pension plan covering substantially
all of its nonunion employees. The total pension expense for 1998, 1997, 1996,
and 1995 was $10,000, $58,163, $59,512, and $52,308, respectively. The Company
also has a contributory profit sharing plan covering substantially all of its
nonunion employees. Contributions to this plan are at the discretion of the
Board of Directors. The total profit sharing expense for 1998, 1997, 1996, and
1995 was $64,326, $409,181, $385,598, and $344,557, respectively.
The Company also contributes to union-sponsored, multi-employer pension
plans. Contributions are made in accordance with negotiated labor contracts.
The passage of the Multi-Employer Pension Plan Amendments Act of 1980 (the
Act) may, under certain circumstances, cause the Company to become subject to
liabilities in excess of contributions made under collective bargaining
agreements. Generally, liabilities are contingent upon the termination,
withdrawal, or partial withdrawal from the plans. As of February 27, 1998, the
Company has not undertaken to terminate, withdraw, or partially withdraw from
any of these plans. Under the Act, liabilities would be based upon the
Company's proportionate share of each plan's unfunded vested benefits. The
Company has not received information from the plans' administrators to
determine its share of unfunded vested benefits, if any. The Company, during
1998, 1997, 1996, and 1995 contributed $427,042, $2,174,235, $2,320,866, and
$1,878,553, respectively, to these multi-employer union pension plans.
NOTE 7. RELATED PARTY TRANSACTIONS
During 1997, the Company distributed $693,464 of welding equipment and
supply inventory to the Company's sole stockholder. The Company, subsequent to
December 31, 1997, no longer sells welding equipment and supplies. Revenue
related to the sales of welding equipment and supplies for 1997, 1996, and
1995 was approximately $2,862,000, $2,803,000, and $3,168,000 respectively.
The related-party receivable is with a company related through common
ownership and was collected subsequent to February 27, 1998.
F-37
<PAGE>
PARSONS ELECTRIC CO.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 8. SALE OF COMMON STOCK
Subsequent to the close of business on February 27, 1998, the Company's sole
stockholder entered into a stock purchase agreement whereby an unrelated third
party purchased all of the Company's outstanding common stock for cash of
$11,000,000. In connection with the sale and new revolving line-of-credit
agreement (Note 4), the Company made a loan to the purchaser of $4,600,000
from proceeds advanced on the new line of credit.
Related to the sale of common stock, the Company terminated its S
Corporation election and will be taxed as a C Corporation effective February
28, 1998.
F-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Allison Company:
We have audited the accompanying consolidated balance sheets of The Allison
Company and subsidiary (the "Company") as of June 30, 1998 and 1997, and the
related consolidated statements of operations and retained earnings and of
cash flows for each of the three years in the period ended June 30, 1998.
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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of The Allison
Company and subsidiary as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 1998 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
August 21, 1998
F-39
<PAGE>
THE ALLISON COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
ASSETS 1998 1997
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 2,441,518 $ 206,153
Contract receivables, net............................ 8,813,174 8,780,172
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... 605,101 727,129
Advances to stockholder.............................. 60,265 30,714
Inventories.......................................... 31,073 28,122
Prepaid expenses and other current assets............ 101,461 76,125
Income taxes receivable.............................. 14,094 --
----------- -----------
Total current assets............................... 12,066,686 9,848,415
Property and equipment, net............................ 645,862 667,080
----------- -----------
Total.............................................. $12,712,548 $10,515,495
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt.................... $ 115,210 $ 104,290
Accounts payable..................................... 1,697,791 1,525,857
Accrued expenses and other current liabilities....... 1,153,118 853,068
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... 1,667,055 322,015
Notes payable........................................ -- 1,000,000
Income taxes payable................................. -- 52,984
----------- -----------
Total current liabilities.......................... 4,633,174 3,858,214
Long-term debt, net of current portion................. 1,012,155 1,127,348
----------- -----------
Total liabilities.................................. 5,645,329 4,985,562
----------- -----------
Commitments and contingencies (Notes 7 and 12)
STOCKHOLDERS' EQUITY:
Common stock; $10 par value; 100,000 shares
authorized; 40,624 shares issued and outstanding.... 406,240 406,240
Retained earnings.................................... 6,660,979 5,123,693
----------- -----------
Total stockholders' equity......................... 7,067,219 5,529,933
----------- -----------
Total.............................................. $12,712,548 $10,515,495
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-40
<PAGE>
THE ALLISON COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Contract revenues....................... $31,372,725 $27,999,871 $32,391,898
Costs of services....................... 25,451,568 22,800,750 27,323,521
----------- ----------- -----------
Gross profit.......................... 5,921,157 5,199,121 5,068,377
Selling, general and administrative
expenses............................... 3,302,175 2,660,126 2,501,818
----------- ----------- -----------
Operating income........................ 2,618,982 2,538,995 2,566,559
----------- ----------- -----------
Other income (expense):
Interest expense...................... (115,136) (168,127) (157,400)
Other income (expense), net........... -- 1,507 (32,858)
----------- ----------- -----------
(115,136) (166,620) (190,258)
----------- ----------- -----------
Income before income taxes.............. 2,503,846 2,372,375 2,376,301
Income taxes............................ 966,560 903,573 907,844
----------- ----------- -----------
Net income.............................. 1,537,286 1,468,802 1,468,457
Retained earnings, beginning of period.. 5,123,693 3,654,891 2,186,434
----------- ----------- -----------
Retained earnings, end of period........ $ 6,660,979 $ 5,123,693 $ 3,654,891
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-41
<PAGE>
THE ALLISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 1,537,286 $1,468,802 $ 1,468,457
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization........... 111,799 113,171 82,126
Loss (gain) on disposal of assets....... (137) (617) 37,297
Changes in operating assets and
liabilities:
Contract receivables, net.............. (33,002) (754,885) (3,681,313)
Costs and estimated earnings in excess
billings.............................. 122,028 296,408 (789,618)
Due from related parties............... (29,551) (29,447) (1,267)
Inventories............................ (2,951) 7,092 6,046
Prepaid expenses and other current
assets................................ (25,336) 1,289 (19,264)
Accounts payable and accrued expenses.. 471,984 (561,767) 1,625,268
Billings in excess of costs and
estimated earnings.................... 1,345,040 75,597 (42,569)
Income taxes........................... (67,078) (473,768) 438,295
----------- ---------- -----------
Net cash provided by (used in)
operating activities................. 3,430,082 141,875 (876,542)
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..... (93,739) (153,561) (569,312)
Proceeds from sale of property and
equipment.............................. 3,295 750 3,250
Other................................... -- 632 15,367
----------- ---------- -----------
Net cash used in investing activities. (90,444) (152,179) (550,695)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt...... -- -- 1,000,000
Payments of long-term debt and notes
payable................................ (1,104,273) (94,404) (91,332)
----------- ---------- -----------
Net cash (used in) provided by
financing activities................. (1,104,273) (94,404) 908,668
----------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents............................. 2,235,365 (104,708) (518,569)
Cash and cash equivalents, beginning of
period.................................. 206,153 310,861 829,430
----------- ---------- -----------
Cash and cash equivalents, end of period. $ 2,441,518 $ 206,153 $ 310,861
=========== ========== ===========
CASH PAYMENTS FOR:
Interest................................ $ 131,240 $ 167,237 $ 169,739
Income taxes............................ $ 1,033,638 $1,377,852 $ 537,107
</TABLE>
See notes to consolidated financial statements.
F-42
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--The Allison Company and its subsidiary, the Allison-Smith Company,
(collectively, the "Company") is a commercial and industrial electrical
contractor with offices in Atlanta, Georgia. Additionally the Company is a
general contractor for certain customers, primarily in the telecommunications
industry. The work is generally performed under fixed-price contracts. The
length of the Company's contracts varies, but generally is less than one year.
Projects to date are primarily within the state of Georgia, however,
occasional work will be performed on out of state contracts.
Principles of Consolidation--The consolidated financial statements include
all of the accounts of the Company. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
Contract Receivables--The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides
allowances for contract receivables it deems to be uncollectible based on
management's best estimates. Recoveries are recognized in the period they are
received. The ultimate amount of contract receivables that become
uncollectible could differ from those estimated.
Credit Policy--In the normal course of business, the Company provides credit
to its customers and does not generally require collateral. The Company
principally deals with recurring customers and well known local companies
whose reputation is known to the Company. Advance payments and progress
payments are generally required for significant projects. Credit checks may be
performed for significant new customers that are not known to the Company. The
Company generally has the ability to file liens against the property if it is
not paid on a timely basis.
Inventories--Inventories consist primarily of materials and supplies and are
valued at the lower of cost or market using the first-in, first-out method.
Property and Equipment--Property and equipment is stated at cost less
accumulated depreciation. Routine repairs and maintenance are expensed as
incurred; improvements are capitalized at cost and are amortized over the
remaining useful life of the related asset. Depreciation is recorded using
accelerated and straight-line methods over the estimated useful lives of the
related assets. Depreciation and amortization is provided over the following
estimated useful lives:
<TABLE>
<S> <C>
Construction equipment........................................... 7 years
Vehicles......................................................... 5 years
Leasehold improvements........................................... 39 years
Office furniture and fixtures.................................... 7 years
</TABLE>
Depreciation and amortization expense was $111,799, $131,171 and $82,126 for
the years ended June 30, 1998, 1997 and 1996, respectively.
F-43
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue and Cost Recognition--Revenue from contracts is recognized under the
percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor,
supplies, and tools. Selling, general, and administrative costs are charged to
expense as incurred. Costs for materials incurred at the inception of a
project which are not reflective of effort are excluded from costs incurred
for purposes of determining revenue recognition and profits.
Estimates made with respect to uncompleted projects are subject to change as
the project progresses and better estimates of project costs become available.
Revisions in cost and profit estimates during the course of the work are
reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated
loss is recognized in the period in which it is determined that a loss will
occur, regardless of the stage of completion. Revenues from claims are
recorded only when the amounts have been received.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
Income Taxes--The Company reports income taxes pursuant to Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related to certain income and expenses
recognized in different periods for financial and income tax reporting
purposes. Deferred tax assets and liabilities represent the future tax
consequences of those differences. Deferred tax assets are also recognized for
operating losses and tax credits that are available to offset future taxable
income and income taxes, respectively. A valuation allowance is provided if it
is more likely than not that some portion or all of the deferred tax assets
will not be realized. The Company does not have significant deferred tax
assets or liabilities. The Company files a consolidated Federal tax return
with its subsidiary.
Long-Lived Assets--The Company reviews long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment is recognized to the extent that the sum
of undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. At June 30, 1998, no impairment has
been recognized.
New Accounting Pronouncements--In June 1997, SFAS No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about
the Company's operating segments. SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997. The Company believes that
adoption of SFAS Nos. 130 and 131 will not have any significant effect on its
financial statements.
F-44
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
---------- ----------
<S> <C> <C>
Contracts:
Current accounts................................ $8,734,766 $8,774,537
Retention....................................... 278,408 205,635
---------- ----------
Subtotal.......................................... 9,013,174 8,980,172
Less allowance for doubtful accounts.............. (200,000) (200,000)
---------- ----------
Contract receivables, net......................... $8,813,174 $8,780,172
========== ==========
</TABLE>
3. CONTRACTS IN PROGRESS
Costs and estimated earnings on uncompleted contracts are summarized as net
balances in process as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
----------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts.......... $12,682,223 $7,002,896
Estimated earnings............................... 2,191,118 614,932
----------- ----------
Total............................................ 14,873,341 7,617,828
Less billings to date............................ 15,935,295 7,212,714
----------- ----------
Net (over) under billings........................ $(1,061,954) $ 405,114
=========== ==========
</TABLE>
The net balances in process are classified on the balance sheet as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
----------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts.............. $ 605,101 $ 727,129
Billings in excess of costs and estimated
earnings on uncompleted contracts.............. (1,667,055) (322,015)
----------- ---------
Total....................................... $(1,061,954) $ 405,114
=========== =========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
---------- ----------
<S> <C> <C>
Vehicles......................................... $ 217,391 $ 159,606
Leasehold improvements........................... 439,024 439,024
Construction equipment........................... 96,398 82,941
Computer equipment, office furniture and
fixtures........................................ 339,680 327,261
---------- ----------
Subtotal......................................... 1,092,493 1,008,832
Less accumulated depreciation.................... (446,631) (341,752)
---------- ----------
Property and equipment, net...................... $ 645,862 $ 667,080
========== ==========
</TABLE>
F-45
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACCRUED EXPENSES AND OTHER LIABILITIES
A summary of accrued expenses and other liabilities is as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
---------- --------
<S> <C> <C>
Accrued payroll, bonuses and related expenses........ $ 897,977 $615,467
Accrued profit sharing............................... 173,974 164,677
Other................................................ 81,167 72,924
---------- --------
$1,153,118 $853,068
========== ========
</TABLE>
6. LONG-TERM DEBT AND NOTES PAYABLE
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
---------- ----------
<S> <C> <C>
Note payable to Luise S. Allison, due on June 30,
2005, bearing interest at 10%. Note is payable in
monthly installments of $12,907 of principal and
interest. Collateralized by common stock of
Allison-Smith Company............................ $ 783,833 $ 856,327
Note payable to Residual Trust of Robert W.
Allison, due on June 30, 2005, bearing interest
at 10%. Note is payable in monthly installments
of $5,657 of principal and interest.
Collateralized by common stock of Allison-Smith
Company.......................................... 343,532 375,311
---------- ----------
Total............................................. 1,127,365 1,231,638
Less current portion.............................. 115,210 104,290
---------- ----------
Total......................................... $1,012,155 $1,127,348
========== ==========
</TABLE>
Aggregate maturities of long-term debt for years ending June 30 are as
follows:
<TABLE>
<S> <C>
1999........................................................... $ 115,210
2000........................................................... 127,274
2001........................................................... 140,601
2002........................................................... 155,323
2003........................................................... 171,588
Thereafter..................................................... 417,369
----------
Total...................................................... $1,127,365
==========
</TABLE>
Notes payable at June 30, 1997 consists of a $1,000,000 bank note bearing
interest at 8.75% which was paid in fiscal 1998. The note was collateralized
by property of the Company.
7. OPERATING LEASES
The Company leases a building on a month-to-month basis, owned by Harmony
Hill, a related party. The lease is classified as an operating lease. The rent
paid under this lease for the years ended June 30, 1998, 1997 and 1996, was
$60,000, $105,000, and $64,000, respectively. The Company also rents certain
office equipment, autos and trucks under operating leases which vary in length
and terms. Rent expense
F-46
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
under these leases for the years ended June 30, 1998, 1997 and 1996, was
$152,064, $89,139, and $150,942, respectively.
Future minimum lease payments under these noncancelable operating leases as
of June 30, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................. $102,550
2000............................................................. 38,581
2001............................................................. 19,893
--------
$161,024
========
</TABLE>
8. INCOME TAXES
The Company's provisions for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal...................................... $816,330 $768,037 $771,717
State........................................ 150,230 135,536 136,127
-------- -------- --------
$966,560 $903,573 $907,844
======== ======== ========
</TABLE>
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Statutory federal tax rate........................ 34.0% 34.0% 34.0%
State tax, net of federal benefit................. 4.0 3.8 3.8
Other............................................. 0.6 0.3 0.4
------ ------ ------
Effective rate.................................... 38.6% 38.1% 38.2%
====== ====== ======
</TABLE>
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents and
long-term debt. The carrying value of cash and cash equivalents approximates
fair value because of their short duration. The carrying value of long-term
debt approximates the fair value based on current rates for borrowings of
similar quality and terms.
10. MAJOR CUSTOMERS AND CONCENTRATION OF RISK
At June 30, 1998, 14% of total contract receivables was due from one
customer of the Company and at June 30, 1997, 17% and 11% of total contract
receivables were due from two customers. For the year ended June 30, 1998, 18%
of total sales were made to one customer of the Company. For the year ended
June 30, 1996, 15% and 13% of total sales were made to two customers of the
Company.
Other financial instruments, which potentially subject the Company to
significant concentrations of credit risk, consist primarily of contract
receivables. The Company's customers are concentrated in the Georgia market.
The Company believes this concentration of credit risk is mitigated by the
diversity of industries represented by the Company's customer base.
F-47
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit sharing plan covering substantially all
employees. Each year, participants may contribute up to 15% of pretax annual
compensation up to a maximum of $10,000. Discretionary matching amounts may be
contributed at the Company's option, but to date no contributions have been
made.
The Company sponsors a profit sharing plan for all employees providing for
benefits upon retirement. Contributions to the plan were $174,000, $165,000
and $150,000, respectively, for the years ended June 30, 1998, 1997 and 1996.
The Company's contributions to the plan are made at the discretion of the
Board of Directors.
Union employees are covered by a retirement plan and a health and welfare
plan (collectively, the "Plans") determined through collective bargaining and
administered by the union. Contributions made by the Company to the Plans were
approximately $1,652,000, $1,742,000 and $2,048,000 for the years ended June
30, 1998, 1997 and 1996, respectively.
12. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome
cannot presently be determined with certainty, the Company believes, with
advice from its legal counsel, that the ultimate liability associated with
such claims, if any, will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
The Company is insured with respect to workers' compensation claims for all
employees; however, a deductible of $2,500 per employee, per year applies to
the coverage. The Company is partially self-insured with respect to health
insurance claims for administrative and office personnel, supplemented by
insurance coverage which limits the liability to $10,000 per employee, per
year.
13. STOCKHOLDERS' AGREEMENT
The Company has a right of first refusal on any stock voluntarily offered
for sale by a stockholder subject to certain terms and conditions. The
redemption price is determined based on the book value of common stock. Such
redemption price is payable in not more than 60 equal installments. As of June
30, 1998, the redemption price is approximately $174 per share.
Upon the death of any shareholder, the Company shall redeem the stock held
by such stockholder provided that the redemption is requested in writing by
the personal representative of the deceased. The redemption price is the same
as that described above. Such redemption price may be paid in full at the
closing or in installments.
14. STOCK PURCHASE AGREEMENT
On June 12, 1998, the Company and its shareholders entered into a stock
purchase agreement with Nationwide Electric, Inc. ("Nationwide"), subject to
certain conditions, pursuant to which all outstanding shares of the Company's
common stock will be purchased for cash and shares of Nationwide common stock,
concurrent with the consummation of an initial public offering of additional
common stock by Nationwide. In addition, the key executives of the Company
will enter into employment agreements with the Company and Nationwide which
have an initial term of 3 years and generally restricts the disclosure of
confidential information as well as restricts competition with the Company and
Nationwide for a period of 5 years from the date of the employment agreement.
Allison-Smith is permitted to pay bonuses to its officers who are also
stockholders in an amount up to 50 percent of the consolidated pre-tax income
of Allison-Smith for the period from July 1, 1997 through June 30, 1998. An
additional earn-out payment, which will be accounted for as a bonus, will be
made to the same officers-stockholders in an amount equal to 25 percent of the
amount by which its earnings before interest and taxes for each of the fiscal
years ending March 31, 1999 and 2000 exceeds $2,500,000.
* * * * * *
F-48
<PAGE>
INDEPENDENT AUDITORS' REPORT
Henderson Electric Co., Inc.:
We have audited the accompanying consolidated balance sheets of Henderson
Electric Co., Inc. and subsidiaries (formerly HB Holding Company and
subsidiaries) (the "Company"), as of March 31, 1998 and 1997 and the related
consolidated statements of operations and retained earnings, and of cash flows
for each of the three years in the period ended March 31, 1998. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Henderson Electric Co., Inc.
and subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
June 12, 1998
F-49
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(FORMERLY HB HOLDING COMPANY AND SUBSIDIARY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------------ JUNE 30,
1998 1997 1998
----------- ----------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 427,724 $ 661,684 $ 193,635
Contract receivables, net............. 9,634,517 8,177,591 7,803,430
Costs and estimated earnings in excess
of billings on uncompleted contracts. 1,366,891 1,662,353 3,336,594
Advances to stockholder............... 1,956,200 9,014 1,840,811
Inventories........................... 147,200 112,707 101,664
Deferred income taxes................. 322,400 125,133 322,400
Other current assets.................. 1,050 1,050 1,050
----------- ----------- -----------
Total current assets................ 13,855,982 10,749,532 13,599,584
Property and equipment, net............. 1,955,916 1,806,651 1,955,111
Equity in contractor joint ventures..... 5,000 47,428 5,000
Due from related parties................ -- 1,813,219 --
Cash surrender value of life insurance.. 146,440 134,347 149,440
Other assets............................ 94,025 95,153 92,142
----------- ----------- -----------
Total................................. $16,057,363 $14,646,330 $15,801,277
=========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Line-of-credit........................ $ 400,000 $ 800,000 $ 400,000
Accounts payable...................... 4,009,326 3,655,303 2,530,035
Accrued expenses and other current
liabilities.......................... 1,657,933 1,433,982 1,629,585
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ 1,292,997 1,281,912 2,035,450
Current portion of long-term debt..... 278,490 253,748 273,790
----------- ----------- -----------
Total current liabilities........... 7,638,746 7,424,945 6,868,860
Long-term debt, net of current portion.. 368,632 513,623 349,726
Deferred income taxes................... 53,000 27,881 53,000
Other long-term liabilities............. 150,000 -- 150,000
----------- ----------- -----------
Total liabilities................... 8,210,378 7,966,449 7,421,586
----------- ----------- -----------
Commitments and contingencies (Note 13)
STOCKHOLDERS' EQUITY:
Common stock; $10 par value; 5,000
shares authorized; 2,734 shares
issued............................... 27,340 27,340 27,340
Retained earnings..................... 8,047,645 6,880,541 8,580,351
Less treasury stock at cost, 456
shares............................... (228,000) (228,000) (228,000)
----------- ----------- -----------
Total stockholders' equity.......... 7,846,985 6,679,881 8,379,691
----------- ----------- -----------
Total............................... $16,057,363 $14,646,330 $15,801,277
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-50
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(FORMERLY HB HOLDING COMPANY AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS
MARCH 31 ENDED JUNE 30
------------------------------------- -----------------------
1998 1997 1996 1998 1997
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Contract revenues....... $44,000,125 $36,408,787 $27,336,986 $11,458,901 $8,836,295
Costs of services....... 37,951,930 31,024,498 23,187,577 9,702,472 7,926,064
----------- ----------- ----------- ----------- ----------
Gross profit.......... 6,048,195 5,384,289 4,149,409 1,756,429 910,231
Selling, general and
administrative
expenses............... 4,375,844 3,439,467 3,230,624 1,009,498 894,647
----------- ----------- ----------- ----------- ----------
Operating income........ 1,672,351 1,944,822 918,785 746,931 15,584
----------- ----------- ----------- ----------- ----------
Interest and other
income (expense):
Interest income....... 165,883 109,114 85,824 16,950 29,495
Interest expense...... (114,907) (146,126) (145,141) (17,617) (34,319)
Income from joint
ventures............. 202,233 139,909 -- -- 101,716
Gain on disposal of
partnership interest. -- 120,417 -- -- --
Other income, net..... 17,575 57,148 22,935 142,792 4,616
----------- ----------- ----------- ----------- ----------
270,784 280,462 (36,855) 142,125 101,508
----------- ----------- ----------- ----------- ----------
Income before income
taxes.................. 1,943,135 2,225,284 881,930 889,056 117,092
Income taxes............ 776,031 901,550 408,521 356,350 49,615
----------- ----------- ----------- ----------- ----------
Net income.............. 1,167,104 1,323,734 473,409 532,706 67,477
Retained earnings,
beginning of year...... 6,880,541 5,556,807 5,083,398 8,047,645 6,880,541
----------- ----------- ----------- ----------- ----------
Retained earnings, end
of year................ $ 8,047,645 $ 6,880,541 $ 5,556,807 $ 8,580,351 $6,948,018
=========== =========== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-51
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(FORMERLY HB HOLDING COMPANY AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
MARCH 31 ENDED JUNE 30
----------------------------------- ------------------------
1998 1997 1996 1998 1997
----------- ----------- --------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 1,167,104 $ 1,323,734 $ 473,409 $ 532,706 $ 67,478
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation.......... 272,493 250,116 238,440 69,600 57,392
Loss (gain) on
disposal of assets... 3,216 10,185 (2,264) -- --
Earnings from
partnerships......... -- (17,340) (28,986) -- --
Gain on sale of
partnership
interests............ -- (120,417) -- -- --
Provision for deferred
income taxes......... (172,148) (2,565) (23,823) -- --
Changes in operating
assets and
liabilities:
Contract receivables,
net................. (1,456,926) (3,294,492) 6,099 1,831,087 1,759,773
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts........... 295,462 (665,172) (52,008) (1,969,703) (624,296)
Inventories.......... (34,493) 89,118 6,773 45,536 (20)
Equity in contractor
joint venture....... 42,428 (47,428) -- -- 37,757
Accounts payable..... 354,023 1,373,800 (49,386) (1,479,291) (1,670,080)
Accrued expenses and
other current
liabilities......... 223,951 655,922 23,896 (28,348) (368,418)
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts........... 11,085 882,897 (89,961) 742,453 1,732,919
Other assets......... 1,128 4,560 4,651 1,883 1,032
Other long-term
liabilities......... 150,000 -- -- -- --
----------- ----------- --------- ------------ ----------
Net cash provided
(used in) by
operating
activities......... 857,323 442,918 506,840 (254,077) 993,537
----------- ----------- --------- ------------ ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Due from related
parties, net.......... (133,967) (99,203) (262,432) 115,389 (189,850)
Purchases of property
and equipment......... (424,974) (419,943) (262,192) (68,795) (130,064)
Proceeds from sale of
property and
equipment............. -- 1,000 14,900 -- --
Distributions from
partnerships.......... -- 22,060 96,051 -- --
Proceeds from sale of
partnerships.......... -- 273,505 -- -- --
Increase in cash
surrender value of
life insurance........ (12,093) (11,104) (8,231) (3,000) (3,000)
----------- ----------- --------- ------------ ----------
Net cash (used in)
provided by
investing
activities......... (571,034) (233,685) (421,904) 43,594 (322,914)
----------- ----------- --------- ------------ ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from the
issuance of long-term
debt.................. 170,289 225,044 122,842 50,124 114,540
Payments of long-term
debt.................. (290,538) (298,931) (236,205) (73,730) (74,209)
Net (payments)
borrowings on line-of-
credit................ (400,000) 100,000 (100,000) -- (300,000)
----------- ----------- --------- ------------ ----------
Net cash (used in)
provided by
financing
activities......... (520,249) 26,113 (213,363) (23,606) (259,669)
----------- ----------- --------- ------------ ----------
Net (decrease) increase
in cash and cash
equivalents............ (233,960) 235,346 (128,427) (234,089) 410,954
Cash and cash
equivalents, beginning
of year................ 661,684 426,338 554,765 427,724 661,684
----------- ----------- --------- ------------ ----------
Cash and cash
equivalents, end of
year................... $ 427,724 $ 661,684 $ 426,338 $ 193,635 $1,072,638
=========== =========== ========= ============ ==========
CASH PAYMENTS FOR:
Interest............... $ 114,907 $ 146,126 $ 145,041 $ 17,617 $ 34,319
Income taxes........... $ 1,402,000 $ 448,000 $ 490,000 $ 136,067 $ 460,000
</TABLE>
See notes to consolidated financial statements.
F-52
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(FORMERLY HB HOLDING COMPANY AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation--The accompanying consolidated
financial statements include the accounts of Henderson Electric Co., Inc.
("Henderson"), its wholly-owned subsidiary, Eagle Electrical Systems, Inc.
("Eagle") and its wholly-owned subsidiary, Henderson Property, Inc.
("Property"--see Note 15) (collectively referred to as the "Company"). All
significant intercompany accounts and transactions have been eliminated. The
accompanying unaudited consolidated financial statements have been prepared
according to Generally Accepted Accounting Principles and include all
adjustments, consisting only of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. Results of operations for
interim periods are not necessarily indicative of results to be expected for a
full year.
Effective December 31, 1997, HB Holding Company ("HB") was merged with
Henderson. Prior to the merger, Henderson, Eagle and Property were wholly-
owned subsidiaries of HB. This merger between parent and subsidiary has been
accounted for similar to a pooling-of-interests and accordingly, the
consolidated financial statements for all years presented have been restated
to reflect the merger.
The Company is a commercial and industrial electrical contractor with
offices in Louisville and Lexington, Kentucky and Cincinnati, Ohio. The
Company grants credit to most of their customers. The work is generally
performed under fixed-price contracts. The length of the Company's contracts
varies, but generally are less than one year.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
Contract Receivables--The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides
allowances for contract receivables it deems to be uncollectible based on
management's best estimates. Recoveries are recognized in the period they are
received. The ultimate amount of contract receivables that become
uncollectible could differ from those estimated.
Credit Policy--In the normal course of business, the Company provides credit
to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and
local companies whose reputation is known to the Company. Advance payments and
progress payments are generally required for significant projects. Credit
checks are performed for significant new customers that are not known to the
Company. The Company generally has the ability to file liens against the
property if amounts owed are not paid on a timely basis.
Inventories--Inventories consist primarily of materials and supplies and are
valued at the lower of cost or market using the first-in, first-out method.
Property and Equipment--Property and equipment is stated at cost less
accumulated depreciation. Routine repairs and maintenance are expensed as
incurred; improvements are capitalized at cost and are amortized over the
remaining useful life of the related asset. Depreciation is recorded under the
straight-line method over the estimated useful lives of the related assets.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
Land improvements.......................................... 10 to 12 years
Buildings and improvements................................. 10 to 40 years
Furniture, fixtures and office equipment................... 3 to 10 years
Machinery and equipment.................................... 5 to 10 years
Service vehicles and trailers.............................. 3 to 10 years
</TABLE>
F-53
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(FORMERLY HB HOLDING COMPANY AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense was $272,493, $250,116 and $238,440 for the years ended
March 31, 1998, 1997 and 1996, respectively.
Revenue and Cost Recognition--Revenue from contracts is recognized under the
percentage of completion method measured by the ratio of direct costs and
overhead incurred to management's estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor,
engineering, supplies, tools, repairs and depreciation costs. Selling,
general, and administrative costs are charged to expense as incurred. Costs
for materials incurred at the inception of a project which are not reflective
of effort are excluded from costs incurred for purposes of determining revenue
recognition and profits.
Estimates made with respect to uncompleted projects are subject to change as
the project progresses and better estimates of project costs become available.
Revisions in cost and profit estimates during the course of the work are
reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated
loss is recognized in the period in which it is determined that a loss will
occur, regardless of the stage of completion. Revenues from claims are
recorded only when the amounts have been received.
In 1998, a final contract settlement on a large contract resulted in
revisions to costs and revenue estimates. The revisions resulted in a loss of
$428,000 recognized in 1998 on this contract.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
Income Taxes--The Company reports income taxes pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Under SFAS No. 109, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related to certain income and expenses
recognized in different periods for financial and income tax reporting
purposes. Deferred tax assets and liabilities represent the future tax
consequences of those differences. Deferred tax assets are also recognized for
operating losses and tax credits that are available to offset future taxable
income and income taxes, respectively. A valuation allowance is provided if it
is more likely than not that some portion or all of the deferred tax assets
will not be realized.
The Company files consolidated Federal and Kentucky income tax returns with
its subsidiary Companies.
Long-Lived Assets--The Company reviews long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment is recognized to the extent that the sum
of undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. No impairment has been recognized
through March 31, 1998.
New Accounting Pronouncements--In June 1997, SFAS No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about
the Company's operating segments. SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997. The Company believes that
adoption of SFAS Nos. 130 and 131 will not have any significant effect on its
financial statements.
F-54
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(FORMERLY HB HOLDING COMPANY AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reclassification--Certain amounts in the 1996 and 1997 financial statements
have been reclassified to conform to the 1998 presentation.
2. CONTRACT RECEIVABLES, NET
Contract receivables consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- JUNE 30,
1998 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current accounts........................ $8,243,177 $7,187,962 $6,621,617
Retention............................... 1,594,840 1,099,129 1,414,403
---------- ---------- ----------
Subtotal................................ 9,838,017 8,287,091 8,036,020
Less allowance for doubtful accounts.... 203,500 109,500 202,590
---------- ---------- ----------
Contract receivables, net............... $9,634,517 $8,177,591 $7,803,430
========== ========== ==========
</TABLE>
3. CONTRACTS IN PROGRESS
Costs and estimated earnings on uncompleted contracts are summarized as net
balances in process as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted contracts....... $ 23,677,317 $ 19,676,682
Estimated earnings............................ 1,795,679 3,280,286
------------ ------------
Total......................................... 25,472,996 22,956,968
Less billings to date......................... (25,399,102) (22,576,527)
------------ ------------
Net under billings............................ $ 73,894 $ 380,441
============ ============
</TABLE>
The net balances in process are classified on the balance sheet as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts............ $ 1,366,891 $ 1,662,353
Billings in excess of costs and estimated
earnings on uncompleted contracts............ (1,292,997) (1,281,912)
----------- -----------
Total..................................... $ 73,894 $ 380,441
=========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land and improvements........................... $ 244,601 $ 244,601
Buildings and improvements...................... 1,531,676 1,531,676
Furniture, fixtures and office equipment........ 656,801 821,583
Machinery and equipment......................... 1,121,835 1,060,745
Service vehicles and trailers................... 1,695,458 1,456,434
----------- -----------
Subtotal........................................ 5,250,371 5,115,039
Less accumulated depreciation................... (3,294,455) (3,308,388)
----------- -----------
Property and equipment, net..................... $ 1,955,916 $ 1,806,651
=========== ===========
</TABLE>
F-55
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(FORMERLY HB HOLDING COMPANY AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. JOINT VENTURES AND PARTNERSHIPS
At March 31, 1998 and 1997, the Company has a minority interest (33%) in a
limited liability company joint venture formed to provide certain construction
contracting services to a large industrial customer. All of the members
participate in construction. Net assets and net earnings of the joint venture
are not material in 1998 or 1997. Contract revenues earned and gross profit
recognized by the Company related to services on contracts of the joint
venture were $1,640,000 and $111,700, respectively, in 1998 and $1,856,000 and
$168,550, respectively, in 1997. Receivables due from the joint venture at
March 31, 1998 and 1997 are $120,000 and $84,000, respectively.
At March 31, 1997, the Company had a 50% interest in a joint venture formed
to provide electrical contracting to a large industrial customer on a
contract. Contract revenue earned by the Company to the joint venture for its
contracts was $1,299,615 in 1997. Such services were provided at cost. During
1998, the contract was completed and the joint venture liquidated. The Company
recognized earnings in the joint venture of $202,233 and $139,909 in 1998 and
1997, respectively. Receivables due from the joint venture at March 31, 1997
are $15,000.
During 1997 and 1996 Property held certain partnership interests in
companies which developed and leased commercial and residential property in
Louisville, Kentucky. During 1997 Property sold its interest in these
partnerships. Property recognized a gain on sale of partnership's interests of
$120,417 in 1997 and recognized earnings from partnership interests of $17,340
and $28,986 in 1997 and 1996, respectively.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
A summary of accrued expenses and other current liabilities is as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- JUNE 30,
1998 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and related expenses... $1,181,571 $ 742,822 $ 881,983
Accrued income tax payable............. 148,331 602,539 370,482
Other current liabilities.............. 328,031 88,621 377,120
---------- ---------- ----------
Total.............................. $1,657,933 $1,433,982 $1,629,585
========== ========== ==========
</TABLE>
7. NOTES PAYABLE AND LONG-TERM DEBT
A summary of notes payable and long-term debt is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Notes payable--line-of-credit
Revolving line-of-credit; variable interest rate based on
prime rate (8.5% as of March 31, 1998 and 1997) plus .75%;
interest payable monthly; collateralized by contract
receivables, inventories and equipment...................... $400,000 $800,000
======== ========
Long-term debt
Installment notes payable; principal and interest from $216
to $1,041; payable over 36 to 48 months; interest rate 9.25%
to 10.0% as of March 31, 1998 and 1997; secured by vehicles. $286,207 $281,355
Mortgage note payable; interest and principal of $3,405
payable monthly; interest rate adjusts annually based on
average yield of 1-year U.S. Treasury Securities (5.25% and
5.5% as of March 31, 1998 and 1997, respectively) plus 3%;
collateralized by real estate in Cincinnati, Ohio; due April
2005........................................................ 216,915 238,416
Mortgage note payable; repaid in fiscal 1998................. -- 7,600
Mortgage note payable; principal of $8,000 payable monthly,
plus accrued interest interest rate variable based on prime
rate (8.5% as of March 31, 1998 and 1997) plus 1.0%;
collateralized by real estate in Louisville, Kentucky; due
September 1999.............................................. 144,000 240,000
-------- --------
Total........................................................ 647,122 767,371
Less current portion......................................... 278,490 253,748
-------- --------
Total.................................................... $368,632 $513,623
======== ========
</TABLE>
F-56
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(FORMERLY HB HOLDING COMPANY AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The borrowing limit under the revolving line-of-credit agreement is
$1,500,000 as of March 31, 1998. The agreement expires on August 31, 1998. The
installment notes payable require the Company to maintain depository accounts
with the bank of at least 15% of the outstanding balance.
Aggregate annual maturities of long-term debt at March 31, 1998 are:
<TABLE>
<S> <C>
1999............................................................. $278,490
2000............................................................. 175,972
2001............................................................. 51,754
2002............................................................. 32,162
2003............................................................. 33,141
Thereafter....................................................... 75,603
--------
Total........................................................ $647,122
========
</TABLE>
8. INCOME TAXES
The Company's provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................. $ 805,950 $768,500 $367,500
State.................................... 142,229 135,615 64,844
--------- -------- --------
948,179 904,115 432,344
--------- -------- --------
Deferred................................... (172,148) (2,565) (23,823)
--------- -------- --------
Total.................................. $ 776,031 $901,550 $408,521
========= ======== ========
</TABLE>
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate.............................. 34.0% 34.0% 34.0%
State tax, net of federal benefit....................... 5.3 4.0 5.7
Prior year's taxes...................................... -- -- 5.4
Other................................................... 0.8 2.5 1.2
---- ---- ----
Effective rate.......................................... 40.1% 40.5% 46.3%
==== ==== ====
</TABLE>
Components of the Company's deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current deferred income tax assets:
Allowance for doubtful accounts.................... $ 79,400 $ 42,705
Vacation accrual................................... 67,800 60,708
Workers compensation............................... 97,200 21,720
Contributions...................................... 78,000 --
-------- --------
Total............................................ 322,400 125,133
-------- --------
Long-term deferred income tax liabilities--
Depreciation........................................ (53,000) (27,881)
-------- --------
Net deferred income tax asset........................ $269,400 $ 97,252
======== ========
</TABLE>
F-57
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(FORMERLY HB HOLDING COMPANY AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
notes receivable from related parties, notes payable, and current and long-
term debt. The carrying value of cash and cash equivalents approximates fair
value because of their short duration. The carrying value of debt approximates
their fair value based on current rates for borrowings of similar quality and
terms.
Other financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of contract
receivables. The Company's customers are concentrated in the Kentucky and Ohio
markets. The Company believes this concentration of credit risk is mitigated
by the diversity of industries represented by the Company's customer base.
10. CONCENTRATION OF RISK
The Company grants credit, generally without collateral, to its customers,
which are usually general contractors located in the Louisville and Lexington,
Kentucky and Cincinnati, Ohio areas. Consequently, the Company is subject to
potential credit risk related to changes in business and economic factors
within these areas. However, management believes that its contract acceptance,
billing and collection policies are adequate to minimize the potential credit
risk.
11. EMPLOYEE RETIREMENT PLAN
Qualified executives, office employees, and qualifying non-union
electricians of the Company are included in a modified defined contribution
plan. Company contributions under the plan are determined annually by the
Board of Directors with the minimum allowable contribution being the greater
of 3% of gross eligible wages or 25 cents per active hour of service.
Contributions of $259,000, $144,682 and $132,376 were made for the years ended
March 31, 1998, 1997 and 1996, respectively. Union employees are covered by a
retirement plan determined through collective bargaining and administered by
the union. Contributions made by the Company were $1,640,500, $1,258,066 and
$750,652 in 1998, 1997 and 1996, respectively.
12. RELATED PARTY TRANSACTIONS
Amounts due from related parties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Notes receivable and advances to shareholders... $ 1,926,465 $1,786,671
Notes receivable and advances to employees...... 29,735 35,562
----------- ----------
Total due from related parties.................. 1,956,200 1,822,233
Less current portion............................ (1,956,200) (9,014)
----------- ----------
Total....................................... $ -- $1,813,219
=========== ==========
</TABLE>
The notes and advances to shareholders consist of amounts due from the two
shareholders of the Company and amounts due from entities which they own. The
advances are unsecured and bear interest, generally at 5.85% and 5.77% in 1998
and 1997, respectively. These advances are payable on demand.
F-58
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(FORMERLY HB HOLDING COMPANY AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
The Company is involved in a claim related to a fire loss incurred to a
building for which the Company performed electrical contract services. The
plaintiffs are seeking damages of approximately $2.4 million. The Company
maintains general liability and umbrella policy coverage in excess of the
claim. The Company believes the policies are sufficient to cover all damages
alleged. The Company and their insurance carrier are vigorously defending this
claim. Management does not believe the ultimate resolution of this claim will
have a material adverse effect to the Company's financial position or results
of operations.
The Company is party to various other litigation matters involving routine
claims incidental to the business of the Company. Although the ultimate
outcome cannot presently be determined with certainty, the Company believes,
with advice from its legal counsel, that the ultimate liability associated
with such claims, if any, will not have a material adverse effect on the
Company's financial position or results of operations or cash flows.
The Company is self-insured with respect to workers' compensation claims for
all Kentucky employees, supplemented by insurance coverage which limits the
Company's liability per occurrence. The excess insurance provides coverage in
excess of the limit of the Company's liability per occurrence, which is
$275,000. The financial statements include an accrual for the estimated amount
of unsettled worker's compensation claims. This estimate is based, in part, on
an evaluation of information provided by the Company's third-party
administrator, and represents management's best estimate of the Company's
future liability. As of March 31, 1998, the Company has an outstanding letter
of credit in the amount of $732,000 provided to the State of Kentucky Workers'
Compensation Board related to the self-insured workers' compensation plan.
During fiscal year 1998, the Company has pledged $250,000 to the University
of Louisville to establish a scholarship endowment. This amount is included in
the statement of operations, and is payable in annual installments of $50,000.
The first installment was made during fiscal year 1998. As of March 31, 1998,
$150,000 is included as other long-term liabilities and the remaining $50,000
is included in accrued expenses and other current liabilities.
14. STOCKHOLDER'S AGREEMENT
The Company has a right of first refusal on any stock voluntarily offered
for sale by a stockholder subject to certain terms and conditions. The
redemption price shall be as determined either through agreement of the
parties, or by a formula defined in the stockholder's agreement. Upon the
death of any stockholder, the Company shall redeem the stock held by such
stockholder provided that the redemption is requested in writing by the
personal representative of the deceased. The redemption price pursuant to the
agreement is the same as described above.
15. SUBSEQUENT EVENTS
In June 1998, the Company and its stockholders entered into an agreement and
plan of merger with Nationwide Electric, Inc. ("Nationwide"), subject to
certain conditions, pursuant to which all outstanding
F-59
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(FORMERLY HB HOLDING COMPANY AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
shares of the Company's common stock will be exchanged for cash and shares of
Nationwide common stock, concurrent with the consummation of an initial public
offering (the "Offering") of additional common stock by Nationwide. The
stockholders of Henderson will also receive additional cash consideration in
an amount equal to all of the after-tax income of Henderson during the period
from August 15, 1998 through the consummation of the Offering. In addition,
the key executives of the Company will enter into employment agreements with
the Company and Nationwide which have an initial term of 3 years and generally
restricts the disclosure of confidential information as well as restricts
competition with the Company and Nationwide for a period of 5 years from the
date of the employment agreement.
Immediately prior to the consummation of the Offering, and as part of the
plan of merger, the Company shall redeem 244 shares of the Company stock from
the stockholders by distributing to them the life insurance policies owned by
the Company on the lives of its officers and stockholders with an aggregate
cash surrender value of $146,440 at March 31, 1998, and all of the real
property and improvements thereon owned by the Company with a net book value
of $1,149,134 at March 31, 1998, subject to any mortgages secured thereby. The
Company shall retain all furniture, fixtures and office equipment, machinery
and equipment, and service vehicles and trailers with a net book value at
March 31, 1998 of $806,782. The Company shall bear any corporate taxes due in
connection with such redemption up to a maximum amount of $180,000. Any
corporate taxes due in excess of $180,000 shall be reimbursed by the
stockholders of the Company.
Concurrent with the initial public offering, and as a part of the plan of
merger, the Company's stockholders intend to purchase Property from Nationwide
for $338,082 in cash, representing its net book value at March 31, 1998.
Property's results of operations are not significant.
* * * * * *
F-60
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference in this Prospectus in connection with the offer made
by this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or any of the
Underwriters. Neither the delivery of this prospectus nor any sale made here-
under shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the dates as of which in-
formation is given in this Prospectus. This Prospectus does not constitute an
offer or solicitation by anyone in any jurisdiction in which such offer or so-
licitation is not authorized or in which the person making such offer or so-
licitation is not qualified to do so or to any person to whom it is unlawful
to make such solicitation.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
The Company............................................................... 15
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Financial Data................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 33
Management................................................................ 43
Certain Transactions...................................................... 48
Principal Stockholders.................................................... 50
Description of Capital Stock.............................................. 51
Shares Eligible for Future Sale........................................... 55
Underwriting.............................................................. 56
Legal Matters............................................................. 57
Experts................................................................... 57
Additional Information.................................................... 58
Index to Financial Statements............................................. F-1
</TABLE>
------------
Until , 1998 (25 days after the date of this Prospectus), all deal-
ers effecting transactions in the Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,000,000 Shares
[logo]
NATIONWIDE ELECTRIC, INC.
Common Stock
------------
PROSPECTUS
------------
BT ALEX. BROWN
PIPER JAFFRAY INC.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses, other than underwriting discounts
and commissions, to be borne by the Company in connection with the issuance
and distribution of the Common Stock being registered:
<TABLE>
<CAPTION>
ITEM AMOUNT
---- -------
<S> <C>
Securities and Exchange Commission Registration Fee.............. $22,652
NASD Filing fee.................................................. *
NYSE Listing Fee................................................. *
Printing Costs................................................... *
Legal Fees and Expenses.......................................... *
Accounting fees and Expenses..................................... *
Transfer Agent and Registrar Fees and Expenses................... *
Miscellaneous.................................................... *
-------
Total........................................................ *
=======
</TABLE>
- --------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that the person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding if the person acted in good faith and in a manner the
person 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 the person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which the person 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 the person's conduct was
unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
II-1
<PAGE>
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a present or
former director or officer of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or agent
is proper in the circumstances because the person has met the applicable
standard of conduct set forth in subsections (a) and (b) of Section 145. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors designated by
majority vote of such directors, even though less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (4) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify such person against
such liability under the provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Amended and Restated Certificate of Incorporation and Bylaws, and
Indemnification Agreements
The Amended and Restated Certificate of Incorporation limits the liability
of directors of the Company to the Company or its stockholders to the fullest
extent permitted by Delaware law. Specifically, directors
II-2
<PAGE>
of the Company will not be personally liable to the Company or its
stockholders for monetary damages for breach of a director's fiduciary duty as
a director, except for liability for breach of the duty of loyalty, for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL or for any
transaction in which a director has derived an improper personal benefit.
The Company's Bylaws require the Company to indemnify any person who is a
party or is threatened to be made a party to any action, suit or proceeding by
reason of the fact that such person is or was a director, officer, employee or
agent of the Company, or is serving as a director, officer, employee or agent
of another enterprise at the Company's request. Indemnification is not,
however, permitted under the Bylaws unless the person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
Company's best interests and, with respect to any criminal action or
proceeding, that such person had no reasonable cause to believe such person's
conduct was unlawful. The Company's Bylaws further provide that the Company
shall not indemnify any person for any liabilities or expenses incurred by
such person in connection with an action, suit or proceeding by or in the
right of the Company in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Company, unless and only
to the extent that the court in which the action, suit or proceeding is
brought determines that the person is entitled to indemnity for such expenses.
The indemnification provided by the Bylaws is not exclusive of any other
rights to which those seeking indemnification may be otherwise entitled.
The Company plans to enter into indemnification agreements (the
"Agreements") with each of the Company's directors and officers prior to the
Offering. The Agreements will provide that the Company will indemnify the
directors and officers against all liabilities and expenses actually and
reasonably incurred in connection with any action, suit or proceeding
(including an action by or in the right of the Company) to which any of them
is, was or at any time becomes a party, or is threatened to be made a party,
by reason of their status as a director or officer of the Company, or by
reason of their serving or having served at the request or on behalf of the
Company as a director, officer, trustee or in any other comparable position of
any other enterprise to the fullest extent allowed by law. No indemnity will
be provided under the Agreements for any amounts for which indemnity is
provided by any other indemnification obligation or insurance maintained by
the Company or another enterprise or otherwise. Nor will indemnity be provided
to any director or officer on account of conduct which is finally adjudged by
a court to have been knowingly fraudulent, deliberately dishonest or a knowing
violation of law. In addition, no indemnification will be provided if a final
court adjudication shall determine that such indemnification is not lawful, or
in respect to any suit in which judgment is rendered against any director or
officer for an accounting of profits made from a purchase or sale of
securities of the Company in violation of Section 16(b) of the Securities
Exchange Act of 1934 or of any similar law, or on account of any remuneration
paid to any director or officer which is adjudicated to have been paid in
violation of law.
Underwriting Agreement
The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.
Insurance
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
II-3
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to securities issued or sold by the
Company since its inception:
On March 17, 1998, Nationwide issued and sold 350 shares of Common Stock to
KLT Energy Services, Inc. for consideration of $35,000. This sale was exempt
from registration under Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder, no public offering being involved.
On March 17, 1998, Nationwide issued and sold 300 shares of Class A
Nonvoting Common Stock to KLT Energy Services, Inc. for consideration of
$30,000. This sale was exempt from registration under Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereunder, no public offering
being involved.
On March 17, 1998, Nationwide issued and sold 350 shares of Common Stock to
Reardon Capital, LLC for consideration of $35,000. This sale was exempt from
registration under Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder, no public offering being involved.
Effective March 24, 1998, Nationwide effected a 333.33-to-1 stock split of
the shares of Common Stock outstanding as of March 24, 1998.
Effective March 24, 1998, Nationwide effected 333.33-to-1 stock split of the
shares of Class A Nonvoting Common Stock outstanding as of March 24, 1998.
On April 6, Nationwide sold 950,000 shares of Common Stock to Galt
Financial, Inc. for consideration of $285,000. This sale was exempt from
registration under Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder, no public offering being involved.
On April 14, 1998, Nationwide sold 100,000 shares of Common Stock to
Frederick C. Green IV for consideration of $30,000. This sale was exempt from
registration under Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder, no public offering being involved.
On April 14, 1998, Nationwide sold 60,000 shares of Common Stock to Frank R.
Clark for consideration of $18,000. This sale was exempt from registration
under Section 4(2) of the Securities Act and Rule 506 of Regulation D
thereunder, no public offering being involved.
On April 14, 1998, Nationwide sold 40,000 shares of Common Stock to David
Smith for consideration of $12,000. This sale was exempt from registration
under Section 4(2) of the Securities Act and Rule 506 of Regulation D
thereunder, no public offering being involved.
On April 14, Nationwide sold 100,000 shares of Common Stock to John Wood for
consideration of $30,000. This sale was exempt from registration under Section
4(2) of the Securities Act and Rule 506 of Regulation D thereunder, no public
offering being involved.
On May 31, Nationwide sold 5,000 shares of Common Stock to Andrew V. Johnson
for consideration of $1,500. This sale was exempt from registration under
Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder, no
public offering being involved.
On May 31, Nationwide sold 5,000 shares of Common Stock to Robert H. Hoffman
for consideration of $1,500. This sales was exempt from registration under
Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder, no
public offering being involved.
On May 31, Nationwide sold 5,000 shares of Common Stock to Wade C. Lau for
consideration of $1,500. This sale was exempt from registration under Section
4(2) of the Securities Act and Rule 506 of Regulation D thereunder, no public
offering being involved.
II-4
<PAGE>
Nationwide issued 2,310,000 shares of Common Stock to KLT Energy Services,
Inc and Reardon Capital, LLC, and 990,000 shares of Class A Nonvoting Common
Stock and 6,000 shares of Redeemable Preferred Stock to KLT Energy Services,
Inc., pursuant to that certain Agreement and Plan of Merger among the Company,
Galt Financial, Inc., KLT Energy Services, Inc. and Reardon Capital, LLC dated
May 23, 1998. This issue was exempt from registration under Section 4(2) of
the Securities Act and Rule 506 of Regulation D thereunder, no public offering
being involved. Nationwide also cancelled 950,000 shares of Class A Nonvoting
Common Stock previously sold to Galt Financial, Inc. in connection with the
foregoing stock issuances.
Simultaneously with the consummation of the Offering, the Company will issue
1,100,416 shares of its Common Stock in connection with the Acquisitions. The
number of shares to be issued will depend upon the actual initial public
offering price. Each of these transactions are exempt from registration under
the Securities Act under Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder, no public offering being involved.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1* Agreement and Plan of Merger dated as of June 12, 1998 between
Nationwide Electric, Inc. and Henderson Electric Company, Inc. and
its Shareholders
2.2* Stock Purchase Agreement dated as of June 12, 1998 between
Nationwide Electric, Inc. and The Allison Company and its
Shareholders and Allison-Smith Electric Company, Inc.
2.3* Asset Purchase Agreement dated as of June 12, 1998 between
Nationwide Electric, Inc. and Potter Electric Company, Inc. and
Ralph Pangonis, Sr.
3.1* Amended and Restated Certificate of Incorporation
3.2* Amended and Restated Bylaws
3.3* Certificate of Designation, Preferences and Rights of Series A
Nonvoting Convertible Preferred Stock
4.1* Form of Common Stock Certificate
4.2 Shareholder Agreement dated as of April 14, 1998 by and among
Nationwide Electric, Inc. and KLT Energy Services Inc., Frederick
C. Green IV, Frank R. Clark, David Smith, John Wood and Reardon
Capital LLC
5.1* Form of Opinion of Stinson, Mag & Fizzell, P.C.
10.1* Employment Agreement dated as of April 1, 1998 between Nationwide
Electric, Inc. and John Wood
10.2* Employment Agreement dated as of April 1, 1998 between Nationwide
Electric, Inc. and Frederick C. Green IV
10.3* Employment Agreement dated as of April 1, 1998 between Nationwide
Electric, Inc. and David Smith
10.4* Employment Agreement dated as of April 1, 1998 between Nationwide
Electric, Inc. and Frank R. Clark
10.5* Non-Qualified Stock Option Plan
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------------
<C> <S>
10.6* Incentive Stock Option Plan
10.7* Executive Stock Purchase Plan
10.8* Form of Indemnification Agreement (and list of parties to such
agreement)
10.9* Restricted Stock Purchase Agreement dated as of April 1, 1998
between Nationwide Electric, Inc. and John Wood
10.10* Restricted Stock Purchase Agreement dated as of April 7, 1998
between Nationwide Electric, Inc. and Frederick C. Green IV
10.11* Restricted Stock Purchase Agreement dated as of April 1, 1998
between Nationwide Electric, Inc. and David Smith
10.12* Restricted Stock Purchase Agreement dated as of April 1, 1998
between Nationwide Electric, Inc. and Frank R. Clark
21.1* Subsidiaries
23.1 Consent of Deloitte & Touche LLP, independent auditors
23.2 Consent of McGladrey & Pullen, LLP, independent auditors
23.3* Consent of Stinson, Mag & Fizzell, P.C. (contained in Exhibit 5.1)
23.4* Consent of Frederick C. Green IV
23.5* Consent of Wade C. Lau
23.6* Consent of Robert B. Allison
24.1* Power of Attorney (included on page II-8)
</TABLE>
- --------
* Previously filed.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
II-6
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payments
by the registrant of expenses incurred or paid by the director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(3) That, for the purpose of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, NATIONWIDE ELECTRIC, INC.
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
KANSAS CITY, STATE OF MISSOURI, ON AUGUST 25, 1998.
Nationwide Electric, Inc.
/s/ Gregory J. Orman
By: _________________________________
Gregory J. Orman
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, AS AMENDED, THIS
AMENDMENT NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED ON AUGUST 25, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board and Director
___________________________________________
Gregory J. Orman
* President, Chief Executive Officer and
___________________________________________ Director Nominee
Frederick C. Green, IV
* Vice President, Chief Financial Officer,
___________________________________________ Secretary and Treasurer
Frank R. Clark
* Director
___________________________________________
Andrew V. Johnson
* Director
___________________________________________
Robert H. Hoffman
* Director
___________________________________________
Bernard J. Beaudoin
</TABLE>
/s/ Gregory J. Orman
*By__________________________________
Gregory J. Orman
Attorney-in-fact
II-8
<PAGE>
EXHIBIT 1.1
5,000,000 Shares
Nationwide Electric, Inc.
Common Stock
UNDERWRITING AGREEMENT
----------------------
_______________, 1998
BT Alex. Brown Incorporated
Piper Jaffray Inc.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Nationwide Electric, Inc., a Delaware corporation (together with its
wholly-owned subsidiary, Parsons Electric Co. ("Parsons"), the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of 5,000,000 shares of the Company's Common
Stock, $.01 par value (the "Firm Shares"). The respective amounts of the Firm
Shares to be so purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto. The Company also proposes to sell at the
Underwriters' option an aggregate of up to 750,000 additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
-1-
<PAGE>
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
Simultaneously with the closing with respect to the purchase of the Firm
Shares by the Underwriters, the Company will acquire, through acquisitions of
either shares of outstanding capital stock or assets, each of the Acquired
Companies (as hereinafter defined) (collectively, the "Acquisitions"), the
consideration for which will be a combination of cash and shares of the
Company's Common Stock as described in the Registration Statement (as
hereinafter defined).
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to each of the Underwriters as follows:
(a) A registration statement on Form S-1 (File No. 333-57013) with respect
to the Shares has been carefully prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, as amended at the time it becomes
effective, together with any registration statement filed by the Company
pursuant to Rule 462(b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information omitted therefrom
in reliance upon Rule 430A and contained in the Prospectus referred to below,
has become effective under the Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement.
"Prospectus" means (a) the form of prospectus first filed with the Commission
pursuant to Rule 424(b) or (b) the last preliminary prospectus included in the
Registration Statement filed prior to the time it becomes effective or filed
pursuant to Rule 424(a) under the Act that is delivered by the Company to the
Underwriters for delivery to purchasers of the Shares, together with the term
sheet or abbreviated term sheet filed with the Commission pursuant to Rule
424(b)(7) under the Act. Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein referred
to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement.
-2-
<PAGE>
Each of The Allison Company ("Allison-Smith"), Henderson Electric Co. Inc.
(including its wholly-owned subsidiary, Eagle Electrical Systems, Inc.,
"Henderson") and Potter Electric Company, Inc. ("Potter," and collectively with
Allison-Smith and Henderson, the "Acquired Companies") and Parsons has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement. As of the date hereof, the Company has no
subsidiaries except those listed as Exhibit 21.1 to the Registration Statement.
The Company, Parsons and each of the Acquired Companies are duly qualified to
transact business as a foreign corporation in all jurisdictions in which the
conduct of their respective businesses requires such qualification, except where
the failure to be so qualified would not have a material adverse effect,
individually or in the aggregate, on the business, properties, assets, results
of operations or condition (financial or otherwise) of either the Company,
Parsons, Allison-Smith or Henderson, after giving effect to the Acquisitions
(any such effect is hereinafter referred to as a "Material Adverse Effect"). The
outstanding shares of capital stock of each of Parsons and the Acquired
Companies have been duly authorized and validly issued and are fully paid and
non-assessable. As of the Closing Date (as hereinafter defined), after giving
effect to the Acquisitions, all of the outstanding shares of capital stock of
Parsons, Allison-Smith and Henderson will be owned by the Company or another
subsidiary of the Company free and clear of all liens, encumbrances and claims
and all of the tangible and intangible assets of Potter will be owned by the
Company free and clear of all liens, claims, mortgages, security interests,
restrictions and encumbrances of any nature, other than certain "Current
Liabilities" (as defined in the Asset Purchase Agreement relating to the
Company's acquisition of Potter's assets) of Potter which the Company has agreed
to assume and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations into
shares of capital stock or ownership interests in Parsons or any of the Acquired
Companies will be outstanding.
(c) The outstanding shares of Common Stock, Redeemable Preferred Stock and
Class A Nonvoting Common Stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; the Shares to be issued
and sold by the Company pursuant to the terms of this Agreement have been duly
authorized and when issued and paid for as contemplated herein will be validly
issued, fully paid and non-assessable; and no preemptive rights of stockholders
exist with respect to any of the Shares or the issue and sale thereof. Neither
the filing of the Registration Statement nor the offering or sale of the Shares
as contemplated by this Agreement gives rise to any rights, other than those
which have been waived or satisfied, for or relating to the registration of any
shares of Common Stock. Upon completion of the Acquisitions in the manner
described in the Registration Statement, the shares of Common Stock of the
Company to be issued in such Acquisitions will be duly authorized, validly
issued, fully paid and non-assessable.
-3-
<PAGE>
(d) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct in all material respects. All of the Shares
conform to the description thereof contained in the Registration Statement in
all material respects. The form of certificates for the Shares conforms to the
corporate law of the jurisdiction of the Company's incorporation.
-4-
<PAGE>
(e) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Shares or, after
due inquiry by the Company, notified the Company of the institution of
proceedings for that purpose. The Registration Statement contains, in all
material respects, and the Prospectus and any amendments or supplements thereto
will contain, in all material respects, all statements which are required to be
stated therein by, and will conform in all material respects to, the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(f) The combined financial statements of the Company and the separate
financial statements of Parsons, Allison-Smith and Henderson, in each case
together with related notes as set forth in the Registration Statement, present
fairly the financial position and the results of operations and cash flows of
the Company, Parsons and of each of Allison-Smith and Henderson, respectively,
at the indicated dates and for the indicated periods. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods involved, except as disclosed
therein or in the notes thereto, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included in the Registration Statement presents fairly the
information shown therein and such data have been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
Company. The pro forma combined financial statements and other pro forma
financial information of the Company and the Acquired Companies, together with
the related notes, as set forth in the Registration Statement and the Prospectus
present fairly the information shown therein, have been prepared in accordance
with the Commission's rules with respect to pro forma financial statements, have
been properly compiled on the pro forma bases described therein, and, in the
opinion of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein.
(g) Deloitte & Touche LLP and McGladrey & Pullen LLP, who have certified
certain of the financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required by the
Act and the Rules and Regulations.
-5-
<PAGE>
(h) Except as set forth in the Registration Statement, there is no action,
suit, claim or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any of the Acquired Companies before any court
or administrative agency or otherwise which if determined adversely to the
Company or such Acquired Company would have a Material Adverse Effect or prevent
the consummation of the transactions contemplated hereby.
(i) Each of the Company and the Acquired Companies has good and marketable
title to all of its properties and assets reflected in its financial statements
(or as described in the Registration Statement, if applicable) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except those reflected in such financial statements (or as described in the
Registration Statement) or which would not have a Material Adverse Effect. Each
of the Company and the Acquired Companies occupies its leased properties under
valid and binding leases conforming in all material respects to the description
thereof, if any, set forth in the Registration Statement.
(j) Each of the Company, Parsons, Allison-Smith and Henderson have filed
all Federal, State, local and foreign income tax returns which have been
required to be filed and have paid all taxes indicated by said returns and all
assessments received by it or any of them to the extent that such taxes have
become due and are not being contested in good faith, except for any failure to
file income tax returns or pay taxes or assessments which would not have a
Material Adverse Effect.
(k) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not been
any change or any development that would have a Material Adverse Effect, whether
or not occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is probable
of being entered into by the Company or any of the Acquired Companies, other
than transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be amended or
supplemented, or otherwise disclosed in writing to the Underwriters. Neither
the Company nor any of the Acquired Companies has any material contingent
obligations which are not disclosed in the Registration Statement, as it may be
amended or supplemented, or in the Company's or such Acquired Company's
financial statements which are included in the Registration Statement, or
otherwise disclosed in writing to the Underwriters.
(l) Neither the Company nor any of the Acquired Companies is, or with the
giving of notice or lapse of time or both, will be, in violation of or in
default under its Charter or By-Laws or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by which
it, or any of its properties, is bound and which violation or default would have
a Material Adverse Effect or prevent the consummation of the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions
-6-
<PAGE>
herein contemplated and the fulfillment of the terms hereof will not conflict
with or result in a breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or any of the Acquired Companies is a party, or
of the Charter or By-Laws of the Company or any of the Acquired Companies or any
order, rule or regulation applicable to the Company or any of the Acquired
Companies of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction, except for any such conflict,
breach or default that would not have a Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby.
(m) Each approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other governmental body
necessary in connection with the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein contemplated (except
such additional steps as may be required by the Commission or the National
Association of Securities Dealers, Inc. (the "NASD")) has been obtained or made
and is in full force and effect.
(n) The Company and each of the Acquired Companies holds all licenses,
certificates and permits from municipal, county, state, federal or other
governmental authorities which are necessary to the conduct of their businesses
or the absence of which would have a Material Adverse Effect; and neither the
Company nor any of the Acquired Companies has infringed any patents, patent
rights, trade names, trademarks or copyrights, which infringement would have a
Material Adverse Effect. The Company knows of no infringement by others of
patents, patent rights, trade names, trademarks or copyrights owned by or
licensed to the Company or any of the Acquired Companies which would have a
Material Adverse Effect.
(o) Neither the Company, nor to the Company's best knowledge, any of its
affiliates, or any of the Acquired Companies or any of their affiliates, has
taken or may take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock to facilitate the sale or resale of the Shares.
(p) Neither the Company nor any of the Acquired Companies is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended (the "1940 Act") and the rules and regulations
of the Commission thereunder.
(q) Except as described in Exhibit A hereto, the Company and each of the
Acquired Companies maintains a system of internal accounting controls sufficient
to provide reasonable assurances that (i) transactions are executed in
accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain
-7-
<PAGE>
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(r) The Company and each of the Acquired Companies carries, or are covered
by, insurance in such amounts and covering such risks as is reasonably adequate
for the conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in the Company's industry.
(s) The Company, Parsons, Allison-Smith and Henderson are in compliance
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company or any of the Acquired Companies would have any liability;
neither the Company nor any of the Acquired Companies has incurred nor expects
to incur liability under (i) Title IV of ERISA with respect to termination of,
or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan" for
which the Company or any of the Acquired Companies would have any liability that
is intended to be qualified under Section 401(a) of the Code is so qualified and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification, except in any such case for any failure to
comply, "reportable event" or liability that would not have a Material Adverse
Effect.
(t) No labor dispute with the employees of the Company or any of the
Acquired Companies exists, or to the knowledge of the Company, is threatened,
other than such disputes which would not have a Material Adverse Effect.
(u) There is (i) no significant unfair labor practice complaint pending
against the Company or any of the Acquired Companies or, to the knowledge of the
Company, threatened against any of them, before the National Labor Relations
Board or any state or local labor relations board, and no significant grievance
or significant arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or any of the Acquired
Companies, or to the knowledge of the Company, threatened against any of them,
and (ii) no significant strike, slowdown or stoppage pending against the Company
or any of the Acquired Companies or, to the knowledge of the Company, threatened
against it or any of the Acquired Companies, except for such actions specified
in clause (i) or (ii) above, which would not have a Material Adverse Effect.
-8-
<PAGE>
2. Purchase, Sale and Delivery of the Firm Shares.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per share, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
same day funds via wire transfer to the order of the Company against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made at the offices of BT
Alex. Brown Incorporated, 1 South Street, Baltimore, Maryland, at 10:00 a.m.,
Baltimore time, on the third business day after the date of this Agreement or at
such other time and date not later than five business days thereafter as you and
the Company shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York Stock Exchange is open for trading and on which banks in New York are open
for business and are not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in paragraph (a) of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option and the time and date at which such certificates are to be delivered. The
time and date at which certificates for Option Shares are to be delivered shall
be determined by the Representatives but shall not be earlier than three nor
later than 10 full business days after the exercise of such option, nor in any
event prior to the Closing Date (such time and date being herein referred to as
the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares to be purchased by
each Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to 5,000,000, adjusted by you in such manner as to avoid
fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several Underwriters,
may cancel such option at
-9-
<PAGE>
any time prior to its expiration by giving written notice of such cancellation
to the Company. To the extent, if any, that the option is exercised, payment for
the Option Shares shall be made on the Option Closing Date in same day funds via
wire transfer to the order of the Company against delivery of certificates
therefor at the offices of BT Alex. Brown Incorporated, 1 South Street,
Baltimore, Maryland.
3. Offering by the Underwriters.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company.
------------------------
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (A) use its best efforts to cause the Registration
Statement to become effective or, if the procedure in Rule 430A of the Rules and
Regulations is followed, to prepare and timely file with the Commission under
Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the
Representatives containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
-10-
<PAGE>
(c) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(d) The Company will comply with the Act and the Rules and Regulations,
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in light of the circumstances existing at
the time the Prospectus is delivered to a purchaser, not materially misleading,
or, if it is necessary at any time to amend or supplement the Prospectus to
comply with any law, the Company promptly will prepare and file with the
Commission an appropriate amendment to the Registration Statement or supplement
to the Prospectus so that the Prospectus as so amended or supplemented will not,
in the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with the law.
(e) The Company will make generally available to its security holders, as
soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earnings statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earnings statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(f) The Company will, for a period of five years from the Closing Date,
deliver to the Representatives copies of annual reports and copies of all other
documents, reports and information furnished by the Company to its stockholders
generally or filed with any securities exchange pursuant to the requirements of
such exchange or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in Regulation S-X promulgated
by the Commission, which are not consolidated in the Company's financial
statements.
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(g) No offering, sale, short sale or other disposition of any shares of
Common Stock of the Company or other securities convertible into or exchangeable
or exercisable for shares of Common Stock or derivative of Common Stock (or
agreement for such) will be made for a period of 180 days after the date of this
Agreement, directly or indirectly, by the Company without the prior written
consent of BT Alex. Brown Incorporated, except for the grant of employee stock
options (up to a maximum of 500,000 shares) under each of the Non-Qualified
Stock Option Plan or the Incentive Stock Option Plan, and for shares issued (i)
in connection with acquisitions of businesses and (ii) pursuant to the
Nationwide Executive Stock Purchase Plan (up to a maximum of 250,000 shares).
(h) The Company will use its best efforts to list, subject to notice of
issuance, the Shares on the New York Stock Exchange.
(i) The Company has caused each officer and director and certain
shareholders of the Company and each person acquiring shares of the Company's
Common Stock in connection with the Acquisitions to furnish to you, on or prior
to the date of this Agreement, a letter or letters, in form and substance
satisfactory to the Underwriters, pursuant to which each such person has agreed
not to offer, sell, sell short or otherwise dispose of any shares of Common
Stock of the Company or other capital stock of the Company, or any other
securities convertible, exchangeable or exercisable for shares of Common Stock
or derivative of Common Stock owned by such person (or as to which such person
has the right to direct the disposition of) or request the registration for the
offer or sale of any of the foregoing for a period of one year after the date of
this Agreement, directly or indirectly, except with the prior written consent of
BT Alex. Brown Incorporated ("Lockup Agreements").
(j) The Company will (i) use its reasonable best efforts to satisfy all
conditions precedent to the other parties' obligation to close the Acquisitions
which are within the Company's reasonable control, (ii) use its reasonable best
efforts to cause each other party to such agreements to satisfy all conditions
precedent to the Company's obligation to close the Acquisitions which are within
such other party's reasonable control and (iii) promptly notify the Underwriters
of the occurrence of any event which is reasonably likely to result in the non-
consummation of any of the Acquisitions on the Closing Date.
(k) The Company shall apply the net proceeds of its sale of the Shares as
set forth in the Prospectus and shall file such reports with the Commission with
respect to the sale of the Shares and the application of the proceeds therefrom
as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the proceeds received
by the Company from its sale of the Shares in such a manner as would require the
Company or any of the Acquired Companies to register as an investment company
under the 1940 Act.
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<PAGE>
(m) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar for the Common Stock.
(n) The Company will not take, directly or indirectly, any action designed
to cause or result in, or that has constituted or might reasonably be expected
to constitute, the stabilization or manipulation of the price of any securities
of the Company.
5. Costs and Expenses.
The Company will pay all costs, expenses and fees incident to the
performance of its obligations under this Agreement and in connection with the
Acquisitions, including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements of counsel
for the Company; during the period specified in Section 4(d) hereof (but not
exceeding nine months after the effective date of the Registration Statement),
the cost of printing and delivering to, or as requested by, the Underwriters
copies of the Registration Statement, Preliminary Prospectuses, the Prospectus
and this Agreement and the Underwriters' Invitation Letter; the fees of the
Commission; the filing fee pursuant to NASD Rule 2710 (the "NASD Fee"); transfer
agent and registrar fees and expenses; and the Listing Fee of the New York Stock
Exchange. The Company shall not, however, be required to pay for any of the
Underwriters' expenses (other than the NASD Fee) except that, if this Agreement
shall not be consummated because the conditions in Section 6 hereof are not
satisfied, or because this Agreement is terminated by the Representatives
pursuant to Section 11 hereof, or by reason of any failure, refusal or inability
on the part of the Company to perform any undertaking or satisfy any condition
of this Agreement or to comply with any of the terms hereof on its part to be
performed, unless such failure to satisfy said condition or to comply with said
terms is due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
6. Conditions of Obligations of the Underwriters.
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company contained
herein, and to the performance by the Company of its covenants and obligations
hereunder and to the following additional conditions:
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(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been made, and any request of
the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Stinson, Mag & Fizzell,
P.C., counsel for the Company, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters (and stating that it may
be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement (the "Business"); the
Company is duly qualified to transact its Business in all jurisdictions in which
the conduct of its Business requires such qualification, or in which the failure
to qualify would have a Material Adverse Effect; and, to the knowledge of such
counsel, the outstanding shares of capital stock of Parsons, Allison-Smith and
Henderson will be owned by the Company, free and clear of all liens,
encumbrances and claims and all of the tangible and intangible assets of Potter
will be owned by the Company free and clear of all liens, claims, mortgages,
security interests, restrictions and encumbrances of any nature other than
certain "Current Liabilities" (as defined in the Asset Purchase Agreement
relating to the Company's acquisition of Potter's assets) of Potter which the
Company has agreed to assume; and to the knowledge of such counsel, no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into any shares of capital stock, or
of ownership interests in, any of the Acquired Companies will be outstanding.
(ii) The Company has authorized and outstanding capital stock as set forth
under the caption "Capitalization" in the Prospectus; the outstanding shares of
the Company's Common Stock, Class A Nonvoting Common Stock and Redeemable
Preferred Stock have been duly authorized and validly issued and are fully paid
and non-assessable; all of the Shares conform in all material respects to the
description thereof contained in the Prospectus; the certificates for the
Shares, assuming they are in the form filed with the Commission, are in due and
proper form; the shares of Common Stock, including the Option Shares, if any, to
be sold by the Company pursuant to this Agreement and the shares of Common Stock
of the Company to be issued in
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connection with the Acquisitions have been duly authorized and will be validly
issued, fully paid and non-assessable when issued and paid for as contemplated
by this Agreement; and no statutory, or to the knowledge of such counsel,
contractual preemptive rights of stockholders exist with respect to any of the
Shares or the shares to be issued in connection with the Acquisitions or the
issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus, to the
knowledge of such counsel, there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any shares of Common Stock or other securities of
the Company included in the Registration Statement or the right, as a result of
the filing of the Registration Statement, to require registration under the Act
of any shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the Act
and, to the knowledge of such counsel, no stop order proceedings with respect
thereto have been instituted or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial
statements, notes thereto and other financial and statistical information
included therein or any information furnished to the Company by or through the
Representatives specifically for use therein).
(vi) The statements under the captions "Business--Services,"
"--Employees," "Management--Employment Agreements," "--1998 Stock Option Plans,"
"--Stock Purchase Plans," "Certain Transactions," "Description of Capital Stock"
and "Shares Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute a summary of documents referred to therein or matters of
law, fairly summarize in all material respects the information called for with
respect to such documents and matters.
(vii) Each agreement with respect to the Acquisitions to which the
Company is a party (all of which have been filed with the Commission to the
extent required to be filed as exhibits to the Registration Statement) has been
duly authorized, executed and delivered by the Company
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<PAGE>
and constitutes the valid and binding obligation of the Company, except to the
extent that enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, and (ii) general principles of equity
regardless of whether enforceability is considered in a proceeding in equity or
at law.
(viii) To the knowledge of such counsel, there are no contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are not so filed
or described as required. All such contracts and documents as are
summarized in the Registration Statement or the Prospectus are fairly summarized
in all material respects.
(ix) To the knowledge of such counsel, there are no material legal
or governmental proceedings pending or threatened against the Company or any of
the Acquired Companies, except as set forth in the Prospectus.
(x) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Certificate of Incorporation or By-Laws, as
amended or restated, of the Company, or to the knowledge of such counsel, any
agreement or instrument to which the Company is a party or by which the Company
is bound.
(xi) This Agreement has been duly authorized, executed and delivered
by the Company.
(xii) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is required to be made or obtained by the Company or necessary
in connection with the execution and delivery of this Agreement and the
consummation of the transactions herein contemplated (other than as may be
required by the NASD as to which such counsel need express no opinion) except
such as have been obtained or made, specifying the same.
(xiii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
In rendering such opinion Stinson, Mag & Fizzell, P.C. may provide that its
opinion is limited to matters governed by the laws of Missouri and the General
Corporation Law of the State of Delaware or Federal securities laws of the
United States, and may rely on counsel (such counsel having been deemed
acceptable by the Underwriters) to one or more of the Acquired Companies with
respect to matters related to the Acquired Companies, provided that, in lieu of
such reliance, Stinson, Mag & Fizzell, P.C. may provide separate opinions of
such counsel so long as such opinions are addressed to the Underwriters, and
further provided that in each case
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Stinson, Mag & Fizzell, P.C. shall state that they believe that they and the
Underwriters are justified in relying on such other counsel. In addition to the
matters set forth above, the opinion of Stinson, Mag & Fizzell, P.C. shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, at the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, notes thereto and other financial and statistical information
included therein or any information furnished to the Company by or throgh the
Representatives specifically for use therein). With respect to such statement,
Stinson, Mag & Fizzell, P.C. may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(c) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinions of counsel for Parsons and
each of the Acquired Companies, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters (and stating that it may
be relied upon by counsel to the Underwriters) to the following effect, provided
that the opinions of counsel for Parsons, Henderson and Potter will not include
the opinion in clause (ii) below, and the opinion of counsel for Parsons will
not include the opinions in clause (iii) below.
(i) The Acquired Company or Parsons, as the case may be, has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement (the "Business"); the Acquired Company or Parsons,
as the case may be, is duly qualified to transact its Business in all
jurisdictions in which the conduct of its Business requires such qualification,
or in which the failure to qualify would have a Material Adverse Effect.
(ii) Upon consummation of the Acquisition, the outstanding shares of
capital stock of the Acquired Company will have been duly authorized and validly
issued and will be fully paid and non-assessable and will be owned by the
[Company].
(iii) The agreements with respect to the Acquisition of the Acquired
Company have been duly authorized, executed and delivered by the Acquired
Company and constitute the valid and binding obligations of the Acquired
Company, except to the extent that enforcement thereof may
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be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally,
and (ii) general principles of equity regardless of whether enforceability is
considered in a proceeding in equity or at law.
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(iv) To the knowledge of such counsel, there are no material legal or
governmental proceedings pending or threatened against the Acquired Company.
(v) The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated do not and will not conflict with or result
in a breach of any of the terms or provisions of, or constitute a default under,
the Certificate or Articles of Incorporation or By-Laws, as amended or restated,
of Parsons or the Acquired Company, as the case may be, or to the knowledge of
such counsel, any agreement or instrument to which Parsons or the Acquired
Company, as the case may be, is a party or by which Parsons or the Acquired
Company, as the case may be, is bound.
In rendering such opinions, each of counsel for Parsons and the Acquired
Companies may provide that its opinion is limited to matters governed by the
laws of the jurisdiction of incorporation of Parsons or the applicable Acquired
Company, as the case may be.
(d) The Representatives shall have received from Piper & Marbury L.L.P.,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (ii), (iii), (iv) and (xi) of Paragraph (b) of this Section 6, and
that the Company is a duly organized and validly existing corporation under the
laws of the State of Delaware. In rendering such opinion, Piper & Marbury
L.L.P. may rely as to all matters governed other than by the laws of the State
of Delaware or Federal laws on the opinions of counsel referred to in Paragraph
(b) of this Section 6. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the Registration
Statement, or any amendment thereto, as of the time it became effective under
the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (ii) the Prospectus,
or any supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact, necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Piper &
Marbury L.L.P. may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
(e) You shall have received, on each of the date hereof, the Closing Date
and the Option Closing Date, as the case may be, letters dated the date hereof,
the Closing Date or the Option Closing Date, as the case may be, in form and
substance satisfactory to you, of Deloitte & Touche LLP and McGladrey & Pullen,
LLP confirming that they are independent public
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accountants within the meaning of the Act and the applicable published Rules and
Regulations thereunder and stating that in their opinion the financial
statements and schedules examined by them and included in the Registration
Statement comply in form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and Regulations; and
containing such other statements and information as is ordinarily included in
accountants' "comfort letters" to Underwriters with respect to the financial
statements and certain financial and statistical information contained in the
Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for such purpose have been taken or are, to his
knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained in
Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct in all material respects, and such Registration Statement and Prospectus
did not omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred that would require,
pursuant to Section 4(d) hereof, a supplement to or an amendment of the
Prospectus which has not been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been any change or
development that would have a Material Adverse Effect, whether or not arising in
the ordinary course of business.
(g) The Company shall have furnished to the Representatives such further
certificates and documents confirming the representations and warranties,
covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
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(h) The Firm Shares and Option Shares, if any, shall have been approved
for listing upon notice of issuance on the New York Stock Exchange.
(i) The Lockup Agreements described in Section 4(i) shall be in full force
and effect.
(j) Each of the Acquisitions shall have been completed upon the terms set
forth in the Prospectus and in the agreements governing such Acquisitions
simultaneously with the closing of the purchase of the Firm Shares by the
Underwriters on the Closing Date.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Piper & Marbury L.L.P.,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. Conditions of the Obligations of the Company.
--------------------------------------------
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that: (a) at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened and (b) each of the Acquisitions shall have
been completed upon the terms set forth in the Prospectus and in the agreements
governing such Acquisitions simultaneously with the closing of the purchase of
the Firm Shares by the Underwriters on the Closing Date.
8. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or
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supplement thereto or (ii) the omission or alleged omission to state therein 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; and will reimburse each Underwriter and each such controlling person
upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a party to any
action or proceeding; provided, however, that the Company will not be liable in
any such case to the extent that (i) any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement,
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof or (ii) if it is finally judicially determined that such
loss, liability, claim or damage (or actions or proceedings in respect thereof)
resulted from the fct that the Underwriter sold the Shares to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the Prospectus, or a Prospectus as amended or supplemented, and
the Prospectus, or the Prospectus as so amended or supplemented, would have
corrected such untrue statement or omission of a material fact. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the Registration Statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Act, against any losses, claims, damages
or liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or
(ii) the omission or the alleged omission to state therein 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; and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares, whether or not the Company, or any such director, officer or controlling
person is a party to any action or proceeding, only if such subpoena relates to
either (i) or (ii) set forth in this Section 8(b); provided, however, that each
Underwriter will be liable in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity
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with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof or (ii) if it
isfinally judicially determined that such loss, liability, claim or damage (or
actions or proceedings in respect thereof) resulted from the fact that the
Underwriter sold the Shares to a person to whom there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the Prospectus, or
a Prospectus as amended or supplemented, and the Prospectus, or the Prospectus
as so amended or supplemented, would have corrected such untrue statement or
omission of a material fact. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) In case any action or proceeding (including any governmental
investigation) is instituted involving any person in respect of which indemnity
may be sought pursuant to this Section 8, such person (the "indemnified party")
shall promptly notify each person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it may elect, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party and shall pay as incurred the reasonable fees and disbursements of such
counsel related to such action or proceeding. In any such action or proceeding,
any indemnified party shall have the right to retain its own counsel at its own
expense. Notwithstanding the foregoing, the indemnifying party shall pay as
incurred (or within 30 days of presentation) the reasonable fees and expenses of
the counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impladed parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
reasonably acceptable to the indemnified party within a reasonable period of
time after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be
-23-
<PAGE>
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under Section 8(a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection with the
statements or omissions, or failure to deliver a Prospectus, or a Prospectus, as
amended or supplemented, that would have corrected such statements or omissions,
which resulted in such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or the
Underwriters, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
-24-
<PAGE>
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or her or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or her or it as an additional defendant in any such proceeding in which such
other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. Default by Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company), you, as Representatives of
the Underwriters, shall use your reasonable best efforts to procure within 36
hours thereafter one or more of the other Underwriters, or any others, to
purchase from the Company such amounts as may be agreed upon and upon the terms
set forth herein, the Firm Shares or Option Shares, as the case may be, which
the defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall
-25-
<PAGE>
not have procured such other Underwriter or Underwriters, or any others, to
purchase the Firm Shares or Option Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of Shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriter or Underwriters shall be obligated, severally, in
proportion to the respective numbers of Firm Shares or Option Shares, as the
case may be, which they are obligated to purchase hereunder, to purchase the
Firm Shares or Option Shares, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase or (b) if the aggregate number of
Firm Shares or Option Shares, as the case may be, with respect to which such
default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case
may be, covered hereby, the Company or you as the Representatives of the
Underwriters will have the right, by written notice given within the next 36-
hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the non-defaulting Underwriter or Underwriters
or of the Company except to the extent provided in Section 8 hereof. In the
event of a default by any Underwriter or Underwriters, as set forth in this
Section 9, the Closing Date or Option Closing Date, as the case may be, may be
postponed for such period, not exceeding seven days, as you, as Representatives,
may determine in order that the required changes in the Registration Statement
or in the Prospectus or in any other documents or arrangements may be effected.
The term "Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. Notices.
-------
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the Underwriters, to BT Alex. Brown Incorporated, 1
South Street, Baltimore, Maryland 21202, Attention: David M. Gray, Managing
Director with a copy to BT Alex. Brown Incorporated, 1 South Street, Baltimore,
Maryland 21202, Attention: General Counsel; if to the Company, to Nationwide
Electric, Inc., 1201 Walnut Street, Suite 1300, Kansas City, Missouri 64106,
Attention: Frederick C. Green, IV, Chief Executive Officer, with copies to
Stinson, Mag & Fizzell, P.C., 1201 Walnut Street, Kansas City, Missouri 64106,
Attention: John A. Granda, Esquire.
11. Termination.
-----------
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters or (ii) 11:30 a.m. on
the date of this Agreement;
-26-
<PAGE>
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any change or development that would
have a Material Adverse Effect, whether or not arising in the ordinary course of
business; (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale of the
Shares; (iii) trading generally shall have been suspended or materially limited
on or by, as the case may be, any of the New York Stock Exchange, American Stock
Exchange or the Nasdaq Stock Market or limitation on prices (other than
limitations on hours or numbers of days of trading); (iv) the enactment,
publication, decree or other promulgation of any statute, regulation, rule or
order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company; (v) declaration of a banking moratorium
by United States or New York State authorities, (vi) the suspension of trading
of the Company's Common Stock by the Commission on the New York Stock Exchange
or (vii) the taking of any action by any governmental body or agency in respect
of its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. Information Provided by Underwriters.
------------------------------------
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
-27-
<PAGE>
14. Miscellaneous.
-------------
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors, officers or controlling persons and (c) delivery of and payment
for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
NATIONWIDE ELECTRIC, INC.
By ______________________________________
Frederick C. Green, IV, President and
Chief Executive Officer
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
PIPER JAFFRAY INC.
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By:_______________________________________
-28-
<PAGE>
Authorized Officer
-29-
<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
- ----------- ---------------------
<S> <C>
BT Alex. Brown Incorporated
Piper Jaffray Inc.
-----------
Total 5,000,000
===========
</TABLE>
-30-
<PAGE>
Exhibit 4.2 Shareholder Agreement Dated as of April 14, 1998
<PAGE>
SHAREHOLDER AGREEMENT
---------------------
THIS AGREEMENT is made and entered this 14th day of April, 1998, by and
among Nationwide Electric, Inc., a Delaware corporation (the "Company"), and the
following shareholders of the Company, hereinafter sometimes referred to
collectively as "Shareholders" or individually as "Shareholder": KLT Energy
Services Inc. ("KLT"), Frederick C. Green IV ("Green"), Frank R. Clark
("Clark"), David Smith ("Smith"), John Wood ("Wood") and Reardon Capital, L.L.C.
("Reardon").
RECITALS
A. The Shareholders own, directly or indirectly, all of the issued and
outstanding shares of Common Stock and Class A Nonvoting Common Stock of the
Company.
B. The Company and Shareholders believe it is in the best interests of
the Company and the Shareholders to make certain provisions for the future
registration and voting of the shares of capital stock of the Company which
Green, Clark, Smith and Wood now own or may hereafter acquire (the "Shares").
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the Shareholders and the Company agree as follows:
1. Scope of Agreement.
-------------------
This Agreement shall apply to all Shares now owned or hereafter
acquired by Green, Clark, Smith and Wood.
2. Transferees Bound.
-----------------
Each transferee of any of the Shares, or any interest therein, shall
own such Shares or such interest subject to all of the terms and provisions of
this Agreement including the restrictions on transfer as provided in this
Agreement. The term "Shareholder" as defined herein shall be deemed to include
any and all such transferees, unless the context indicates otherwise. Each
certificate representing any of the Shares, when issued shall bear a legend to
the following effect in addition to such other legends as may be appropriate to
reflect certain restrictions on transferability imposed under any applicable
subscription agreement, federal and state securities laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT THE TERMS OF THAT
CERTAIN SHAREHOLDER AGREEMENT DATED APRIL __, 1998, BETWEEN THE COMPANY AND
ITS SHAREHOLDERS AND WHICH AGREEMENT MAY BE EXAMINED AT THE PRINCIPAL
OFFICES OF THE COMPANY.
<PAGE>
3. Registration Rights.
-------------------
(a) In the event the Board of Directors of the Company votes to offer
any common stock to the public through a public offering, the Company hereby
agrees at its sole cost and expense, to cause any and all Shares owned by Green,
Clark, Smith and Wood at any time within thirty (30) days following such vote,
to be registered with the Securities and Exchange Commission subject only to
such restrictions as shall be imposed on all other Shareholders and such
restrictions as required by the underwriters of such public offering (which
shall be applied to all common stock owned by the Shareholders as of the public
offering). If the public offering underwriter(s) advises the Company that
marketing factors require a limitation of the number of shares to be
underwritten, then the number of shares owned by the Shareholders that may be
included in the registration and underwriting shall be allocated among all
Shareholders in proportion, as nearly as practicable, to the respective amounts
of shares held by the Shareholders at the time of filing the registration
statement. No shares held by the Shareholders excluded from the underwriting by
reason of the underwriters' marketing limitation shall be included in such
registration. Notwithstanding anything to the contrary herein, the Shareholders
acknowledge that Galt Financial, Inc. has been issued common stock by the
Company, which common stock shall be registered in connection with the initial
public offering of the Company's common stock, and which may be subject to
different, and more favorable, restrictions than those imposed upon the
Shareholders. The Company and Shareholders agree to execute such amendments to
this Agreement, any stock purchase or option agreement, or any other agreement
respecting the Shares as may be required by said underwriters.
(b) The Company will indemnify the Shareholders each of its officers,
directors and partners, and each person controlling the Shareholders within the
meaning of Section 15 of the Act (collectively the "Indemnified Parties"), with
respect to which registration has been effected pursuant to this Paragraph 3,
against all expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of the Act or any state
securities laws in connection with any such registration. The Company will
reimburse the Indemnified Parties for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by the Indemnified Parties and stated to be specifically for use
therein.
(c) The registration rights granted by this Paragraph 3 may not be
transferred by a Shareholder under any circumstances (except pursuant to a
permitted transfer under the applicable subscription agreement between that
Shareholder and the Company).
<PAGE>
4. Proxies.
-------
Until the closing of the initial registered public offering of the
Company's common stock, each of Green, Clark, Smith and Wood shall execute and
deliver to KLT and Reardon, respectively, irrevocable proxies each covering one-
half of the Shares now or hereafter owned by said Green, Clark, Smith and Wood.
Any permitted transferee of any of the Shares shall, as a condition to such
transfer, execute and deliver to KLT and Reardon, respectively, irrevocable
proxies each covering one-half of the Shares now or hereafter owned by said
transferee. Said proxies are deemed coupled with an interest sufficient in law
to make such proxies irrevocable. KLT and Reardon may vote the Shares covered by
said proxies in any manner they deem appropriate, in their individual judgments,
subject to any agreements or other arrangements between them.
5 Termination.
------------
(a) This Agreement and all restrictions on the transfer of Shares
created hereby shall terminate on the occurrence of any of the following events:
(a) The bankruptcy or dissolution of the Company.
(b) A single Shareholder becoming the owner of all of the Shares
of the Company, which are then subject to this Agreement.
(c) The execution of a written instrument by the Company and all
of the Shareholders who then own Shares subject to this Agreement which
terminates the same.
(b) The termination of this Agreement for any reason shall not
affect any right or remedy existing hereunder prior to the effective date of its
termination.
6. General Provisions.
-------------------
(a) Governing Law. This Agreement shall be construed pursuant to the
laws of the State of Missouri, without giving effect to that State's conflict of
laws provisions.
(b) Definitions. Unless the context otherwise requires, the words
"Shareholder" and "Shareholders" shall for all purposes of this Agreement mean
and include all of the parties hereto other than the Company and all persons to
whom Shares may hereafter be transferred. Furthermore, the term "Shareholder"
shall also include any individual who holds title to his Shares in a revocable
inter vivos trust. The term "Shares" applies to any class of shares which the
Company now or hereafter is authorized to issue.
(c) Remedies for Breach. The Shareholders expressly recognize and
agree that violation of the terms and provisions in this Agreement, including
without limitation, those relating to the execution and delivery of proxies, may
cause irreparable damage to Company or the other Shareholders, which may not be
adequately compensated by monetary damages. In the event of a breach or
threatened breach by any Shareholders of the provisions of this Agreement, the
Company
<PAGE>
and the other Shareholders, in addition to and not in limitation of any other
rights, remedies or damages available to the Company or other Shareholders at
law or in equity, shall be entitled to a permanent injunction in order to
prevent or to restrain any such breach by a Shareholder or by such Shareholder's
partners, agents, representatives, servants, employees or transferees. The
Shareholders expressly recognize and agree that such injunctive relief shall be
in addition to all other rights and remedies available under applicable law.
(d) Notices. All notices provided for by this Agreement shall be made
in writing (1) either by actual delivery or (2) by mailing of the notice in the
United States mail to the last known address of the party entitled thereto,
registered or certified mail, return receipt requested.
(e) Amendment. This Agreement may be amended or altered only by the
execution of a written instrument by the Company and all the Shareholders who
then own Shares of the Company.
(f) Descriptive Headings. Titles to paragraphs are for information
purposes only.
(g) Binding Effect. This Agreement is binding upon and inures to the
benefit of the Company, its successors, assigns, and transferees, and to the
Shareholders and their respective heirs, personal representatives, successors
and permitted assigns and transferees.
(h) Arbitration. All claims, counterclaims, disputes and other
matters in question between the parties hereto arising out of or relating to
this Agreement or the breach thereof will be decided by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then obtaining, subject to the limitations and restrictions stated
in paragraphs (ii) and (iii) below. This Agreement so to arbitrate and any other
agreement or consent to arbitrate entered into in accordance herewith as
provided in this subsection will be specifically enforceable under the
prevailing law of any court having jurisdiction.
(i) Notice of demand for arbitration must be filed in writing
with the other parties to this Agreement and with the American Arbitration
Association. The arbitration shall be conducted in Kansas City, Missouri. The
demand must be made within a reasonable time after the claim, dispute or other
matter in question has arisen. In no event may the demand for arbitration be
made after the date when institution of legal or equitable proceedings based on
such claim, dispute or other matter in question would be barred by the
applicable statute of limitations.
(ii) All demands for arbitration and all answering statements
thereto which include any monetary claim must contain a statement that the total
sum or value in controversy as alleged by the party making such demand or
answering statement is not more than $200,000 (exclusive of interest and costs).
The arbitrators will not have jurisdiction, power or authority to render a
monetary award in response thereto against any party which totals more than
$200,000 (exclusive of interest and costs). The arbitrators will not have
jurisdiction, power or authority to consider, or make findings (except in denial
of their own jurisdiction) concerning any claim, counterclaim, dispute or other
matter in question where the amounts in controversy of any such claim, counter-
claim, dispute or matter is more than $200,000 (exclusive of interest and
costs).
<PAGE>
(iii) No arbitration arising out of, or relating to, this
Agreement may include, by consolidation, joinder or in any other manner, any
person or entity who is not a party to this Agreement.
(iv) By written consent signed by all the parties to this
Agreement and containing a specific reference hereto, the limitations and
restrictions contained in paragraphs (ii) and (iii) above may be waived in whole
or in part as to any claim, counterclaim, dispute or other matter specifically
described in such consent. No consent to arbitration in respect of a
specifically described claim, counterclaim, dispute or other matter in question
will constitute consent to arbitrate any other claim, counterclaim, dispute or
other matter in question which is not specifically described in such consent or
in which the sum or value in controversy exceeds $200,000 (exclusive of interest
and costs) or which is with any party not specifically described therein.
(v) The award rendered by the arbitrators will be final,
judgment may be entered upon it in any court having jurisdiction thereof, and
will not be subject to modification or appeal except to the extent permitted by
Sections 10 and 11 of the Federal Arbitration Act (9 U.S.C. (S)(S) 10, 11).
(i) Choice of Venue. All actions or proceedings with respect to this
Agreement shall be instituted only in any state or federal court sitting in
Jackson County, Missouri, and by execution and delivery of this Agreement, the
parties irrevocably and unconditionally subject to the jurisdiction (both
subject matter and personal) of each such court and irrevocably and
unconditionally waive: (a) any objection that the parties might now or hereafter
have to the venue of any of such court; and (b) any claim that any action or
proceeding brought in any such court has been brought in an inconvenient forum.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
[The remainder of this page is intentionally blank]
<PAGE>
IN WITNESS WHEREOF, the Company and the Shareholders have executed this
Agreement on the day and year above written.
ATTEST: Nationwide Electric, Inc.
/s/ Mark G. English , Secretary /s/ Gregory J. Orman
- ----------------------- ---------------------------------------
Gregory J. Orman, Chairman of the Board
SHAREHOLDERS:
KLT Energy Services Inc.
/s/ Mark G. English , Secretary /s/ Gregory J. Orman
- ----------------------- ---------------------------------------
Gregory J. Orman, President
Reardon Capital, L.L.C.
/s/ Gregory J. Orman
---------------------------------------
Gregory J. Orman, Member
/s/ Frederick C. Green
---------------------------------------
Frederick C. Green IV
/s/ Frank R. Clark
---------------------------------------
Frank R. Clark
/s/ David Smith
---------------------------------------
David Smith
/s/ John Wood
---------------------------------------
John Wood
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-57013 of Nationwide Electric, Inc. of our report dated June 12, 1998 related
to the combined financial statements of Nationwide Electric, Inc., appearing in
the Prospectus, which is part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-57013 of Nationwide Electric, Inc. of our report dated August 21, 1998
related to the consolidated financial statements of The Allison Company,
appearing in the Prospectus, which is part of such Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
We consent to the use in this Amendment No. 2 to Registration Statement No. 333-
57013 of Nationwide Electric, Inc. of our report dated June 12, 1998 related to
the consolidated financial statements of Henderson Electric Co., Inc. and
Subsidiaries, appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
Kansas City, Missouri
August 25, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
Amendment #2 of our report dated June 10, 1998, related to the financial
statements of Parsons Electric Co. We also consent to the reference to our Firm
under the caption "Experts" in the Prospectus.
/s/ McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
August 25, 1998
