<PAGE>
As filed with the Securities and Exchange Commission on February 1, 1999
Registration No. 333-57013
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 3
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)
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402-3804
(612) 333-9569
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Gregory J. Orman
Chairman of the Board
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402-3804
(612) 333-9569
(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
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share...... $64,400,000 $17,903 (2)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) The registrant previously paid $25,651.52 in registration fees for this
offering.
----------------
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
February 1, 1999
4,000,000 Shares
NATIONWIDE ELECTRIC, INC.
Common Stock
---------
All of the 4,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), offered hereby are being offered by Nationwide Electric, Inc.
("Nationwide"). It is currently estimated that the initial public offering
price will be between $ and $ per share. Prior to this 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 from the sale of the Common Stock offered hereby,
approximately $6.1 million will be used to redeem Series A Redeemable Preferred
Stock owned by KLT Energy Services, Inc. ("KLT"), an affiliate of the Company.
See "Use of Proceeds." 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 9 for a discussion of certain matters
that should be considered by prospective purchasers of the securities offered
hereby.
---------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price Underwriting Proceeds
to Discounts and to
Public Commissions Company (1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total (2)........................ $ $ $
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Before deducting expenses of the Offering payable by the Company estimated
at $900,000.
(2) Nationwide has granted the Underwriters a 30-day option to purchase up to
an additional 600,000 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
, 1999.
BT Alex. Brown Piper Jaffray Inc.
The date of this Prospectus is , 1999.
<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
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 conversion
upon consummation of this Offering of 1,089,999 shares of Class A Nonvoting
Common Stock owned by KLT into an equal number of shares of Common Stock, (ii)
give effect to the conversion upon consummation of this Offering of 1,000,000
shares of Class B Nonvoting Common Stock owned by KLT into an equal number of
shares of Common Stock (such number of shares shall be proportionately
increased in the event that the initial public offering price (net of
underwriting discounts and commissions) per share of Common Stock is less than
$12.00 per share), (iii) assume the Underwriters' over-allotment option is not
exercised and (iv) assume an initial public offering (the "Offering") price of
$13.00 per share. Unless otherwise indicated, references herein to "Nationwide"
or the "Company" mean Nationwide Electric, Inc. and its subsidiaries
collectively.
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 including 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 provides the Company with
significant competitive advantages as it pursues its growth strategy. See
"Business--General."
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 its long-standing customer relationships 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.
Nationwide was founded in February 1998 to build a leading provider of
electrical contracting and maintenance services. The Company maintains offices
in Georgia, Kentucky, Minnesota and Ohio and performed work in 17 states, as
well as in the United Kingdom and Canada, in the fiscal year ended March 31,
1998. In addition, the Company is currently assessing potential acquisitions of
electrical contracting businesses in certain of those states and in several
other states. 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 is one of the largest providers of electrical contracting and
maintenance services in the U.S. The Company generated pro forma consolidated
revenues of $134.4 million in the fiscal year ended March 31, 1998 ("fiscal
1998"), and $117.6 million for the nine months ended December 31, 1998. Of such
fiscal 1998 pro forma consolidated revenues, approximately 18% were derived
from "design-build" new construction projects, 29% were derived from "bid-to-
spec" new construction projects, 30% were derived from retrofit and renovation
projects, 13% were derived from maintenance and repair services,
3
<PAGE>
and 10% 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."
The Company estimates that the annual revenues generated by the electrical
contracting industry grew from approximately $39.3 billion in 1990 to
approximately $72.0 billion in 1998, and that such revenues will increase in
1999 to $76.5 billion. The Company believes that it will be well-positioned to
capitalize on significant trends currently affecting its industry. The Company
expects that these trends, which include 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 preventative
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 incorporated in Delaware on February 17, 1998. Its executive
offices are located at 2800 Metropolitan Centre, 333 South Seventh Street,
Minneapolis, Minnesota 55402 and its telephone number at that address is (612)
333-9569.
Background
In February 1998, Nationwide acquired Parsons Electric Co. ("Parsons"), a
union contractor with over 400 employees, which was founded in 1927 and is
headquartered in Minneapolis, Minnesota. During the twelve months ended March
31, 1998, Parsons provided electrical contracting and maintenance services to
customers primarily in Minnesota, as well as in Alabama, Arkansas, Illinois,
Iowa, North Dakota, Oregon, South Dakota, Texas, Virginia and Wisconsin.
Parsons had revenues of approximately $58 million for the fiscal year ended
December 31, 1997 with approximately 85% derived from repeat customers.
Services offered include design and installation, new construction and
renovation and retrofit projects for commercial, industrial and institutional
customers. Parsons and the three other companies described below are referred
to collectively as the Acquired Companies, and the transactions in which
Parsons and those companies were acquired are referred to collectively as the
"Acquisitions." In connection with the acquisition of Parsons, KLT, an
unregulated subsidiary of Kansas City Power & Light Company ("KCPL"), invested
$6.65 million in the Company through the purchase of Common Stock, Class A
Nonvoting Common Stock (the "Class A Nonvoting Common") and Series A Redeemable
Preferred Stock (the "Series A Preferred").
Recent Developments
Allison-Smith Acquisition
On October 22, 1998, the Company acquired all of the stock of The Allison
Company and its wholly-owned subsidiary, the Allison-Smith Company ("Allison-
Smith") for cash and Common Stock. Allison-Smith, a union contractor with over
250 employees, was founded in 1943 and is headquartered in Atlanta, Georgia.
During the twelve months ended March 31, 1998, Allison-Smith provided
electrical contracting and maintenance services to customers primarily in
Georgia, as well as in Florida, Kansas, Texas, Canada and the United Kingdom.
Allison-Smith had revenues of approximately $31 million for the fiscal year
ended June 30, 1998 with approximately 80% derived from repeat customers.
Services offered include installation of wiring or cabling for computer,
telecommunication and security systems, as well as significant design-build
capability, particularly on a "fast track" basis.
4
<PAGE>
Henderson Electric Acquisition
On October 22, 1998, Henderson Electric Co. Inc. ("Henderson") was merged
into the Company, in exchange for cash and Common Stock, and its assets were
concurrently transferred to a wholly-owned subsidiary of the Company which was
renamed Henderson Electric Co., Inc. Henderson, a union contractor with over
400 employees, 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 provided services to customers in
Indiana and Kentucky. Henderson had consolidated revenues of approximately $44
million for the fiscal year ended March 31, 1998 with approximately 75% derived
from repeat customers. Services offered include electrical contracting and
maintenance and installation of wiring or cabling for computer,
telecommunication and security systems, as well as significant design-build
capacity.
The Company also acquired Eagle Electric Systems, Inc. ("Eagle"), at the time
a wholly-owned subsidiary of Henderson, as part of the Henderson Acquisition.
Eagle is an open-shop contractor founded in 1986 with over 90 employees 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. Services offered include electrical contracting and maintenance
and installation of wiring or cabling for computer, telecommunication and
security systems.
Additional Investment by KLT Energy Services, Inc.
On October 22, 1998, in connection with the Company's acquisitions of
Allison-Smith, Henderson and Eagle, KLT invested $18 million in the Company
through the purchase of 1,000,000 shares of Class B Nonvoting Common Stock (the
"Class B Nonvoting Common") and 500,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred"), both at $12.00 per share. The
number of shares of Class B Nonvoting Common shall be increased proportionately
in the event that the initial public offering price per share of Common Stock
is less than $12.00 per share (net of underwriting discounts and commissions).
Additionally, the Class B Nonvoting Common and Series B Preferred are
convertible into the same number of shares of Common Stock of the Company
(subject to customary antidilution provisions).
New Credit Facility
The Company has obtained a $30 million credit facility maturing on December
1, 2001, with Norwest Bank of Minnesota, N.A., acting as agent (the "Agent"),
which is composed of a $15 million revolving credit facility and a $15 million
term facility. The term facility may be used exclusively to finance
acquisitions permitted under the credit agreement ("Permitted Acquisitions").
The revolving credit facility may be used for (i) working capital, (ii) general
corporate purposes, (iii) accounts receivable, inventory and cash which may be
acquired in Permitted Acquisitions, and (iv) to make advances to and equity
investments in the Company's subsidiaries. The Agent has indicated that the
borrowing limit under the credit agreement may be increased up to a total of
$100 million, subject to certain conditions including successful completion of
the Offering, addition of at least three more lenders, receipt of an
unqualified audit report on the Company's financial statements for its fiscal
year ended March 31, 1999, and the absence of any default or event of default
under the credit agreement. The borrowing base is limited to the sum of 80% of
eligible accounts receivable, 50% of eligible inventory, and 50% of the net
book value of eligible equipment.
Expansion of Management Team
Since its formation, the Company has expanded its senior management team and
operations support group through the addition of several officers and key
employees, including personnel with expertise in acquisitions, information
systems and centralized materials procurement. The Company plans to add persons
to its national accounts development and acquisitions groups.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common Stock offered by the Company...................... 4,000,000 shares
Common Stock to be outstanding after the Offering........ 9,923,727 shares (1)
Use of Proceeds.......................................... To reduce existing
indebtedness, to redeem
shares of outstanding
Series A Preferred owned
by KLT and pay accrued
but unpaid dividends in
respect thereof, and for
working capital and
general corporate
purposes, including
future acquisitions.
NYSE symbol.............................................. NEL
</TABLE>
- --------
(1) Includes (i) 4,000,000 shares to be sold in the Offering, (ii) 1,089,999
shares of Common Stock resulting from the conversion, upon consummation of
this Offering, of 1,089,999 shares of Class A Nonvoting Common owned by
KLT, (iii) 1,000,000 shares of Common Stock resulting from the conversion,
upon consummation of the Offering, of 1,000,000 shares of Class B Nonvoting
Common owned by KLT (such number of shares shall be proportionately
increased in the event that the initial public offering price (net of
underwriting discounts and commissions) per share of Common Stock is less
than $12.00 per share), and (iv) 5,923,727 shares, including the 1,000,000
and the 1,089,000 shares noted in (ii) and (iii), issued to the existing
stockholders and certain management personnel of the Company. Excludes (i)
options to purchase 223,500 shares of Common Stock that have been granted
at an exercise price of $12.00 per share, and (ii) 500,000 shares of Series
B Preferred which is convertible, at the election of KLT prior to December
31, 1999, into 500,000 shares of Common Stock (subject to customary
antidilution adjustments). See "Management--1998 Stock Option Plans,"
"Certain Transactions--Organization of the Company" and "Description of
Capital Stock."
6
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from Nine Months Ended
Inception Year Ended December 31, 1998
(September 23, March 31, 1998 -------------------------
1997) to Pro Forma Pro Forma as
March 31, 1998 as Adjusted Actual Adjusted (1)
-------------- -------------- ----------- ------------ ---
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data: (unaudited)
Contract revenue...... $4,305 $134,408 $ 65,524 $117,570
Cost of services,
excluding
depreciation shown
separately below..... 3,602 111,538 54,531 97,037
------ -------- ----------- --------
Gross profit.......... 703 22,870 10,993 20,533
------ -------- ----------- --------
Selling, general and
administrative
expenses (2)......... 927 14,349 7,296 12,444
Depreciation.......... 33 760 325 503
Goodwill amortization
(3).................. 8 557 250 418
------ -------- ----------- --------
Income (loss) from
operations........... (265) 7,204 3,122 7,168
Interest and other
income (expense), net
(4).................. (81) 432 (1,375) (948)
------ -------- ----------- --------
Income (loss) before
income taxes......... (346) 7,636 1,746 6,220
Income tax expense
(benefit) (5)........ (120) 3,277 730 2,668
------ -------- ----------- --------
Net income (loss)
before a
nonrecurring, noncash
charge directly
attributable to the
transaction (2)...... $ (226) $ 4,359 $ 1,016 $ 3,552
====== ======== =========== ========
Basic net income
(loss) per share
before a
nonrecurring, noncash
charge directly
attributable to the
transaction (2)...... $(0.79) $ 0.35 $ 0.15 $ 0.29
====== ======== =========== ========
Shares used in
computing basic
income per share (6). 333 9,924 3,856 9,924
====== ======== =========== ========
Diluted net income per
share before
nonrecurring, noncash
charge directly
attributable to the
transaction (2)...... $(0.79) $ 0.35 $ 0.15 $ 0.29
====== ======== =========== ========
Shares used in
computing diluted
income per share (7). 333 9,941 3,874 9,941
====== ======== =========== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------
Actual As Adjusted(8)
----------- --------------
<S> <C> <C>
Balance Sheet Data: (unaudited)
Working capital.................................... $ 24,345 $ 58,570
Total assets....................................... 68,326 102,551
Long-term debt, net of current maturities.......... 7,366 166
Series A Redeemable Preferred Stock................ 6,000 --
Total stockholders' equity......................... 29,297 76,797
</TABLE>
7
<PAGE>
- --------
(1) The summary unaudited pro forma consolidated financial data present certain
data for the Company, as adjusted for (i) the effects of the Acquisitions,
(ii) the effects of certain other pro forma adjustments to the historical
financial statements, and (iii) the sale of the Common Stock offered hereby
and the application of the net proceeds therefrom at an assumed initial
public offering price of $13.00 per share. The unaudited pro forma
consolidated statement of operations data assume that the Acquisitions 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.
The unaudited pro forma consolidated financial data should be read in
conjunction with the Unaudited Pro Forma Consolidated Financial Statements
and notes thereto and the historical financial statements of Nationwide and
the Acquired Companies and the notes thereto, all included elsewhere in
this Prospectus.
(2) The unaudited pro forma consolidated statement of operations data reflect
(i) an aggregate of approximately $849,000 for the year ended March 31,
1998 and $670,000 for the nine months ended December 31, 1998 in pro forma
reductions in salary, bonus and benefits of the owners of the Acquired
Companies to which they have agreed prospectively and (ii) adjustments to
expenses associated with certain non-operating assets that were transferred
from the Acquired Companies at the time of the Acquisitions and certain
other transactions, including the elimination of activities related to
assets not purchased from the shareholders of Parsons (see Note 2 of Notes
to Unaudited Pro Forma Consolidated Financial Statements).
Under certain restricted stock purchase agreements, the Company has sold
315,000 restricted shares of Common Stock to management, two outside
directors and one director nominee. These shares may, at the Company's
option, be repurchased at the price they were sold if the Offering is not
consummated by April 1, 1999. As a result, the Company will record a
nonrecurring, noncash compensation charge of $3.6 million and related income
tax benefit of $1.4 million or a net charge of $2.2 million ($0.22 per share
basic and $0.21 per share diluted) 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 nonrecurring compensation charge is not included in the Unaudited Pro
Forma Consolidated Statements of Operations.
(3) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions, over a 40-year period.
(4) Reflects the reduction for interest expense of approximately $600,000 for
the twelve months ended March 31, 1998 and $590,000 for the nine months
ended December 31, 1998 attributable to the repayment of approximately
$10.8 and $7.2 million, respectively, of historical debt of Nationwide with
proceeds from the Offering. Additionally, reflects reductions in expenses
associated with certain non-operating assets that were transferred from the
Acquired Companies at the time of the Acquisitions, as well as activities
related to assets not purchased from the shareholders of Parsons.
(5) Assumes all pretax income before non-deductible goodwill and other
permanent items is subject to a statutory 40% tax rate.
(6) Includes (i) 5,923,727 shares of Common Stock issued to certain management
personnel and the existing stockholders, (ii) 1,089,999 shares of Common
Stock (included within the 5,923,727 shares of Common Stock listed in (i)
resulting from the conversion, upon consummation of this Offering, of
1,089,999 shares of Class A Nonvoting Common owned by KLT, (iii) 1,000,000
shares of Common Stock (included within the 5,923,727 shares of Common
Stock listed in (i)) resulting from the conversion, upon consummation of
the offering, of 1,000,000 shares of Class B Nonvoting Common owned by KLT
(such number of shares shall be proportionately increased in the event that
the initial public offering (net of underwriting discounts and commissions)
per share of Common Stock is less than $12.00 per share), and (iv)
4,000,000 shares of Common Stock to be sold in the Offering. Excludes (i)
options to purchase 223,500 shares of Common Stock that have been granted
at an exercise price of $12.00 per share, and (ii) 500,000 shares of Series
B Preferred which is convertible, at the election of KLT prior to December
31, 1999, into the same number of shares of Common Stock (subject to
customary antidilution adjustments). See "Management--1998 Stock Option
Plans," "Certain Transactions--Organization of the Company" and
"Description of Capital Stock."
(7) Adjusted to reflect the dilutive effect of stock option issuances and does
not assume the conversion of outstanding Series B Preferred into the
equivalent number of common shares at the date of issuance as the effect is
anti-dilutive.
(8) As adjusted to reflect the sale of the Common Stock offered hereby at an
assumed initial public offering price of $13.00 per share and the
application of the net proceeds therefrom. See "Use of Proceeds."
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein as a result of various
factors. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in the following risk factors,
"Prospectus Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
Prospectus. The cautionary statements contained in this Prospectus should be
read as applying to all forward-looking statements wherever they appear in
this Prospectus.
Limited Operating History; Integration of Completed Acquisitions. Nationwide
was founded in February 1998 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's effective integration of the Acquired Companies and any
businesses to be acquired in the future is and will continue to be important
to the Company's growth and future financial performance. 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 management group will be able to
successfully manage the combined entity and effectively implement the
Company's operating and growth strategies. The pro forma consolidated
financial results of the Acquired Companies cover certain 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. While the Company has identified numerous acquisition candidates
9
<PAGE>
that it believes are suitable, there can be no assurance that the Company will
be able to negotiate their acquisition at prices or on terms and conditions
favorable to the Company. Additionally, the Company competes for acquisition
candidates with other entities, some of which have greater financial resources
than the Company. Such competition may limit the number of the Company's
acquisition opportunities and may lead to higher acquisition prices. There can
be no assurance that the Company will be able to identify, acquire or
profitably manage additional businesses or to integrate successfully any
acquired businesses into the Company without substantial costs, delays or
other operational or financial problems. Further, acquisitions involve a
number of special risks, including failure of the acquired business to achieve
expected results, diversion of management's attention, failure to retain key
personnel of the acquired business and risks associated with unanticipated
events or liabilities, some or all of which could have a material adverse
effect on the Company's business, financial condition and results of
operations. Customer dissatisfaction or performance problems at a single
acquired company could have an adverse effect on the reputation of the Company
generally. In addition, there can be no assurance that the 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. Although the
Company has recently obtained a credit facility from a group of commercial
banks to be used for acquisitions, working capital and other general corporate
purposes, there can be no assurance that the Company will be able to obtain
sufficient 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."
The Company's credit facility requires the Company to obtain the consent of
the lenders for acquisitions exceeding a certain level of cash consideration
or if the total purchase price exceeds a specified multiple of cash flow. The
Company's inability to obtain such consent could prevent the Company from
completing certain acquisitions, which could inhibit the Company's ability to
execute its growth strategy. Furthermore, the Company's credit facility
requires compliance with certain financial covenants. If the Company is unable
to satisfy these financial covenants on a pro forma basis following completion
of an acquisition, it would be unable to complete the acquisition without a
waiver from its lending banks. Whether or not a waiver is needed, if the
results of the Company's future operations differ materially from those that
are anticipated, the Company may no longer be able to comply with the
covenants required by the credit facility. The Company's failure to comply
with such covenants may result in a default under the credit facility, which
could result in acceleration of the date for repayment of debt incurred under
the credit facility and would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
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
10
<PAGE>
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 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 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 serve as first-tier holding companies for its operating
subsidiaries, one of which will acquire businesses with unionized workforces
and operate them as second-tier subsidiaries of the Company functioning as
union contractors and the other of which will acquire businesses with open-
shop workforces and operate them as second-tier subsidiaries of the Company
functioning as open-shop contractors. Approximately 80% 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 open-shop subsidiaries, or by any operations of such subsidiaries
within the same geographic market in which the unionized subsidiaries operate.
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 an acquisition candidate's existing unions
and reluctance of open-shop targets to become affiliated with a union-based
company. See "Business--Employees."
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<PAGE>
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 competitors may have greater name recognition, greater financial
resources and equity securities with greater potential capital appreciation
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."
Risks Associated with Contracts. 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 actual 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. In addition, 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.
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. As of December 31,
1998, the Company had $35.6 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 will include an amount designated as "goodwill" that represents
14.5% of total assets and 19.3% of stockholders' equity. Goodwill arises when
an acquiror pays more for a business than the fair value of the
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<PAGE>
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. To the extent that if
the actual benefit periods for the goodwill arising from an acquisition were
shorter than the periods utilized by the Company, earnings reported in periods
immediately following the acquisition would correspondingly 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
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 Offering, KLT and Reardon Capital, LLC (together the "Initial
Stockholders"), the Company's executive officers and directors, the former
stockholders of the Acquired Companies and entities affiliated with them will
own 5,923,727 shares of Common Stock, representing approximately 60% of the
aggregate outstanding shares of Common Stock (including (i) 1,089,999 shares
to be acquired by KLT upon conversion of the same number of shares of the
Company's Class A Nonvoting Common, and (ii) 1,000,000 shares to be acquired
by KLT upon the conversion of the same number of shares of the Company's Class
B Nonvoting Common, which number of shares is subject to a proportionate
increase if the initial public offering price is less than $12.00 per share,
net of underwriting discounts and commissions). This ownership percentage will
decline to 56% if the Underwriters' overallotment option is exercised in full.
If the Company's executive officers and directors, the Initial Stockholders
and the 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 the
Acquired Companies. Furthermore, the Company will likely be dependent on the
senior management of companies that it acquires in the future.
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<PAGE>
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."
Payments to Affiliates. 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.
The existing stockholders of the Company and certain members of management
own 5,923,727 shares of Common Stock (including (including (i) 1,089,999
shares to be acquired by KLT upon conversion of the same number of shares of
the Company's Class A Nonvoting Common, and (ii) 1,000,000 shares that will be
acquired by KLT upon the conversion of the same number of shares of Class B
Nonvoting Common subject to a proportionate increase in the event that the
initial public offering price (net of underwriting discounts and commissions)
per share of Common Stock is less than $12.00 per share). None of these shares
was or will be issued in a transaction registered under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, such shares may not
be sold except in transactions registered under the Securities Act or pursuant
to an exemption from registration, including the exemption contained in Rule
144 under the Securities Act. When these shares become eligible for sale, the
market price of the Common Stock could be adversely affected by the sale of
substantial amounts of the shares in the public market. The stockholders of
the Acquired Companies have certain registration rights with respect to the
shares that were received as part of the consideration for the purchase of
those companies, which rights 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.
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 beneficially own 5,923,727 shares of
Common Stock (including (i) 1,089,999 shares to be acquired by KLT upon
conversion of the same number of shares of the Company's Class A Nonvoting
Common, and (ii) 1,000,000 shares that will be acquired by KLT upon the
conversion of the same number of shares of Class B Nonvoting Common subject to
a proportionate increase in the event that the initial public offering price
(net of underwriting discounts and commissions) per share of Common Stock is
less than $12.00 per share) have agreed not to directly or indirectly offer
for sale, sell, sell short, transfer, hypothecate, pledge or otherwise dispose
of any Common Stock or other capital stock of the Company or any other
securities convertible into or exchangeable or exercisable for shares of
Common Stock or derivatives of Common Stock owned by these persons, or as to
which such person has the right to direct the disposition, 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
14
<PAGE>
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.
Following the Offering, the Company 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 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 and to adopt amendments to the Amended
and Restated Bylaws. 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 $7.41 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
15
<PAGE>
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. In addition, the Company's credit facility prohibits
the payment of cash dividends by the Company on Common Stock without the
consent of the lenders. See "Dividend Policy."
Year 2000 Compliance. The Company is implementing a common management
information system for itself, the Acquired Companies and subsequently
acquired businesses, that is designed to address Year 2000 issues associated
with computer systems that use only two digits to identify a year in the date
field. The Company expects to complete the implementation of this new system
by November 1, 1999. The total cost of this new system and its implementation
is estimated to be approximately $1 million. An acquired business that already
has in place a management information system that is certified as being Year
2000 compliant, and is compatible with the Company's management information
system, may not be required to substitute the Company's system. There can be
no assurance that any business that the Company acquires in the future will
have computer systems that are Year 2000 compliant or that will be compatible
with the Company's new management information system. The Company is currently
preparing a formal questionnaire for all significant suppliers, customers and
service providers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate the Year 2000 problem. The
Company has received oral assurances of Year 2000 compliance from many of the
third parties with whom it has relationships. The Company will continue to
consider the likelihood of a material business interruption due to the Year
2000 issue, and, if necessary, implement appropriate contingency plans. The
terms of the Company's credit facility require the Company to implement
hardware and software modifications as may be necessary to be Year 2000
compliant by November 1, 1999, and, if the Company breaches this covenant, an
event of default will arise within 30 days after the lending banks have given
notice thereof and required the breach to be remedied. There can be no
assurance that the failure of the Company, any newly acquired businesses or
third parties with whom the Company does business 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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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting underwriting discounts and commissions and
estimated Offering expenses payable by the Company) will be approximately
$47.5 million ($54.7 million if the Underwriters' overallotment option is
exercised in full), assuming an initial public offering price of $13.00 per
share.
The Company intends to use (i) $6 million to redeem the outstanding shares
of Series A Preferred owned by KLT, an affiliate of the Company (see
"Principal Stockholders"), (ii) approximately $7.2 million to reduce
outstanding indebtedness as of December 31, 1998 (amounts so reduced will be
available for future borrowing), and (iii) approximately $75,000 to pay
accrued but unpaid dividends on the outstanding shares of Series A Preferred.
The remaining net proceeds (approximately $34.2 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.
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's credit facility
prohibits the payment of cash dividends by the Company on its Common Stock
without the consent of the lenders. The Series A Preferred provides for
cumulative dividends, which the Company intends to pay in cash with the
proceeds of this Offering.
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CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and the capitalization as of December 31, 1998 of the Company on
an historical basis and as adjusted to give effect to the Offering and the
application of the estimated net proceeds therefrom, as well as other related
transactions described in the notes hereto. See "Use of Proceeds." This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Unaudited Pro Forma
Consolidated Financial Statements of the Company and the related notes
thereto, and the Company's Consolidated Financial Statements and the related
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1998
--------------------
As
Actual Adjusted(1)
------- -----------
(in thousands)
<S> <C> <C>
Current maturities of long-term obligations............... $ 137 $ 137
======= =======
Long-term debt, less current maturities................... $ 7,366 $ 166
------- -------
Series A Redeemable Preferred Stock: $.01 par value, 6,000
shares issued and outstanding, actual; and none issued
and outstanding, pro forma as adjusted (1)(2)............ 6,000 --
------- -------
Stockholders' equity:
Common Stock: $.01 par value, 30,000,000 shares
authorized; 3,833,728 shares issued and outstanding,
actual; and 9,923,727 shares issued and outstanding,
pro forma as adjusted (2)(3)........................... 38 99
Class A Nonvoting Common Stock: $.01 par value,
1,200,000 shares authorized; 1,089,999 issued and
outstanding, actual; and none issued and outstanding,
pro forma as adjusted (3).............................. 11 --
Class B Nonvoting Common Stock: $.01 par value,
1,250,000 shares authorized; 1,000,000 shares issued
and outstanding (3).................................... 10 --
Preferred Stock; par value $.01; 10,000,000 authorized:
Series B Convertible Preferred Stock; 500,000 shares
issued and outstanding (4)............................. 5 5
Additional paid-in capital.............................. 29,079 76,539
Shareholder notes....................................... (162) (162)
Retained earnings....................................... 316 316
------- -------
Total stockholders' equity............................ 29,297 76,797
------- -------
Total capitalization.................................. $42,663 $76,963
======= =======
</TABLE>
- --------
(1) Upon the consummation of the Offering, the Company will redeem all of the
issued and outstanding Series A Preferred from the net proceeds of the
Offering.
(2) Adjusted to reflect the sale of 4,000,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom at an
assumed initial public offering price of $13.00 per share. See "Use of
Proceeds" and "Description of Capital Stock." Excludes options to purchase
223,500 shares of Common Stock that have been granted at an exercise price
of $12.00 per share. See Management--1998 Stock Option Plans.
(3) Upon the consummation of the Offering, all of the issued and outstanding
shares of Class A Nonvoting Common shall automatically convert into
1,089,999 shares of Common Stock and all of the issued and outstanding
shares of Class B Nonvoting Common will be converted into 1,000,000 shares
of Common Stock. Pursuant to the agreement relating to the purchase of
stock by KLT, the number of shares of the Class B Nonvoting Common issued
to KLT will be increased proportionately in the event that the initial
public offering price (net of underwriting discounts and commissions) is
less than $12.00 per share. Shares of Class B Nonvoting Common are
convertible into the same number of shares of Common Stock.
(4) Convertible, at the election of KLT prior to December 31, 1999, into
500,000 shares of Common Stock (subject to customary antidilution
adjustments).
18
<PAGE>
DILUTION
The net tangible book value (defined as total stockholders' equity less the
excess of purchase cost over net assets acquired, cost of non-compete
agreements, deferred financing costs, dividends on redeemable preferred stock
and the consideration paid for the Series B Preferred) of the Company at
December 31, 1998 was approximately $8.0 million, or $1.35 per share of Common
Stock. The consolidated net tangible book value per share is determined by
dividing the net tangible book value of the Company by the number of shares of
Common Stock and Class A and Class B Nonvoting Common to be outstanding
immediately prior to the Offering. After giving effect to the sale by the
Company of 4,000,000 shares of Common Stock offered hereby, and the conversion
of 1,089,999 shares of Class A Nonvoting Common and 1,000,000 shares of Class
B Nonvoting Common into an equal number of shares of Common Stock (the number
of shares of Class B Nonvoting Common shall be increased proportionately in
the event that the initial public offering price (net of underwriting
discounts and commissions) per share of Common Stock is less than $12.00), and
after deduction of the underwriting discounts and commissions and estimated
Offering expenses, the net tangible book value of the Company at December 31,
1998 would have been $55.5 million or $5.59 per share. This represents an
immediate increase in pro forma net tangible book value of $4.24 per share to
existing stockholders and an immediate dilution to new investors purchasing
Common Stock in the Offering of $7.41 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...................... $13.00
Consolidated net tangible book value per share prior
to the Offering............................................. $1.35
Increase in pro forma net tangible book value per share
attributable to
new investors............................................... 4.24
-----
Pro forma consolidated net tangible book value per share after the
Offering.......................................................... 5.59
------
Dilution in net tangible book value per share to new investors....... $ 7.41
======
</TABLE>
The following table sets forth, as of December 31, 1998, the number of
shares of Common Stock purchased from the Company, the total cash
consideration paid and the average price per share paid by (i) existing
stockholders 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(3) Percent Consideration Per Share
--------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Existing stockholders where the
consideration was other than
cash(1)......................... 975,417 9.8% $ -- $ --
Other existing
stockholders(2)(4).............. 4,948,310 49.9% 13,144,500 2.66
New investors.................... 4,000,000 40.3% 52,000,000 13.00
--------- ------ -----------
Total........................ 9,923,727 100.0% $65,144,500
========= ====== ===========
</TABLE>
- --------
(1) Shares of Common Stock issued in connection with the acquisitions of
Allison and Henderson which were recorded for purchase accounting purposes
at a value of $10.20 per share to reflect a 15% marketability discount.
See "Certain Transactions."
(2) See "Certain Transactions" for a discussion of the issuance of Common
Stock to the existing stockholders and certain management of Nationwide.
(3) Excludes (i) options to purchase 223,500 shares of Common Stock that have
been granted at an exercise price of $12.00 per share, See "Management--
1998 Stock Option Plans", and (ii) 500,000 shares of Series B Preferred
issued for $12.00 per share and are convertible into 500,000 shares of
Common Stock (subject to certain customary antidilution adjustments).
(4) As described under "Certain Transactions--Purchase of The Allison
Company", the amount of Acquisition consideration set forth above does not
reflect an opportunity for the former stockholders of Allison-Smith to
earn additional cash consideration based on the future financial
performance of Allison-Smith.
19
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(in thousands, except per share data)
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 have been derived
from the audited consolidated financial statements of Nationwide. The selected
historical data of Nationwide as of December 31, 1998 and for the nine months
then ended have been derived from the unaudited consolidated financial
statements of Nationwide which management believes reflect all adjustments
necessary for a fair statement of the results of operations.
The selected unaudited pro forma consolidated financial data below present
certain data for the Company, adjusted for (i) the effects of certain pro
forma adjustments to the historical financial statements and (ii) the
consummation of the Offering and the application of the net proceeds
therefrom. The unaudited pro forma consolidated statement of operations 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. The unaudited pro forma consolidated statement of
operations data should be read in conjunction with the other financial
information included elsewhere in this Prospectus. See Unaudited Pro Forma
Consolidated Financial Statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Predecessor Nationwide
-------------------------------------------------------- --------------------------
September 23,
January 1 to 1997 to April 1 to
February 27, March 31, December 31,
Year Ended December 31, 1998 1998 1998
------------------------------------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Historical Statement of
Operations Data:
Contract revenue........ $37,738 $42,128 $52,017 $58,563 $58,004 $9,700 $4,305 $65,524
Cost of services,
excluding depreciation
shown separately below. 32,132 36,401 43,662 49,162 47,347 7,830 3,602 54,531
------- ------- ------- ------- ------- ------ ------ -------
Gross profit............ 5,606 5,727 8,355 9,401 10,657 1,870 703 10,993
Selling, general and
administrative
expenses............... 4,741 4,874 5,776 6,234 6,985 1,310 927 7,296
Depreciation............ 272 400 395 435 447 63 33 325
Goodwill amortization... -- -- -- -- -- -- 8 250
------- ------- ------- ------- ------- ------ ------ -------
Income (loss) from
operations............. 593 453 2,184 2,732 3,225 497 (265) 3,122
Interest and other
income (expense), net.. 168 (135) (205) (121) (191) (17) (81) (1,375)
Income tax benefit
(expense).............. -- -- -- -- -- -- 120 (730)
------- ------- ------- ------- ------- ------ ------ -------
Net income (loss)....... 761 318 1,979 2,611 3,034 480 (226) 1,016
Pro forma provision for
income taxes(8)........ 319 134 831 1,097 1,274 192 -- --
------- ------- ------- ------- ------- ------ ------ -------
Pro forma net income
(loss)................. $ 442 $ 184 $ 1,148 $ 1,514 $ 1,760 $ 288 $ (226) $ 1,016
======= ======= ======= ======= ======= ====== ====== =======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Year Ended
March 31, Nine Months Ended
1998 December 31, 1998
---------- -----------------
<S> <C> <C>
Pro Forma Consolidated Statement of Operations
Data:
Contract revenue.................................. $134,408 $117,570
Cost of services, excluding depreciation shown
separately below................................. 111,538 97,037
-------- --------
Gross profit...................................... 22,870 20,533
-------- --------
Selling, general and administrative expenses(1)... 14,349 12,444
Depreciation...................................... 760 503
Goodwill amortization(2).......................... 557 418
-------- --------
Income from operations............................ 7,204 7,168
Interest and other income (expense), net(3)....... 432 (948)
-------- --------
Income before income taxes........................ 7,636 6,220
Income tax expense(4)............................. 3,277 2,668
-------- --------
Net income before a nonrecurring, noncash charge
directly attributable to the transaction(1)...... $ 4,359 $ 3,552
======== ========
Basic net income per share before a nonrecurring,
noncash charge directly attributable to the
transaction(1)................................... $ 0.35 $ 0.29
======== ========
Shares used in computing basic income per
share(5)......................................... 9,924 9,924
======== ========
Diluted net income per share before nonrecurring,
noncash charge directly attributable to the
transaction...................................... $ 0.35 $ 0.29
======== ========
Shares used in computing diluted income per
share(6)......................................... 9,941 9,941
======== ========
</TABLE>
<TABLE>
<CAPTION>
Predecessor Nationwide
--------------------------------------- ----------------------------------
December 31, December 31, 1998
--------------------------------------- March 31, ------------------------
1993 1994 1995 1996 1997 1998 Actual(6) As Adjusted(7)
------- ------- ------- ------- ------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $ 2,637 $ 3,240 $ 4,618 $ 5,485 $ 5,399 $ 610 $24,345 $ 58,570
Total assets............ 13,104 12,373 18,017 16,096 20,959 23,368 68,326 102,551
Long-term debt, net of
current maturities..... -- 412 362 312 262 -- 7,366 166
Series A Redeemable
Preferred Stock........ -- -- -- -- -- 6,038 6,000 --
Total stockholders'
equity................. 4,663 4,676 6,108 6,959 6,500 837 29,297 76,797
</TABLE>
- --------
(1) The unaudited pro forma consolidated statement of operations data reflect
(i) an aggregate of approximately $849,000 for the year ended March 31,
1998 and $670,000 for the nine months ended December 31, 1998 in pro forma
reductions in salary, bonus and benefits of the owners of the Acquired
Companies to which they have agreed prospectively, and (ii) adjustments to
expenses associated with certain non-operating assets that were
transferred from the Acquired Companies at the time of the Acquisitions
and certain other transactions, including the elimination of activities
related to assets not purchased from the shareholders of Parsons (see Note
2 of Notes to Unaudited Pro Forma Consolidated Financial Statements).
Under certain restricted stock purchase agreements, the Company has sold
315,000 restricted shares of Common Stock to management, two outside
directors and one director nominee. These shares may, at the Company's
option, be repurchased at the price they were sold if the Offering is not
consummated by April 1, 1999. As a result, the Company will record a
nonrecurring, noncash compensation charge of $3.6 million and related
benefit of $1.4 million or a net charge of $2.2 million ($0.22 per share
basic and $0.21 per share diluted) 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 Consolidated Statements of Operations.
21
<PAGE>
(2) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions 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 $590,000 for the nine months
ended December 31, 1998 attributable to the repayment of approximately
$10.8 and $7.2 million, respectively, of historical debt of Nationwide
with proceeds from the Offering. Additionally, reflects reductions in
expenses associated with certain non-operating assets that were
transferred to the Acquired Companies at the time of 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) 5,923,727 shares of Common Stock issued to certain management
personnel and the existing stockholders, (ii) 1,089,999 shares of Common
Stock (included within the 5,923,727 shares of Common Stock listed in (i))
resulting from the conversion, upon consummation of this Offering, of
1,089,999 shares of Class A Nonvoting Common owned by KLT, (iii) 1,000,000
shares of Common Stock (included within the 5,923,727 shares of Common
Stock listed in (i) resulting from the conversion, upon consummation of
the Offering, of 1,000,000 shares of Class B Nonvoting Common owned by KLT
(such number of shares shall be proportionately increased in the event
that the initial public offering price (net of underwriting discounts and
commissions) per share of Common Stock is less than $12.00 per share), and
(iv) 4,000,000 shares of Common Stock to be sold in the Offering. Excludes
(i) options to purchase 223,500 shares of Common Stock that have been
granted at an exercise price of $12.00 per share, and (ii) 500,000 shares
of Series B Preferred which is convertible, at the election of KLT prior
to December 31, 1999, into the same number of shares of Common Stock
(subject to customary antidilution adjustments). See "Management--1998
Stock Option Plans," "Certain Transactions--Organization of the Company"
and "Description of Capital Stock."
(6) Adjusted to reflect the dilutive effect of stock options and does not
assume the conversion of outstanding Series B Preferred into the
equivalent number of common shares at the date of issuance as the effect
is anti-dilutive.
(7) As adjusted to reflect the sale of the Common Stock offered hereby at an
assumed initial public offering price of $13.00 per share, and the
application of the net proceeds therefrom. See "Use of Proceeds."
Reflects the incremental provision for federal and state income taxes at an
appropriate 40.0% overall tax rate before nondeductible goodwill and other
permanent items, relating to other statements of operations adjustments and
for income taxes on S corporation income not provided for in the historical
financial statements.
22
<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 consolidated revenues of $134.4 million for the fiscal
year ended March 31, 1998 and $117.6 million for the nine months ended
December 31, 1998. Of such pro forma fiscal 1998 revenues, approximately 18%
were derived from "design-build" new construction projects, 29% were derived
from "bid-to-spec" new construction projects, 30% were derived from retrofit
and renovation projects, 13% were derived from maintenance and repair services
and 10% 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
future smaller acquisitions that may be 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 has
preliminarily analyzed the savings that it expects to be realized by
consolidating certain administrative functions. The Company has not and cannot
quantify all of these savings due to the short period of time that has elapsed
since the Acquisitions occurred. It is anticipated that these savings will be
partially offset by the costs of being a publicly held company and the
23
<PAGE>
incremental increase in costs related to the Company's corporate management.
However, these costs, like the savings they offset, cannot be quantified
accurately. Neither the anticipated savings nor the anticipated costs have
been included in the pro forma financial information included herein.
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 $3.6 million and related benefit of $1.4 million
or net charge of $2.2 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 Statements of Operations. These shares may, at the Company's option,
be repurchased at the price they were sold if the Offering is not consummated
by April 1, 1999.
The Acquisitions were accounted for using the purchase method of accounting.
Accordingly, the excess of the fair value of the consideration paid for the
Acquisitions of $15.7 million over the fair value of the net assets acquired
by Nationwide from the Acquired Companies was recorded as "goodwill." Goodwill
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 $393,000 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
valuation placed on the stock for purposes of the stock portion of the
Acquisitions and the value used in the sale of Class B Nonvoting Common sold
to KLT. See "Certain Transactions." 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 21-54 months as a non-cash charge to operating income, or
$164,000 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:
Contract 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. 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.
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
24
<PAGE>
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.
The Acquired Companies have primarily 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 were 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 the Acquired Companies have agreed to reductions in their
compensation and related benefits. Such reductions have been reflected for the
pro forma nine months ended December 31, 1998 and the year ended March 31,
1998 totaling $670,000 and $849,000, respectively. Such reductions have been
reflected as a pro forma adjustment in the Pro Forma Consolidated 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.
Liquidity and Capital Resources
At December 31, 1998, Nationwide had consolidated cash and cash-equivalents
of approximately $1.1 million, working capital of $24.3 million and $7.4
million of long-term debt. Nationwide used $980,000 of net cash for operating
activities for the nine months ended December 31, 1998. Net cash used in
investing activities was $14.3 million, primarily for the acquisitions of
Allison-Smith and Henderson Electric. Net cash generated from financing
activities was $15.3 million, primarily from the issuance of equity
securities.
After applying the net proceeds of the Offering as discussed under "Use of
Proceeds," the Company will have $35.3 million of pro forma cash and cash
equivalents, $58.5 million of pro forma working capital and $166,000
outstanding indebtedness. It is anticipated that $7.2 million of Nationwide
indebtedness will be repaid from the proceeds of the Offering.
25
<PAGE>
The Company has obtained a $30 million credit facility maturing on December
1, 2001, with Norwest Bank of Minnesota, N.A., acting as agent, which is
composed of a $15 million revolving credit facility and a $15 million term
facility. The term facility may be used exclusively to finance acquisitions
permitted under the credit agreement ("Permitted Acquisitions"). A Permitted
Acquisition must satisfy the following conditions (i) the cash consideration
is not in excess of $7.5 million, (ii) the purchase price does not exceed a
specified multiple of adjusted EBIT (earnings before interest and taxes) of
the acquired company and (iii) the cash consideration does not exceed 60% of
the purchase price with respect to the acquisition in a market where the
Company does not have operations. The revolving credit facility may be used
for (i) working capital, (ii) general corporate purposes, (iii) accounts
receivable, inventory and cash which may be acquired in Permitted
Acquisitions, and (iv) to make advances to and equity investments in the
Company's subsidiaries. The Agent has indicated that the borrowing limit under
the credit agreement may be increased up to a total of $100 million, subject
to certain conditions, including successful completion of the Offering, the
addition of at least three more lenders, receipt of an unqualified audit
report on the Company's financial statements for its fiscal year ended March
31, 1999, and the absence of any default or event of default under the credit
agreement. The borrowing base is limited to the sum of 80% of eligible
accounts receivable, 50% of eligible inventory, and 50% of the net book value
of eligible equipment. It is anticipated that after the Offering the loan will
become unsecured and that certain covenants will be adjusted.
Amounts borrowed under the credit facility will bear interest at a rate
equal to the Prime Rate plus a margin ranging from 0 to 0.25% (based on the
Consolidated Cash Flow Leverage ratio, i.e., the ratio of (i) funded debt,
less subordinated debt, to (ii) EBITDA (as defined in the Credit Agreement))
or, alternatively, at the Company's option LIBOR plus a margin ranging from
1.40% to 1.90% based on the same ratio. Commitment fees of 0.25% to 0.35%
(based on the Consolidated Cash Flow Leverage ratio) are payable with respect
to amounts not borrowed on either facility. The facility is secured by all
assets of the Company, including the pledges of all stock of the Company's
subsidiaries. In addition, the Company's subsidiaries guarantee the repayment
of all amounts due under the facility and the facility restricts pledges of
all material assets.
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 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 calendar year 1999. On a pro forma consolidated basis, the
Company made capital expenditures of approximately $625,000 in fiscal 1998.
Year 2000 Compliance
The Company is implementing a common management information system for
itself, the Acquired Companies and subsequently acquired businesses, that is
designed to address Year 2000 issues associated with computer systems that use
only two digits to identify a year in the date field. The Company expects to
complete the implementation of this new system before November 1, 1999. The
total cost of this new system and its implementation is estimated to be
approximately $1 million which will be funded from working capital. An
acquired business that already has in place a management information system
that is certified as being Year 2000 compliant, and that is compatible with
the Company's management information system, may not be required to substitute
the Company's system. There can be no assurance that any business that the
Company acquires in the future will have computer systems that are Year 2000
compliant or that such computer system will be compatible with the Company's
new management information system. The Company is currently preparing a formal
questionnaire for all significant suppliers, customers and service providers
to determine the extent to which the Company is vulnerable to those third
parties' failure to remediate the Year 2000 problem. The Company has received
oral
26
<PAGE>
assurances of Year 2000 compliance from many of the third parties with whom it
has relationships. The Company will continue to consider the likelihood of a
material business interruption due to the Year 2000 issue, and, if necessary,
implement appropriate contingency plans. The terms of the Company's credit
facility requires the Company to implement hardware and software modifications
as may be necessary to be Year 2000 compliant by November 1, 1999, and, if the
Company breaches this covenant, an event of default will arise within 30 days
after the lending banks have given notice thereof and requiring it to be
remedied. There can be no assurance that the failure of the Company, any newly
acquired businesses or third parties with whom the Company does business 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.
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 consolidated results of the Acquired Companies in those periods. Due to
the relatively short-term nature of the Acquired Companies' contracts, the
Acquired Companies expect to be able to adjust contract bids to recover cost
increases and therefore negate the impact on gross margins.
Impact of Future Accounting Pronouncements
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Management of the Company has not yet fully evaluated the potential
impact on the Company's financial statements of the adoption of SFAS No. 133.
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>
Nine Months Ended December 31, 1998
Predecessor --------------------------------------------------
Nine Months Nationwide Excluding
Ended Allison-Smith Allison-
December 31, and Henderson Smith and Henderson
1997 Acquisitions Acquisitions Consolidated
-------------- -------------- -------------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contract Revenues....... $46,647 100.0% $18,518 100.0% $ 47,006 100.0% $65,524 100.0%
Costs of services....... 38,062 81.6% 15,609 84.3% 38,922 82.8% 54,531 83.2%
------- ------ ------- ------ ---------- --------- ------- ------
Gross profit.......... 8,585 18.4% 2,909 15.7% 8,084 17.2% 10,993 16.8%
Selling, general and
administrative
expenses............... 5,714 12.2% 1,387 7.5% 6,484 13.8% 7,871 12.0%
------- ------ ------- ------ ---------- --------- ------- ------
Income from Operations.. $ 2,871 6.2% $ 1,522 8.2% $ 1,600 3.4% $ 3,122 4.8%
======= ====== ======= ====== ========== ========= ======= ======
</TABLE>
Nationwide results for the nine months ended December 31, 1998 compared to the
Predecessor results for the nine months ended December 31, 1997
The consolidated information set forth in the above tables includes
operating results from October 22, 1998 thru December 31, 1998 for Allison-
Smith and Henderson which were acquired on October 22, 1998. Allison-Smith and
Henderson operating results from October 22 through December 31, 1998 have
been excluded from the discussion set forth below of Nationwide information in
order to provide comparable information with respect to the Predecessor data
because comparable information for Allison-Smith and Henderson was not
available.
27
<PAGE>
Contract Revenues. Revenues increased $359,000, or 0.8%, from $46.6 million
for the nine months ended December 31, 1997 to $47.0 million for the nine
months ended December 31, 1998. The nine months ended December 31, 1997
included revenues for welding distribution of $2.3 million. The welding
distribution business previously operated by Predecessor was not purchased by
the Company. Excluding welding distribution sales from the Predecessor results
for the nine months ended December 31, 1997, revenues would have increased
$2.7 million or 6.0%, in the 1998 period compared to the 1997 period.
Gross Profit. Gross profit decreased $501,000, or 5.8%, from $8.6 million
for the nine months ended December 31, 1997 to $8.1 million for the nine
months ended December 31, 1998. As a percentage of revenues, gross profit
decreased from 18.4% to 17.2%. The gross profit associated with welding
distribution sales for the nine months ended December 31, 1997 was $410,000.
Excluding the welding distribution gross profit from the 1997 period, gross
profit decreased $91,000 or 1.1%, in the 1998 period compared to the 1997
period. The decrease in gross profit and gross margin was primarily
attributable to a large "bid to spec" contract which had a number of approved
change orders which have not yet been priced, resulting in no margin to date.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $770,000, or 13.5%, from $5.7 million for
the nine months ended December 31, 1997 to $6.5 million for the nine months
ended December 31, 1998, primarily due to Nationwide organizational and
administrative expenses incurred for additional personnel to implement the
Company's growth strategies.
Other income (expense). Other income for the nine months ended December 31,
1997 and December 31, 1998 consists principally of employee vehicle
reimbursement. In the nine months ended December 31, 1998 there was $878,000
of previously deferred Offering costs expensed due to the extensive delay of
the Offering.
Income tax expense. Income tax expense increased $796,000 for the nine
months ended December 31, 1998 compared to the nine months ended December 31,
1997. For the period in 1997, the Predecessor did not show the expense since
it had elected to be taxed as a Subchapter S Corporation.
Net income. The change in net income for the nine month period is the result
of the other changes noted above.
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 400 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% $58,004 100.0%
Cost of services.................. 43,662 83.9% 49,162 83.9% 47,347 81.6%
------- ----- ------- ----- ------- -----
Gross profit.................... 8,355 16.1% 9,401 16.1% 10,657 18.4%
Selling, general and
administrative expenses.......... 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>
28
<PAGE>
Parsons results for the year ended December 31, 1997 compared to the year
ended December 31, 1996
Revenues. Revenues decreased $559,000, 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.
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 primarily in Georgia as
well as in Florida, Kansas, Texas, Canada and the United Kingdom during the
year ended June 30, 1998. Allison-Smith earned revenues of $31.4 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.
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
September 30, 1997 September 30, 1998
------------------- --------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Contract revenues.................... $ 6,572 100.0% $ 7,574 100.0 %
Cost of services..................... 5,494 83.6% 6,323 83.5 %
--------- -------- --------- --------
Gross profit....................... 1,078 16.4% 1,251 16.5 %
Selling, general and administrative
expenses............................ 634 9.6% 1,258 16.6 %
--------- -------- --------- --------
Operating income (loss).............. $ 444 6.8% $ (7) (0.1)%
========= ======== ========= ========
</TABLE>
Allison-Smith results for the three months ended September 30, 1998 compared
to the three months ended September 30, 1997
Contract revenues. Revenues increased $1.0 million, or 15.3%, from $6.6
million for the three months ended September 30, 1997 to $7.6 million for the
three months ended September 30, 1998, primarily as a result of increased
demand for specialized and value added services.
Gross profit. Gross profit increased $173,000, or 16.0%, from $1.1 million
for the three months ended September 30, 1997 to $1.3 million for the three
months ended September 30, 1998. As a percentage of revenues, gross profit
increased from 16.4% to 16.5%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $624,000, or 98.4%, from $634,000 for the
three months ended September 30, 1997 to $1.3 million for the three months
ended September 30, 1998, due to additional owner compensation of $664,000
which will not be recurring in nature and which were more than offset other
reductions in selling, general and administrative expenses. As a percentage of
revenues, selling, general and administrative expenses increased from 9.6% to
16.6%. The additional owner compensation for the three months ended September
30, 1998 was 8.8% of revenues.
Other income (expense). During the three months ended September 30, 1998,
$1.2 million was accrued to recognize a liability in accordance with the
requirements of SFAS No.5. The liability relates to litigation arising out of
electrical work performed by the Company as a sub-contractor more than nine
years ago. The initial complaint filed against the general contractor for the
project alleges the system installed by the Company was defective. The Company
denies any responsibility for the claims on the basis that, among other
things, installation was in accordance with the approved plans and
specification of the project. Under the Stock Purchase Agreement entered into
which Nationwide, former stockholders of Allison-Smith have agreed to
indemnify Nationwide for settlements reached in the above matter, accordingly,
Nationwide recorded an asset of $720,000 (which is net of associated tax
benefit) to reflect such indemnification.
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 June 30,
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Contract revenues................. $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>
30
<PAGE>
Allison-Smith results for the year ended June 30, 1998 compared to the year
ended June 30, 1997
Contract 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
Contract 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 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.
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 year ended March 31, 1998 Henderson has provided services
to customers in Kentucky and Indiana. In 1986 Henderson established Eagle as a
31
<PAGE>
wholly-owned open-shop subsidiary which is headquartered in Cincinnati, Ohio.
During the year ended March 31, 1998, 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.
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>
Six Months Ended
September 30, Six Months Ended
1997 September 30, 1998
-----------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Contract revenues.......................... $ 20,828 100.0% $ 26,657 100.0%
Cost of services........................... 18,546 89.0% 21,955 82.4%
-------- ------- --------- --------
Gross profit............................. 2,282 11.0% 4,702 17.6%
Selling, general and administrative
expenses.................................. 1,850 8.9% 2,257 8.5%
-------- ------- --------- --------
Operating income........................... $ 432 2.1% $ 2,445 9.1%
======== ======= ========= ========
</TABLE>
Henderson results for the six months ended September 30, 1998 compared to the
six months ended September 30, 1997
Contract revenues. Revenues increased $5.8 million, or 28.0%, from $20.8
million for the six months ended September 30, 1997 to $26.6 million for the
six months ended September 30, 1998, primarily as a result of increased demand
for "bid-to-spec" new construction services in the food processing and
distribution, automotive markets, and hospitality market.
Gross profit. Gross profit increased $2.4 million or 106%, from $2.3 million
for the six months ended September 30, 1997 to $4.7 million for the six months
ended September 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 11.0% to 17.6%, primarily due to the
completion of some jobs at better than anticipated margins and to a more
favorable mix of jobs.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $407,000, or 22.0%, from $1.9 million for
the six months ended September 30, 1997 to $2.3 million for the six months
ended September 30, 1998, primarily due to headcount additions resulting in
increased salaries and benefits and increased owner compensation. As a
percentage of revenues, selling, general and administrative expenses decreased
from 8.9% to 8.5%.
Other income (expense). During 1998, the Company received a workers
compensation insurance refund in the amount of $124,000.
Net Income. The change in net income for the six 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>
Contract 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 expenses.......... 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>
32
<PAGE>
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.
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.
33
<PAGE>
BUSINESS
General
Nationwide 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.
Nationwide is one of the largest providers of electrical contracting and
maintenance services in the U.S. The Company generated pro forma consolidated
revenues of $134.4 million in the fiscal year ended March 31, 1998, and $117.6
million for the nine months ended December 31, 1998. Of such fiscal 1998 pro
forma combined revenues, approximately 18% were derived from "design-build"
new construction projects, 29% were derived from "bid-to-spec" new
construction projects, 30% were derived from retrofit and renovation projects,
13% were derived from maintenance and repair services and, 10% 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 $72.0 billion in 1998 and are expected to increase in 1999 to
$76.5 billion. 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 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
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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 continuing to implement its operating strategy,
emphasizing continued internal growth and expanding through acquisitions.
Operating Strategy. The Company believes there are significant opportunities
to increase its revenues and profitability as well as those of subsequently
acquired businesses. The key elements of the Company's operating strategy are:
Operate on a Decentralized Basis. The Company manages the Acquired
Companies and intends to manage 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 maintains strong central operating and
financial controls, its decentralized operating structure allows it to
capitalize on the considerable local and regional market knowledge,
specialized skills and customer relationships of the Acquired Companies and
future acquired businesses, as well as retain the entrepreneurial spirit
possessed by local management. The Company's corporate management is
responsible 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
provides support to local management in expanding services, operating and
purchasing expertise, marketing, recruiting and risk management. In
addition, the Company has implemented certain Company-wide standards
pertaining to safety, training and other matters designed to ensure
integration and uniformly high quality and reliability.
Achieve Operating Efficiencies. Certain administrative functions have
been centralized, and this process will continue 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 uses "best practices" procurement methods and
increased purchasing power in the process of negotiating 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 seeks to realize
cost savings and increase efficiency and productivity through the
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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 continues 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 provides 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
geographic presence and technical capabilities position it to meet the
significant demands of such customers seeking to reduce the number of
vendors with which they do business.
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 its job selection processes by strategically
pursuing opportunities presenting the most desirable combination of revenue
and profit potential. These processes will facilitate access to technical
expertise and referrals among the Company's operating subsidiaries in order
to leverage such expertise and existing resources.
Increase Focus on Specialized and Value-Added Services. The Company
expands upon 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 continue 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 the Acquired Companies as well as strengthen its preferred provider
relationships with its national and regional customers.
Acquisitions. The Company is pursuing 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 has 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.
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The Company believes that its financial strength, experienced management,
decentralized operating philosophy, performance incentive programs and
opportunities for advancement within the Company are 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 is seeking 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 such 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 and acquires additional capabilities, customers and project
managers.
Acquisition Program
The Company currently maintains five offices in four states and performs
work in several more states. 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) reputation and market share of the
candidate in the local and regional market, (ii) historical and projected
financial performance, including growth of revenues, profits and cash flow,
(iii) internal rate of return and return on assets, (iv) valuation of assets,
balance sheet strength and quality and adequacy of equipment, facilities and
other infrastructure, (v) 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, (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 Company believes that it is 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 the Company's operating subsidiaries, (iv) the Company's
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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 implementation of "best
practices," enhanced management information and other system capabilities, and
centralization of certain administrative functions, and (ix) the investment in
the Company by KCPL, a publicly traded electric utility which, has an indirect
ownership interest in the Company through its wholly-owned subsidiary, KLT.
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
additional acquisitions.
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 obtained a $30 million credit facility from Norwest Bank of
Minnesota, N.A., acting as Agent. The facility will 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. The Agent has indicated that the
borrowing limit under the credit agreement may be increased up to a total of
$100 million, subject to certain conditions including successful completion of
the Offering, the addition of at least three more lenders, receipt of an
unqualified audit record on the Company's financial statements for its fiscal
year ended March 31, 1999, and the absence of any default or event of default
under the credit agreement.
Recent Acquisition Developments
Effective February 27, 1998, the Company acquired Parsons, a union
contractor with over 400 employees, which was founded in 1927 and is
headquartered in Minneapolis, Minnesota. During the twelve months ended March
31, 1998, Parsons provided electrical contracting and maintenance services to
customers primarily in Minnesota, as well as in Alabama, Arkansas, Illinois,
Iowa, North Dakota, Oregon, South Dakota, Texas, Virginia and Wisconsin.
Parsons had revenues of approximately $58 million for the fiscal year ended
December 31, 1997 with approximately 85% derived from repeat customers.
On October 22, 1998, the Company acquired all of the stock of The Allison
Company and its wholly-owned subsidiary, Allison-Smith, a union contractor
with over 250 employees, which was founded in 1943 and is headquartered in
Atlanta, Georgia. During the twelve months ended March 31, 1998, Allison-Smith
provided electrical contracting and maintenance services to customers
primarily in Georgia as well as Florida, Kansas, Texas, Canada and the United
Kingdom. Allison-Smith had revenues of approximately $31 million for the
fiscal year ended June 30, 1998 with approximately 80% derived from repeat
customers.
Also on October 22, 1998, Henderson was merged into the Company and its
assets were concurrently transferred to a wholly-owned subsidiary of the
Company which was renamed Henderson Electric Co., Inc. Henderson, a union
contractor with over 400 employees, was founded in 1919, is headquartered in
Louisville, Kentucky and maintains an additional office in Lexington,
Kentucky. During the twelve months
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ended March 31, 1998, Henderson provided electrical contracting and
maintenance services to customers in Indiana and Kentucky. Henderson had
consolidated revenues of approximately $44 million for the fiscal year ended
March 31, 1998 with approximately 75% derived from repeat customers.
The Company also acquired Eagle, formerly a wholly-owned subsidiary of
Henderson, as part of the Henderson Acquisition. Eagle is an open-shop
contractor founded in 1986 with over 90 employees which is headquartered in
Cincinnati, Ohio. During the twelve months ended March 31, 1998, Eagle
provided electrical contracting and maintenance services to customers in
Indiana, Kansas, Kentucky, Ohio, and Wisconsin.
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 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
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uninterruptible power and surge suppression systems, energy efficiency
technologies, and preventive and predictive maintenance programs.
Customers and Marketing
The Company markets its services by building long-term relationships with
its 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, 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.
The Company has developed and maintained 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 December 31, 1998, the Company had approximately 137 salaried
employees, including executive officers, project managers, engineers, job
superintendents, staff and clerical personnel and approximately 1,160 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
integration 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 serve as first-tier
holding companies for its operating subsidiaries, one of which will acquire
businesses with unionized workforces and operate them as second-tier
subsidiaries of the Company functioning as union contractors and the other of
which will
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acquire businesses with open-shop workforces and operate them as second-tier
subsidiaries of the Company and functioning as open-shop contractors. The
Acquired Companies that are union contractors are owned by the former and the
Acquired Company that is an open-shop contractor is 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.
The second-tier subsidiaries that function as union contractors are
signatories to master collective bargaining agreements with the International
Brotherhood of Electrical Workers (the "IBEW") as well as local agreements with
the Laborers International Union and the Operating Engineers Union. Under these
agreements, these second-tier subsidiaries 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 operating subsidiaries are
members. 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.
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 operating subsidiaries.
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. Management is
continually establishing 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 are 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 is
establishing programs to recruit apprentice technicians for its non-union
subsidiary directly from high schools and vocational-technical schools. Prior
to employment, the Company makes an assessment of the technical competence
level of all potential new employees, confirms background references, conducts
random drug testing and checks criminal and driving records.
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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. The
Company's corporate headquarters are located in Minneapolis, Minnesota. The
Company operates five sites in Minneapolis, Minnesota; Atlanta, Georgia;
Louisville, Kentucky; Lexington, Kentucky; and Cincinnati, Ohio. These sites
are used for offices, warehousing, storage and vehicle shops. The Company
leases all of the facilities it currently occupies. The Company believes that
its facilities are sufficient for its current needs. See "Certain
Transactions."
Procurement
As a result of economies of scale derived through the Acquisitions and
implementation of procurement best practices, the Company believes it is 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 its
profitability. 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.
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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 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 competitors
may have greater name recognition, greater financial resources and equity
securities with greater potential capital appreciation 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. The Company has
consolidated the purchase of insurance, which management believes will result
in savings from the amounts paid by the companies it acquires.
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.
43
<PAGE>
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........ 30 Chairman of the Board and Director
Frederick C. Green, IV*. 42 President, Chief Executive Officer and Director Nominee
Frank R. Clark.......... 54 Vice President, Chief Financial Officer,
Secretary and Treasurer
David W. Smith.......... 40 Vice President, Operations
Robert B. Allison*...... 55 President, Allison-Smith and Director Nominee
Bruce M. Henderson...... 48 President, Henderson
Rodney J. Henderson..... 52 Chief Executive Officer, Henderson
Stephen L. Howell....... 42 President, Eagle
Joel T. Moryn........... 35 President, Parsons
Bernard J. Beaudoin..... 58 Director
Robert H. Hoffman....... 54 Director
Andrew V. Johnson....... 42 Director
Wade C. Lau*............ 38 Director Nominee
Ronald G. Wasson........ 54 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, an unregulated subsidiary of KCPL (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, Vice President, Chief Financial Officer, Secretary and
Treasurer, 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 as Chief Financial Officer and
Treasurer of Layne Christensen
44
<PAGE>
Company, a publicly traded company. Mr. Clark is a CPA and holds a Bachelor's
Degree in Accounting from Drake 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 was named President of Parsons in 1998. 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.
Bernard J. Beaudoin, Director, has served since January 1999 as President of
KCPL. He has served in several other management positions with KCPL since
joining it in 1980, including Senior Vice President (1991-1994), Senior Vice
President--Finance and Business Development (1994-1995), Executive Vice
President and Chief Financial Officer (1996-1998), 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.
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.
45
<PAGE>
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 KCPL 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
Following the Offering the Company's Board of Directors will consist of
eight directors and will be divided into three classes. The initial term of
the first class expires at the annual meeting of stockholders to be held in
2000, the initial term of the second class expires in 2001, and the initial
term of the third class expires in 2002. Messrs. Wasson and Allison will be
included in the first class, Messrs. Lau, Hoffman and Beaudoin will be
included in the second class, and Messrs. Orman, Green and Johnson will be
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, a
Compensation Committee and an Executive 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. The Executive Committee will manage the business
and property of the Corporation between regular meetings of the Board of
Directors. Messrs. Orman, Green, Johnson and Wasson shall constitute the
members of the Executive Committee immediately following the Offering.
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. Robert Hoffman, Wade Lau and Andrew Johnson, who are or will be
non-employee directors of the Company, have each purchased 5,000 shares of
Common Stock from the Company at $0.30 per share. In view of the incentive
created by those stock
46
<PAGE>
purchases, it is currently anticipated that Messrs. Hoffman, Lau and Johnson
will not receive compensation in the future for their services as 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.
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. During 1998, the annualized base salaries of
its most highly compensated executive officers were $168,000 for Mr. Green and
$140,000 for each of Messrs. Clark and Smith. The base salaries of these
executive officers is subject to adjustment on a yearly basis by the Board of
Directors. As part of Mr. Green's employment arrangement with the Company, he
(i) purchased 100,000 shares of Common Stock at $0.30 per share under an
Employee Restricted Stock Purchase Agreement between him and the Company (ii)
received an option to purchase 100,000 shares of Common Stock at an exercise
price of $12.00 per share, and (iii) received a non-interest bearing loan for
$150,000, one-third of which will be forgiven by the Company on April 1, 1999
and the remainder of which will be forgiven on April 1, 2000, provided that
Mr. Green does not terminate his employment without "good reason" and is not
terminated for "cause", as those terms are defined in the employment
agreement, by those respective dates. 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. 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 received an option to purchase 10,000 shares of Common Stock at an
exercise price of $12.00 per share.
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
Non-Qualified 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 amount of 500,000 shares of Common Stock
(1,000,000 shares in the aggregate) may be granted under
47
<PAGE>
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 Board of Directors or by the
Compensation Committee of the Board of Directors (collectively, the
"Compensation Committee"). The Compensation Committee has, subject to the
terms of the respective Option Plans, the sole authority to 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 those 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 has outstanding options to purchase 223,500 shares of Common
Stock at an exercise price of $12.00 per share, of which 71,500 were granted
under the Nonqualified Stock Option Plan and 152,000 were 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 15% 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
48
<PAGE>
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 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 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,
Galt Financial, Inc. ("Galt Inc.") purchased 665,000 shares of Common Stock
and 285,000 shares of Class A Nonvoting Common (both as adjusted for the stock
split described above). With the merger of Galt Inc. into Nationwide, the
shares purchased by Galt Inc. were cancelled and, along with compensation for
the other assets acquired, Nationwide issued 2,310,000 shares of Common Stock
and 990,000 shares of Class A Nonvoting Common to the shareholders of Galt
Inc. 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, LLC 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 Series A Preferred.
On October 22, 1998, KLT purchased from the Company 1,000,000 shares of
Class B Nonvoting Common and 500,000 shares of Series B Preferred each at
$12.00 per share, for an aggregate purchase price of $18,000,000 (the "KLT
Private Placement"). Pursuant to the Stock Purchase Agreement relating to this
purchase of stock, the Company has agreed that if the price per share received
by the Company in the next round of financing following such purchase is less
than $12.00 per share of Common Stock (net of any underwriting discounts and
commissions) (the "Net Price"), then an additional number of shares of Class B
Nonvoting Common will be issued to KLT in an amount determined by (i) dividing
$12,000,000 by the Net Price and (ii) subtracting therefrom the 1,000,000
shares of Class B Nonvoting Common issued to KLT at the closing of the
transaction. KLT has indicated that it will convert all of the Class B
Nonvoting Common upon consummation of the Offering.
Purchase of The Allison Company
On October 22, 1998, the Company purchased all of the outstanding stock of
The Allison Company from Robert Allison, David Cartwright, Lanny Thomas and
The Allison-Smith Company Profit Sharing Plan, the sole shareholders of The
Allison Company. For their shares of common stock of Allison, the
49
<PAGE>
shareholders received $10,130,244 in cash and 454,583 shares of the Company's
Common Stock. Mr. Allison, who will be elected a director of Nationwide upon
consummation of the Offering and who has been retained by the Company as
President of Allison-Smith (a second-tier subsidiary of the Company operating
the business acquired from The Allison Company), received the following
consideration in connection with the acquisition of his interest in The
Allison Company: (i) $7,091,160 cash and (ii) 318,195 shares of Common Stock.
An additional earn-out payment, which will be accounted for as a bonus, will
be made to the Messrs. Allison, Cartwright and Thomas 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
number of shares of Common Stock issued to the shareholders of The Allison
Company was determined based upon a value of $12.00 per share. If the price
per share of Common Stock in the Company's first round of financing after the
KLT Private Placement is less than $12.00 per share, then an additional number
of shares of Common Stock will be issued to The Allison-Smith Company Profit
Sharing Plan so that such Plan will have received an aggregate number of
shares equal to the amount that would have been issued had the lower price
been used in making the computation of the number of shares to be issued in
such acquisition.
Purchase of Henderson and Eagle
On October 22, 1998, Henderson was merged into Nationwide in exchange for
$5,585,018 in cash and 520,834 shares of Common Stock. As part of this
acquisition, the Company also acquired Eagle, formerly a wholly-owned
subsidiary of Henderson. Bruce M. Henderson and Rodney J. Henderson each owned
50 percent of the shares of common stock of Henderson and each received 50
percent of the cash and stock consideration. Bruce M. Henderson and Rodney J.
Henderson have been engaged by the Company as President and Chief Executive
Officer, respectively, of Henderson. The number of shares of Common Stock
issued to the Hendersons was determined based upon a value of $12.00 per
share. If the price per share of Common Stock in the Company's first round of
financing after the KLT Private Placement is less than $12.00 per share, then
an additional number of shares of Common Stock will be issued to the
Hendersons so that the Hendersons will have received an aggregate number of
shares equal to the amount that would have been issued had the lower price
been used in making the computation of the number of shares to be issued in
such acquisition.
Transactions Involving Certain Officers, Directors and Stockholders
Certain stockholders of the Acquired Companies who have become, or will
become upon consummation of the Offering, directors, executive officers or key
employees of the Company 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 were
terminated after the acquisitions due to the repayment of the underlying
indebtedness: Robert Allison (Allison-Smith)--$1,090,000; Rodney Henderson and
Bruce Henderson (Henderson)--$1,024,000.
The Company leases from an affiliate of Robert Allison, the administrative
office and warehouse facilities of Allison-Smith 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.
The Company leases from an affiliate of Bruce Henderson and Rodney
Henderson, the two separate office/warehouse facilities of Henderson located
in Louisville and Lexington, Kentucky, and the office/warehouse facilities of
Eagle located in 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.
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.
50
<PAGE>
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)....... 2,771,666 52.0% 37.0%
Reardon Capital, LLC................ 1,271,666 33.2% 12.8%
Gregory J. Orman (1)(2)............. 1,271,666 33.2% 12.8%
Frederick C. Green, IV (3).......... 100,000 2.6% 1.0%
Frank R. Clark...................... 60,000 1.6% 0.6%
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................... 318,195 8.3% 3.2%
Rodney Henderson.................... 260,417 6.8% 2.6%
Bruce Henderson..................... 260,417 6.8% 2.6%
All executive officers, directors
and director nominees as a group
(11 persons) (1)................... 1,804,861 38.8% 18.2%
</TABLE>
- --------
(1) Includes 1,000,000 shares of Class B Nonvoting Common and 500,000 shares
of Series B Preferred of the Company owned by KLT, which are presently
convertible into Common Stock. Does not include 1,089,999 shares of Class
A Nonvoting Common of the Company owned by KLT which will be converted
into Common Stock concurrently with the Offering. Accordingly, KLT's
percentage ownership of outstanding Common Stock will be 37.0% after the
Offering. Messrs. Orman, Wasson and Beaudoin are directors of, and Mr.
Orman is president of, KLT but disclaim beneficial ownership of the shares
of Common Stock owned by KLT.
(2) Reflects shares owned by 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.
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, par value $.01 per share, (iii) 1,250,000 shares of
Class B Nonvoting Common, par value $.01 per share, and (iv) 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.
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<PAGE>
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 9,923,727 shares of Common Stock
outstanding (10,523,727 if the Underwriters' over-allotment option is
exercised in full). 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 (which will
automatically convert into Common Stock upon consummation of the Offering) and
the Class B Nonvoting Common, 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 has issued 1,000,000 shares of Class B Nonvoting Common, each
share of which is convertible into one share of Common Stock at the option of
the holder thereof (which number of shares shall be increased proportionately
in the event that the initial public offering price (net of underwriting
discounts and commissions) is less than $12.00 per share). 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.
The Company has issued (i) 6,000 shares of Series A Preferred, which will be
redeemed on the closing of the Offering and (ii) 500,000 shares of Series B
Preferred. The Company intends to pay any accumulated dividends with respect
to the Series B Preferred in cash prior to its conversion into Common Stock.
Each share of Series B Preferred is entitled to a quarterly cash dividend of
$0.225 per share and its convertible into one share of Common Stock (subject
to customary antidilution adjustments), at the election of the holder thereof
prior to December 31, 1999. The Series B Preferred (i) is redeemable at the
option of the
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<PAGE>
Company, in whole or in part, after October 1, 2001, and (ii) must be redeemed
by the Company if a majority of the Company's assets are sold or otherwise
disposed of, for a redemption price per share equal to $12.00 plus all accrued
unpaid dividends.
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
53
<PAGE>
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 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 Amended
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<PAGE>
and Restated 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 Amended and Restated Bylaws is not exclusive of any other
rights to which those seeking indemnification may be otherwise entitled.
The Company has entered into indemnification agreements (the "Agreements")
with each of the Company's directors and officers. The Agreements 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 is 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 is indemnity
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 is 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 has obtained 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.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Acquisitions and completion of this Offering, the
Company will have outstanding 9,923,727 shares of Common Stock (10,523,727 if
the Underwriters' over-allotment option is exercised in full) of which the
4,000,000 shares sold in the Offering (4,600,000 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 5,923,727 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
55
<PAGE>
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 offer, sell, sell short, transfer,
hypothecate, pledge or otherwise dispose of any shares of Common Stock or
other securities convertible into or exchangeable or exercisable for shares of
Common Stock or derivatives of Common Stock (or agreement for such) for a
period of 180 days after the date of this Prospectus directly or indirectly
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
5,923,727 shares in the aggregate after the Offering have agreed not to
directly or indirectly offer, sell, sell short, transfer, hypothecate, pledge
or otherwise dispose of for sale or otherwise dispose of any Common Stock or
other capital stock of the Company or any other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivatives of
Common Stock owned by these persons (or as to which such person has the right
to disposition) 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."
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<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....................................................... 4,000,000
=========
</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 600,000
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 4,000,000, 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 4,000,000 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
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<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 offer, sell, sell short, transfer,
hypothecate, pledge or otherwise dispose of any shares of Common Stock or
other securities convertible into or exchangeable or exercisable for shares of
Common Stock or derivatives of Common Stock (or agreement for such) for a
period of 180 days after the date of this Prospectus directly or indirectly
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
5,923,727 shares in the aggregate after the Offering have agreed not to
directly or indirectly offer, sell, sell short, transfer, hypothecate, pledge
or otherwise dispose of for sale or otherwise dispose of any Common Stock or
other capital stock of the Company or any other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivatives of
Common Stock owned by these persons (or as to which such person has the right
to disposition) 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 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."
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
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Stock offered hereby will be passed upon for the Underwriters by Piper &
Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The consolidated financial statements of Nationwide 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 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 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 and subsidiary 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
59
<PAGE>
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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation.................................................. F-2
Unaudited Pro Forma Consolidated Statement of Operations............... F-3
Notes to Unaudited Pro Forma Consolidated Financial Statements......... F-5
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
Independent Auditors' Report........................................... F-9
Consolidated Balance Sheets............................................ F-10
Consolidated Statements of Operations.................................. F-11
Consolidated Statement of Stockholders' Equity......................... F-12
Consolidated Statement of Cash Flows................................... F-13
Notes to Consolidated Financial Statements............................. F-14
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
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-50
Consolidated Balance Sheets............................................ F-51
Consolidated Statements of Operations and Retained Earnings............ F-52
Consolidated Statements of Cash Flows.................................. F-53
Notes to Consolidated Financial Statements............................. F-54
</TABLE>
F-1
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated financial statements give
effect to (i) the acquisitions (the "Acquisitions") by Nationwide Electric,
Inc. ("Nationwide") of Parsons Electric Co. ("Parsons"), Henderson Electric
Co., Inc. ("Henderson") and The Allison Company ("Allison-Smith") (together,
the "Acquired Companies"), and (ii) Nationwide's initial public offering (the
"Offering"). The Acquisitions have been accounted for using the purchase
method of accounting.
The unaudited pro forma consolidated statements of operations give effect to
the Acquisitions and the Offering as if they had occurred on April 1, 1997 but
do not reflect a nonrecurring, noncash compensation charge, net of tax,
directly attributable to the Offering.
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. Corporate management costs and costs
associated with being a public company should be more than offset by the
synergies created through the acquisition of Parsons and the Acquired
Companies and implementation of the strategies described under "Business--
Strategy." The Company has not and cannot quantify all of these savings due to
the short period of time that has elapsed since the Acquisitions occurred. It
is anticipated that these savings will be partially offset by the costs of
being a publicly held company and the incremental increase in costs related to
the Company's corporate management. However, these costs, like the savings
they offset, cannot be quantified accurately. Neither the anticipated savings
nor the anticipated costs have been included in the pro forma financial
information included herein except that compensation and benefit expenses for
additional management personnel of Nationwide are reflected in the nine months
ended December 31, 1998.
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 consolidated
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 SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended March 31,1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Allison- Adjustments Pro Forma
Nationwide Smith Henderson (Note 2) Total
---------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue.................. $60,651 $32,072 $44,000 $(2,315) $134,408
Cost of services,
excluding depreciation
shown separately below.. 49,493 25,998 37,952 (1,905) 111,538
------- ------- ------- ------- --------
Gross profit......... 11,158 6,074 6,048 (410) 22,870
Operating expenses:
Selling, general and
administrative
expenses.............. 7,613 3,789 4,104 (1,157) 14,349
Depreciation........... 443 97 272 (52) 760
Goodwill amortization.. -- -- -- 557 557
------- ------- ------- ------- --------
Operating expenses....... 8,056 3,886 4,376 (652) 15,666
------- ------- ------- ------- --------
Operating income..... 3,102 2,188 1,672 242 7,204
Interest and other income
(expense):
Interest expense....... (323) (140) (115) 578 --
Other income (expense),
net................... 59 1 386 (14) 432
------- ------- ------- ------- --------
Income before tax.... 2,838 2,049 1,943 806 7,636
Income tax expense
(benefit)............... (121) 799 776 1,823 3,277
------- ------- ------- ------- --------
Income before a
nonrecurring,
noncash charge
directly
attributable to the
transaction(2)...... $ 2,959 $ 1,250 $ 1,167 $(1,017) $ 4,359
======= ======= ======= ======= ========
Basic pro forma income
per share before
nonrecurring, noncash
charge directly
attributable to the
transaction(2)(3)....... $ 0.35
========
Shares used in computing
basic pro forma income
per share(1)............ 9,924
========
Diluted pro forma income
per share before
nonrecurring, noncash
charge directly
attributable to the
transaction(2)(3)....... $ 0.35
========
Shares used in computing
diluted pro forma income
per share(4)............ 9,941
========
</TABLE>
- --------
(1) Includes (a) 5,923,727 shares of common stock issued to certain management
personnel and the existing stockholders of Nationwide, and (b) 4,000,000
shares sold in the Offering.
(2) Income before a nonrecurring charge attributable to the transaction
excludes a nonrecurring, noncash compensation charge of $3.6 million and
related income tax benefits of $1.4 or a net charge of $2.2 million--Note
1 or $0.22 per share basic and $0.21 per share diluted.
(3) Preferred dividends of $900,000 have been deducted in calculating basic
and diluted income per share.
(4) Adjusted to reflect the exercise of all outstanding stock options and does
not assume the conversion of Convertible Preferred Stock as the effect is
anti-dilutive.
F-3
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended December 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro forma
Allison- Adjustments
Nationwide Smith Henderson (Note 2) Total
---------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue.................... $65,524 $19,633 $32,413 $ -- $117,570
Cost of services, excluding
depreciation shown
separately below.......... 54,531 15,566 26,940 -- 97,037
------- ------- ------- ------- --------
Gross profit........... 10,993 4,067 5,473 -- 20,533
Operating expenses:
Selling, general and
administrative expenses. 7,287 3,200 2,656 (699) 12,444
Depreciation............. 325 50 157 (29) 503
Goodwill amortization.... 259 -- -- 159 418
------- ------- ------- ------- --------
Operating expenses......... 7,871 3,250 2,813 (569) 13,365
------- ------- ------- ------- --------
Operating income....... 3,122 817 2,660 569 7,168
Interest and other income
(expense):
Interest expense......... (550) (35) (35) 590 (30)
Other income (expense),
net..................... (825) (1,208) 237 878 (918)
------- ------- ------- ------- --------
Income before tax...... 1,747 (426) 2,862 2,037 6,220
Income tax expense
(benefit)................. 731 (166) 1,145 958 2,668
------- ------- ------- ------- --------
Income before a
nonrecurring, noncash
charge directly
attributable to the
transaction(2)........ $ 1,016 $ (260) $ 1,717 $ 1,079 $ 3,552
======= ======= ======= ======= ========
Basic pro forma income per
share before nonrecurring,
noncash charge directly
attributable to the
transaction(2)(3)......... $ 0.29
========
Shares used in computing
basic pro forma income per
share(1).................. 9,924
========
Diluted pro forma income
per share before
nonrecurring, noncash
charge directly
attributable to the
transaction(2)(3)......... $ 0.29
========
Shares used in computing
diluted pro forma income
per share(4).............. 9,941
========
</TABLE>
- --------
(1) Includes (a) 5,923,727 shares of common stock issued to certain management
personnel and the initial stockholders of Nationwide, and (b) 4,000,000
shares sold in the Offering.
(2) Income before a nonrecurring charge attributable to the transaction
excludes a nonrecurring, noncash compensation charge of $3.6 million and
related income tax benefits of $1.4 or a net charge of $2.2 million--Note
1 or $0.22 per share basic and $0.21 per share diluted.
(3) Preferred dividends of $675,000 have been deducted in calculating basic
and dilutive income per share.
(4) Adjusted to reflect the exercise of all outstanding stock options and does
not assume the conversion of Convertible Preferred Stock as the effect is
anti-dilutive.
F-4
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED 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 purchased 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 acquired The Allison Company and
Henderson Electric Co. Inc. and Subsidiaries on October 22, 1998 in purchase
transactions. The purchased companies are referred to as the "Acquired
Companies."
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 $3.6 million and related tax benefit of $1.4 million or
a net charge of $2.2 million ($0.22 per share basic and $0.21 per share
diluted) 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 include the results of operations of the
Acquired Companies from dates of purchase. These unaudited pro forma
consolidated financial statements include the operations of the individual
Acquired Companies as if they were purchased on April 1, 1997. 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.
F-5
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Unaudited Pro Forma Combined Statement of Operations Adjustments:
Year Ended March 31, 1998
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) Total
(In thousands) ----- ------- ----- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................... $ -- $(2,315) $ -- $-- $ -- $(2,315)
Cost of services................. -- (1,905) -- -- -- (1,905)
----- ------- ----- ---- ------- -------
Gross profit................. -- (410) -- -- -- (410)
Operating expenses:
Selling, general and
administrative expenses....... (689) (468) -- -- -- (1,157)
Depreciation................... (52) -- -- -- -- (52)
Goodwill amortization.......... -- -- 557 -- -- 557
----- ------- ----- ---- ------- -------
Operating expenses............... (741) (468) 557 -- -- (652)
----- ------- ----- ---- ------- -------
Operating income............. 741 58 (557) -- -- 242
Interest and other income
(expense):
Interest expense............... -- 9 -- 569 -- 578
Other income, net.............. (10) (4) -- -- -- (14)
----- ------- ----- ---- ------- -------
Income before tax............ 731 63 (557) 569 -- 806
Income taxes..................... -- -- -- -- 1,823 1,823
----- ------- ----- ---- ------- -------
Net income (loss)............ $ 731 $ 63 $(557) $569 $(1,823) $(1,017)
===== ======= ===== ==== ======= =======
</TABLE>
- --------
(a) Reflects the $849,000 reduction in salaries, bonuses and benefits to the
officers/owners of the Acquired Companies. These reductions in salaries,
bonuses and benefits have been disclosed solely to reflect the terms of
signed employment agreements as managers of the respective divisions. The
duties of these managers will not change and all costs associated with the
execution of such duties have been included in the unaudited pro forma
consolidated financial statements. The compensation adjustment has been
included because of the pro formas' effect on the resulting consolidated
operations.
Following are the compensation amounts for each Acquired Company and the
title of the positions of the officers of such companies, included in the
unaudited pro forma consolidated statements of operations.
<TABLE>
<CAPTION>
Year Ended
March 31, 1998
---------------------
Historical Pro forma
---------- ----------
<S> <C> <C>
Parsons(1)......................................... $ 226,000 $ --
Allison(2)......................................... 1,479,000 1,096,000
Henderson(3)....................................... 838,000 598,000
---------- ----------
$2,543,000 $1,694,000
========== ==========
Pro Forma Compensation Adjustment.................. $ 849,000
==========
</TABLE>
--------
(1) President. The primary responsibility for management of Parsons had
been turned over to the President's successor prior to its sale whose
compensation is reflected in the pro forma historical statements.
(2) President and two vice presidents.
(3) President and the Chief Executive Officer.
F-6
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 recorded as a result of these
Acquisitions 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 21-54 months.
(d) Reflects elimination of interest expense of $10.8 million of debt to be
repaid using proceeds from the Offering.
(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.
Nine Months Ended December 31, 1998
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) Total
(In thousands) ----- ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................. $ -- $ -- $ -- $ -- $ -- $ --
Cost of services.................... -- -- -- -- -- --
----- ----- ------ ----- ----- ------
Gross profit.................... -- -- -- -- -- --
Operating expenses:
Selling, general and
administrative expenses.......... (560) -- (139) -- (699)
Depreciation...................... (29) -- -- -- -- (29)
Goodwill amortization............. -- 159 -- -- -- 159
----- ----- ------ ----- ----- ------
Operating expenses.................. (589) 159 (139) -- -- (569)
----- ----- ------ ----- ----- ------
Operating income................ 589 (159) 139 -- -- 569
Interest and other income (expense):
Interest expense.................. -- -- -- 590 590
Other income, net................. -- -- 878 -- 878
----- ----- ------ ----- ----- ------
Income before Tax............... 589 (159) 1,017 590 2,037
----- ----- ------ ----- ----- ------
Income taxes........................ -- -- -- -- 958 958
----- ----- ------ ----- ----- ------
Net income (loss)............... $ 589 $(159) $1,017 $590 $(958) $1,079
===== ===== ====== ===== ===== ======
</TABLE>
- --------
(a) Reflects the $670,000 reduction in salaries, bonuses and benefits to the
officers/owners of the Acquired Companies. These reductions in salaries,
bonuses and benefits have been disclosed solely to reflect the terms of
signed employment agreements as managers of the respective divisions. The
duties of these managers will not change and all costs associated with the
execution of such duties have been included in the unaudited pro forma
consolidated financial statements. The compensation adjustment has been
included because of the pro formas' effect on the resulting consolidated
operations.
F-7
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Following are the compensation amounts for each Acquired Company and the
title of the positions of the officers of such companies, included in the
unaudited pro forma consolidated statements of operations.
<TABLE>
<CAPTION>
Nine Months Ended
December 31, 1998
---------------------
Historical Pro forma
---------- ----------
<S> <C> <C>
Parsons............................................ $ -- $ --
Allison(1)......................................... 1,620,000 903,000
Henderson(2)....................................... 619,000 666,000
---------- ----------
$2,239,000 $1,569,000
========== ==========
Pro Forma Compensation Adjustment.................. $ 670,000
==========
</TABLE>
--------
(1) President and two vice presidents.
(2) President and Chief Executive Officer.
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 were
transferred from the Acquired Companies at the time of the Acquisitions
(additional rent expense of $110,000 and $29,000 reduced depreciation).
(b) Reflects the amortization of goodwill recorded as a result of these
Acquisitions 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 54 months.
(c) Reflects the elimination of expenses associated with costs incurred as a
result of a postponed initial public offering and certain due diligence
costs relating thereto.
(d) Reflects elimination of interest expense of $7.2 million of debt to be
repaid using proceeds from the Offering.
(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-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
Nationwide Electric, Inc.:
We have audited the accompanying consolidated balance sheet of Nationwide
Electric, Inc. and subsidiary (the "Company") as of March 31, 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the period September 23, 1997 to March 31, 1998. 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 consolidated 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 consolidated financial statements present fairly, in all
material respects, the financial position of Nationwide Electric, Inc. and
subsidiary 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-9
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1998 1998
------ ------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 1,099,112 $ 1,046,253
Resticted cash...................................... 672,051 --
Contract receivables, net of an allowance for
doubtful accounts of $729,000 and $40,000,
respectively....................................... 35,632,953 12,088,891
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 9,383,073 3,320,678
Inventories......................................... 558,170 479,396
Prepaid expenses.................................... 273,616 45,833
Deferred income taxes............................... 1,088,037 122,000
----------- -----------
Total current assets............................. 48,707,012 17,103,051
----------- -----------
Property and equipment, net.......................... 3,238,128 1,597,687
Deferred income taxes................................ 499,486 --
Goodwill, net........................................ 14,822,792 4,254,090
Other assets, net.................................... 1,058,178 413,278
----------- -----------
Total............................................ $68,326,136 $23,368,106
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable.................................... $9,374,559 $ 3,236,631
Payable to shareholders............................. 647,553 479,523
Accrued expenses and other current liabilities...... 8,626,258 2,250,800
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 5,576,707 1,925,651
Current portion of long-term debt................... 137,367 --
Line of credit...................................... -- 8,600,000
----------- -----------
Total current liabilities........................ 24,362,444 16,492,605
Commitments and contingencies (Note 10 and 17)
Long-term debt....................................... 7,366,343 --
Deferred income taxes................................ -- 1,500
Other long-term liabilities.......................... 1,300,000 --
Redeemable preferred stock; Series A nonvoting
convertible; par value $.01; 6,000 shares issued and
outstanding......................................... 6,000,000 6,037,500
STOCKHOLDERS' EQUITY:
Nationwide Electric, Inc.:
Common stock; par value $.01:
Voting, 15,000,000 shares authorized; 3,833,728
and 233,331 shares issued and outstanding,
respectively.................................... 38,337 2,333
Class A nonvoting, 150,000 shares authorized;
1,089,999 and 99,999 shares issued and
outstanding, respectively....................... 10,900 1,000
Class B nonvoting, 1,250,000 shares authorized;
1,000,000 shares issued and outstanding......... 10,000 --
Preferred stock; par value $.01; 10,000,000
authorized:
Series B convertible; 500,000 shares issued and
outstanding..................................... 5,000 --
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......................... 29,079,313 1,095,667
Loans to management shareholders................... (162,500) --
Retained earnings (deficit)........................ 316,299 (263,499)
----------- -----------
Total stockholders' equity....................... 29,297,349 836,501
----------- -----------
Total............................................ $68,326,136 $23,368,106
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Inception
Ended (September 23,
December 31, 1997) to March
1998 31, 1998
------------ --------------
(Unaudited)
<S> <C> <C>
Contract revenues.................................. $65,523,804 $4,304,818
Costs of services.................................. 54,531,318 3,601,651
----------- ----------
Gross profit...................................... 10,992,486 703,167
Selling, general and administrative expenses....... 7,870,940 968,208
----------- ----------
Income (loss) from operations...................... 3,121,546 (265,041)
Interest and other income (expense):
Interest expense.................................. (550,088) (124,448)
Other income (expense), net....................... (824,640) 42,990
----------- ----------
(1,374,728) (81,458)
----------- ----------
Income (loss) before income taxes.................. 1,746,818 (346,499)
Income tax expense (benefit)....................... 730,770 (120,500)
----------- ----------
Net income (loss).................................. $ 1,016,048 $ (225,999)
----------- ----------
Less preferred dividends........................... 436,250 37,500
----------- ----------
Net income (loss) available to common stock........ $ 579,798 $ (263,499)
=========== ==========
Basic net income (loss) per share.................. $ 0.15 $ (0.79)
=========== ==========
Shares used in computing basic net income (loss)
per share......................................... 3,856,377 333,330
=========== ==========
Diluted net income per share....................... $ 0.15 $ (0.79)
=========== ==========
Shares used in computing diluted net income per
share............................................. 3,873,569 333,330
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------------
Series B
Voting Class A Nonvoting Class B Nonvoting Preferred Additional Loans to Retained
------------------ ------------------ ----------------- -------------- Paid-in Management Earnings
Shares Amount Shares Amount Shares Amount Shares Amount Capital Shareholders (Deficit)
--------- ------- --------- ------- --------- ------- ------- ------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <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 -- --
Issuance of
Galt, Inc.
common stock.... 700 700 300 300 -- -- -- -- 99,000 -- --
Dividends on
preferred stock. -- -- -- -- -- -- -- -- -- -- (37,500)
Net loss........ -- -- -- -- -- -- -- -- -- -- (225,999)
--------- ------- --------- ------- --------- ------- ------- ------ ----------- --------- ---------
Balance, March
31, 1998........ 234,031 3,033 100,299 1,300 -- -- -- -- 1,095,667 -- (263,499)
Unaudited:
Acquisition of
Galt, Inc....... (700) (700) (300) (300) -- -- -- -- 1,000 -- --
Nationwide
common stock
sold to Galt,
Inc............. 665,000 6,665 285,000 2,850 -- -- -- -- 275,485 -- --
Nationwide
merged with
Galt, Inc. Galt,
Inc. shares
cancelled....... (665,000) (6,665) (285,000) (2,850) -- -- -- -- (275,485) -- --
Issuance of
Nationwide
common stock to
Galt, Inc.
shareholders.... 2,310,000 23,100 990,000 9,900 -- -- -- -- (33,000) -- --
Issuance of
Nationwide
common stock to
officers........ 300,000 3,000 -- -- -- -- -- -- 87,000 (50,000) --
Issuance of
Nationwide
common stock to
directors....... 15,000 150 -- -- -- -- -- -- 4,350 -- --
Issuance of
Nationwide
common stock to
KLT............. -- -- -- -- 1,000,000 10,000 -- -- 11,990,000 -- --
Issuance of
Nationwide
preferred stock
to KLT.......... -- -- -- -- -- -- 500,000 5,000 5,995,000 -- --
Issuance of
Nationwide
common stock to
Allison
shareholders.... 454,583 4,546 -- -- -- -- -- -- 4,631,997 -- --
Issuance of
Nationwide
common stock to
Henderson
shareholder..... 520,834 5,208 -- -- -- -- -- -- 5,307,299 -- --
Dividends on
preferred stock. -- -- -- -- -- -- -- -- -- -- (436,250)
Loans to
management...... -- -- -- -- -- -- -- -- -- (112,500) --
Net income...... -- -- -- -- -- -- -- -- -- -- 1,016,048
--------- ------- --------- ------- --------- ------- ------- ------ ----------- --------- ---------
Balance,
December 31,
1998
(Unaudited)..... 3,833,728 $38,337 1,089,999 $10,900 1,000,000 $10,000 500,000 $5,000 $29,079,313 $(162,500) $ 316,299
========= ======= ========= ======= ========= ======= ======= ====== =========== ========= =========
<CAPTION>
Total
------------
<S> <C>
Balance,
September 23,
1997............ $ --
Issuance of
Nationwide
common stock.... 1,000,000
Issuance of
Galt, Inc.
common stock.... 100,000
Dividends on
preferred stock. (37,500)
Net loss........ (225,999)
------------
Balance, March
31, 1998........ 836,501
Unaudited:
Acquisition of
Galt, Inc....... --
Nationwide
common stock
sold to Galt,
Inc............. 285,000
Nationwide
merged with
Galt, Inc. Galt,
Inc. shares
cancelled....... (285,000)
Issuance of
Nationwide
common stock to
Galt, Inc.
shareholders.... --
Issuance of
Nationwide
common stock to
officers........ 40,000
Issuance of
Nationwide
common stock to
directors....... 4,500
Issuance of
Nationwide
common stock to
KLT............. 12,000,000
Issuance of
Nationwide
preferred stock
to KLT.......... 6,000,000
Issuance of
Nationwide
common stock to
Allison
shareholders.... 4,636,543
Issuance of
Nationwide
common stock to
Henderson
shareholder..... 5,312,507
Dividends on
preferred stock. (436,250)
Loans to
management...... (112,500)
Net income...... 1,016,048
------------
Balance,
December 31,
1998
(Unaudited)..... $29,297,349
============
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Inception
Nine Months Ended (September 23, 1997)
December 31, 1998 to March 31, 1998
----------------- --------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $ 1,016,048 $ (225,999)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation.......................... 324,764 32,532
Amortization of intangible assets..... 250,390 21,729
Provision for deferred income taxes... (698,519) (120,500)
Changes in operating assets and
liabilities, excluding assets
acquired and liabilities assumed in
acquisitions:
Contract receivables................. (2,930,002) 1,453,415
Costs and estimated earnings in
excess of billings.................. (1,515,414) (462,079)
Inventory............................ 83,002 (26,943)
Prepaid expenses..................... (165,339) 154,667
Other assets, net.................... (8,093) --
Loans to management shareholders,
net................................. (82,754) --
Accounts payable..................... 212,714 132,283
Accrued expenses and other current
liabilities......................... 2,015,545 (998,340)
Billings in excess of costs and
estimated earnings.................. 517,770 (276,531)
------------ ------------
Net cash used in operating
activities......................... (979,888) (315,766)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.... (558,374) (29,663)
Purchase of Allison and Henderson, net
of cash acquired...................... (13,703,131) --
Purchase of Parsons Electric Co........ -- (11,000,000)
Purchase of employee non-compete
agreements............................ -- (200,000)
------------ ------------
Net cash used in investing
activities......................... (14,261,505) (11,229,663)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of preferred
stock................................. 6,000,000 6,000,000
Proceeds from the issuance of common
stock................................. 12,044,500 1,000,000
Net borrowings (payments) under short-
term line-of-credit................... (8,600,000) 5,800,000
Borrowings under long-term line of
credit................................ 8,800,000 --
Payments under long-term line of
credit................................ (1,600,000) --
Capital contributions.................. -- 100,000
Note payable to shareholders........... 647,553 --
Payments on long term-debt............. (1,997,801) (308,318)
------------ ------------
Net cash provided by financing
activities......................... 15,294,252 12,591,682
------------ ------------
Net increase in cash and cash
equivalents............................ 52,859 1,046,253
Cash and cash equivalents, at March 31,
1998................................... 1,046,253 --
------------ ------------
Cash and cash equivalents, at December
31, 1998............................... $ 1,099,112 $ 1,046,253
============ ============
CASH PAYMENTS FOR:
Interest............................... $ 605,175 $ 65,552
============ ============
Income taxes........................... $ 216,272 $ --
============ ============
NON-CASH FINANCING TRANSACTION--
Dividends on preferred stock........... $ 436,250 $ 37,500
============ ============
Purchase of businesses, net of cash
acquired:
Working capital, other than cash....... (13,448,647) (5,398,838)
Property, plant and equipment.......... (1,406,831) (1,363,643)
Cost in excess of net assets of
companies acquired.................... (11,421,965) (4,266,107)
Other non-current assets............... (569,904) (233,560)
Long-term debt......................... 1,867,466 262,148
Noncurrent liabilities................. 1,327,700 --
------------ ------------
Subtotal............................ (23,652,181) (11,000,000)
Less common stock issued for assets
acquired.............................. 9,949,050 --
------------ ------------
Net cash used to acquire businesses. (13,703,131) (11,000,000)
============ ============
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of December 31, 1998 and for the nine months then ended is
unaudited)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--The consolidated financial statements presented herein include the
accounts of Nationwide Electric, Inc. ("Nationwide" or the "Company") and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
The financial statements as of March 31, 1998 presented herein represent the
combined balance sheets of Nationwide and Galt Financial, Inc. ("Galt, Inc.").
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, Inc." from date of organization on February 25, 1998, and Nationwide
from date of organization on February 17, 1998. Galt LLC was merged into Galt,
Inc. on March 4, 1998. Such companies were under common control and
management. On June 4, 1998, Galt, Inc. was merged into Nationwide in exchange
for 3,300,000 shares of Common Stock (including 990,000 shares Class A Non-
voting) (adjusted for the stock split as described in Note 11) and 6,000
shares of Redeemable Preferred Stock and as of that date Nationwide 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 (see
Note 2). 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.) The Allison Company ("Allison") and Henderson Electric Company,
Inc. ("Henderson") were both acquired on October 22, 1998 for a combination of
cash and Common Stock of Nationwide valued at $14,766,787 and $11,545,078,
respectively. Nationwide's operating results include the operations of Allison
and Henderson from the date of acquisition through December 31, 1998.
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.
The consolidated financial statements include all of the accounts of the
Company. All significant intercompany balances and transactions have been
eliminated in consolidation. The accompanying unaudited consolidated financial
statements have been prepared according to Generally Accepted Accounting
Principles for interim financial information and include all adjustments,
consisting 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.
Nature of Operations--The Company's primary operations are commercial and
industrial electrical contracting with corporate and operating offices in
Minneapolis, Minnesota and operating offices in Minneapolis; Atlanta, Georgia;
Louisville and Lexington, Kentucky and Cincinnati, Ohio. 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 states in which the operating offices are
located. 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.
F-14
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Restricted Cash--The Company has withheld payment of $668,876 to the former
shareholders of acquired companies related to the terms of purchase
agreements. The Company anticipates paying these restricted cash accounts to
such former shareholders on the first anniversary of the acquisitions. The
restricted cash plus accrued interest is included in accrued expenses and
other liabilities.
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.
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
which are as follows:
<TABLE>
<S> <C>
Leasehold improvements....................................... 10 years
Field equipment and tools.................................... 5 to 7 years
Field vehicles and trailers.................................. 5 years
Office furniture and equipment............................... 5 to 7 years
</TABLE>
Goodwill--Goodwill is being amortized over 40 years and is generally not
deductible for tax purposes. Total accumulated amortization at December 31 and
March 31, 1998 was $145,280 and $8,880, respectively.
Other assets--Other assets at December 31, 1998 consists primarily of both
receivables from the former shareholders of Allison related to indemnification
of liabilities, as well as non-compete agreements with two key employees that
are being amortized over 21 to 36 months. Total accumulated amortization
related to the non-compete agreements at December 31, 1998 was $126,889.
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.
F-15
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 uses the liability method to account for income
taxes. Under this method, 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. The Company files a consolidated federal tax return.
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 December 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 periods presented, no such impairment was
incurred.
Per Share Information--The Company presents per share information in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings Per Share. This Statement requires the presentation of basic and
diluted earnings per share. Basic earnings per share excludes dilution and is
computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock, unless they are anti-
dilutive. A reconciliation between basic and diluted weighted average shares
outstanding and the related earnings per share calculation is presented below:
F-16
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Inception
Nine Months Ended (September 23, 1997
December 31, 1998 to March 31, 1998)
----------------- -------------------
<S> <C> <C>
Net income (loss)........................ $1,016,048 $(225,999)
Dividends on redeemable preferred stock.. (337,500) (37,500)
Dividends on convertible preferred stock. (98,750) --
---------- ---------
Income available to common shareholders.. $ 579,798 $(263,499)
========== =========
Basic weighted average shares
outstanding............................. 3,856,377 333,330
Dilutive effect of stock options......... 17,192 --
---------- ---------
Diluted weighted average shares
outstanding............................. 3,873,569 333,330
========== =========
Basic net income (loss) per common share. $ 0.15 $ (0.79)
Diluted net income (loss) per common
share................................... $ 0.15 $ (0.79)
</TABLE>
Stock-Based Compensation--The Company accounts for stock-based compensation
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees. Under this method,
compensation cost is recorded for the excess, if any, of the market price or
fair value of the stock at the grant date over the amount an employee must pay
to acquire the stock.
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 financial statements.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued. SFAS No. 133 established accounting and
reporting standards for derivative instruments embedded in other contracts,
and for hedging activities. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Management of the Company has
not yet fully evaluated the potential impact on the Company's financial
statements of the adoption of SFAS No. 133.
2. ACQUISITIONS
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 $4,300,000, 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.
F-17
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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..................................................... $14,004,000
===========
Net loss..................................................... $ (39,800)
===========
</TABLE>
On October 22, 1998, the Company acquired for cash and shares of the
Company's Common Stock all the issued and outstanding common stock of The
Allison Company ("Allison"). The total purchase price was $15,585,000, however
the common stock portion was discounted 15% to reflect an appropriate fair
value as a result of marketability and other provisions of the purchase
agreement as it relates to the common stock issued. The resulting purchase
price was $14,766,787 of which $10,130,244 was paid in cash and the remainder
was paid for with 454,583 shares of Nationwide Common Stock. The number of
shares of Nationwide Common Stock issued to the shareholders of Allison was
determined based upon a value of $12.00 per share; however the acquisition was
recorded at $10.20 per share due to the discount noted above. If the price per
share of Nationwide Common Stock in the Company's first round of financing
after October 22, 1998, is less than $12.00 per share, then an additional
number of shares of Nationwide Common Stock will be issued to such
shareholders so that such shareholders will have received an aggregate number
of shares equal to the amount that would have been issued had the lower price
been used in making the computation of the number of shares to be issued in
such acquisition. Total assets acquired and liabilities assumed were
approximately $11,970,000 and $5,319,000, 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 $7,505,000 which is being amortized to expense over 40 years
using the straight-line method. An additional earn-out payment, which if
earned will be accounted for as a bonus, will be made to the former officers-
shareholders of Allison in an amount equal to 25% of the amount by which the
earnings of the subsidiary before interest and income taxes for each of the
fiscal years ending March 31, 1999 and 2000 exceeds $2,500,000.
The accompanying statements of operations reflects the results of operations
of Allison from the date of the acquisition through December 31, 1998.
On October 22, 1998, the Company acquired for cash and shares of the
Company's common stock all the issued and outstanding common stock of
Henderson Electric Company, Inc. ("Henderson"). The total purchase price was
$11,835,000, however the common stock portion was discounted 15% to reflect an
appropriate fair value as a result of marketability and other provisions of
the purchase agreement as it relates to the common stock issued. The resulting
purchase price was $11,545,078 of which $6,232,571 was paid in cash and the
remainder was paid for with 520,834 shares of Nationwide Common Stock. The
number of shares of Nationwide Common Stock issued to the shareholders of
Henderson was determined based upon a value of $10.20 per share. If the price
per share of Nationwide Common Stock in the Company's first round of financing
after October 22, 1998, is less than $12.00 per share, then an additional
number of shares of Nationwide Common Stock will be issued to such
shareholders so that such shareholders will have received an aggregate number
of shares equal to the amount that would have been issued had the lower price
been used in making the computation of the number of shares to be issued in
such acquisition. Total assets acquired and liabilities assumed were
approximately $18,431,000 and $10,083,000, 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 $3,197,000, which is being amortized to expense over 40 years
using the straight-line method.
F-18
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The accompanying statements of operations reflects the results of operations
of Henderson from the date of the acquisition through December 31, 1998.
The unaudited pro forma results of operations for the nine months ended
December 31, 1998 as if the above acquisitions occurred on April 1, 1998 are as
follows:
<TABLE>
<S> <C>
Revenues.................................................... $117,570,000
============
Net income.................................................. 3,552,000
============
Earnings per share--basic................................... $ 0.29
============
Earnings per share--diluted................................. $ 0.29
============
</TABLE>
3. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
1998
-----------------------
December 31 March 31
----------- -----------
<S> <C> <C>
Current accounts................................. $32,576,084 $10,623,725
Retention........................................ 3,785,869 1,505,166
----------- -----------
Subtotal......................................... 36,361,953 12,128,891
Less allowance for doubtful accounts............. 729,000 40,000
----------- -----------
Contract receivables, net........................ $35,632,953 $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>
<CAPTION>
1998
------------------------
December 31 March 31
------------ -----------
<S> <C> <C>
Costs incurred on uncompleted contracts......... $113,801,161 $45,317,999
Estimated earnings.............................. 16,705,745 5,405,927
------------ -----------
Total........................................... 130,506,906 50,723,926
Less billings to date........................... 126,700,540 49,328,899
------------ -----------
Net under billings.............................. $ 3,806,366 $ 1,395,027
============ ===========
</TABLE>
The net balances in process are classified on the balance sheet as follows:
<TABLE>
<CAPTION>
1998
------------------------
December 31 March 31
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts............ $ 9,383,073 $ 3,320,678
Billings in excess of costs and estimated
earnings on uncompleted contracts............ (5,576,707) (1,925,651)
----------- -----------
Total......................................... $ 3,806,366 $ 1,395,027
=========== ===========
</TABLE>
F-19
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1998
----------------------
December 31 March 31
----------- ----------
<S> <C> <C>
Leasehold improvements............................ $1,420,694 $ 785,560
Field equipment and tools......................... 768,007 509,989
Field vehicles and trailers....................... 602,319 --
Office furniture and equipment.................... 793,992 334,670
---------- ----------
Subtotal.......................................... 3,585,012 1,630,219
Less accumulated depreciation..................... 346,884 32,532
---------- ----------
Property and equipment, net....................... $3,238,128 $1,597,687
========== ==========
</TABLE>
6. JOINT VENTURES AND PARTNERSHIPS
At December 31, 1998, Henderson 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. Contract revenues earned and gross profit recognized
by Henderson related to services on contracts of the joint venture were
$365,705 and $25,600, respectively, in 1998.
At December 31, 1998, Henderson had a 50% interest in a joint venture formed
to provide electrical contracting to a large industrial customer on a contract.
Contract revenues earned by Henderson related to services on contracts of the
joint venture were $201,744 in 1998. Such services were provided at cost.
Receivables due from the joint venture at December 31, 1998 were $201,744.
7 . CREDIT FACILITY
The Company has obtained a $30 million credit facility maturing on December
1, 2001 with a bank which is composed of a $15 million revolving credit
facility and a $15 million term facility. The term facility may be used
exclusively to finance acquisitions permitted under the credit agreement. The
revolving credit facility may be used for (i) working capital, (ii) general
corporate purposes, (iii) accounts receivable, inventory and cash which may be
acquired in acquisitions, and (iv) to make advances to and equity investments
in the Company's subsidiaries. The Agent for the credit facility has indicated
that the borrowing limit under the credit agreement may be increased up to a
total of $100 million, subject to certain conditions including successful
completion of the offering, addition of at least three more lenders, receipt of
an unqualified audit report on the Company's financial statements for its
fiscal year ended March 31, 1999, and the absence of any default or event of
default under the credit agreement. The borrowing base is limited to the sum of
80% of eligible accounts receivable, 50% of eligible inventory, and 50% of the
net book value of eligible equipment.
Amounts borrowed under the credit facility will bear interest at a rate equal
to the Prime Rate plus a margin ranging from 0 to 0.25% or, alternatively, at
the Company's option, LIBOR plus a margin ranging from 1.40% to 1.90%.
Commitment fees of 0.25% to 0.35% are payable with respect to amounts not
borrowed on either facility. The facility is secured by all assets of the
Company, including the pledges of all stock of the Company's subsidiaries. In
addition, the Company's subsidiaries guarantee the repayment of all amounts due
under the facility and the facility restricts pledges of all material assets.
The credit facility requires compliance with usual and customary covenants for
a credit facility of this nature
F-20
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
including the consent of the lenders for acquisitions that do not satisfy
specified criteria and financial covenants (i.e., maximum total funded debt to
EBITDA, maximum fixed charge coverage and minimum consolidated net worth).
At December 31, 1998, $7.2 million has been borrowed under the revolving
credit facility and bears interest at the prime rate of 7.75%. There are no
borrowings under the term facility.
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
1998
----------------------
December 31 March 31
----------- ----------
<S> <C> <C>
Accrued expenses and other current liabilities
consist of the following:
Accrued payroll and related expenses.......... $3,648,017 $1,215,404
Accrued union dues and benefits............... 795,586 525,959
Accrued income tax payable.................... 2,061,625 --
Non-compete agreements payable................ 225,000 225,000
Severance and bonuses payable................. 384,864 210,842
Escrow liability.............................. 672,051 --
Dividends payable............................. 473,750 --
Other......................................... 365,365 73,595
---------- ----------
$8,626,258 $2,250,800
========== ==========
</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 remained
payable at December 31, 1998.
9. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
1998
----------------------
December 31, March 31,
------------ ---------
<S> <C> <C>
Credit facility (see Note 7)......................... $7,200,000 $ --
Installment notes payable: principal and interest
from $216 to $1,041; payable over 36 to 48 months;
interest rate 9.25% to 10.0% secured by vehicles.... 303,710 --
Less current portion................................. 137,367 --
---------- ----
Total............................................ $7,366,343 $ --
========== ====
</TABLE>
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 December 31, 1998 are:
<TABLE>
<S> <C>
Three months ended March 31, 1999............................... $ 38,158
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000............................................................ 159,697
2001............................................................ 85,664
2002............................................................ 20,191
--------
Total....................................................... $303,710
========
</TABLE>
F-21
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. OPERATING LEASES
The Company leases offices, warehouse facilities and field vehicles which
are classified as operating leases.
Annual minimum lease payments under these noncancellable operating leases as
of December 31, 1998, are as follows:
<TABLE>
<S> <C>
Three months ending March 31, 1999............................ $ 111,490
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000.......................................................... 528,149
2001.......................................................... 472,618
2002.......................................................... 415,312
2003.......................................................... 457,263
2004.......................................................... 472,424
Thereafter.................................................... 1,294,413
</TABLE>
Rent expense under these leases was $469,715 for the nine months ended
December 31, 1998 and $47,000 for the period September 23, 1997 to March 31,
1998.
11. INCOME TAXES
The Company's income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Nine Months Ended September 23, 1997
December 31, 1998 to March 31, 1998
----------------- ------------------
<S> <C> <C>
Current:
Federal............................ $1,216,788 $ --
State.............................. 212,501 --
---------- ---------
Total Current.................... 1,429,289 --
Deferred:
Federal............................ (593,741) $(102,500)
State.............................. (104,778) (18,000)
---------- ---------
Total Deferred................... (698,519) (120,500)
---------- ---------
$ 730,770 $(120,500)
========== =========
</TABLE>
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 23, 1997
December 31, 1998 to March 31, 1998
-------------------------------------------
<S> <C> <C> <C> <C>
Statutory federal rate income
(loss)...................... $593,918 34% $ (117,810) (34)%
State tax, net of federal
benefit..................... 104,800 6 (20,790) (6)
Permanent differences........ 54,560 3 14,760 4
Other........................ (22,508) (1) 3,340 1
----------- ------ ------------ ------
$730,770 42% $ (120,500) (35)%
=========== ====== ============ ======
</TABLE>
F-22
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1998
---------------------
December 31 March 31
----------- --------
<S> <C> <C>
Current:
Accruals not currently deductible................ $ 965,000 $ --
Allowance for doubtful accounts.................. 75,000 --
Net operating loss carryforwards................. 48,000 122,000
Prepaid expenses deducted for income tax
purposes........................................ (3,000) --
Other, net....................................... 3,037 --
---------- --------
$1,088,037 $122,000
========== ========
Noncurrent:
Accruals not currently deductible................ $ 480,000 $ --
Excess of book over tax depreciation............. 39,000 --
Excess of tax over book amortization............. (17,000) (1,500)
Other, net....................................... (2,514) --
---------- --------
$ 499,486 $ (1,500)
========== ========
</TABLE>
For income tax purposes, the Company has a net operating loss carryforward of
$120,000 which, if not utilized, expires in 2014.
12. 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 markets in which
it has operations. The Company believes this concentration of credit risk is
mitigated by the diversity of industries represented by the Company's customer
base.
13. STOCKHOLDERS' EQUITY
Common Stock--The Company's common stock is comprised of Voting Common Stock
and Class A and Class B 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 Class A Nonvoting
Common Stock converts into Common Stock 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 to 1 common stock split on March 23,
1998.
On April 14, 1998, Nationwide sold 300,000 shares of common stock to
management of Nationwide which were 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 by
April 1, 1999.
F-23
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On May 31, 1998, the Company sold an aggregate of 15,000 shares of Common
Stock to two outside vendors and an outside director nominee for $4,500 cash.
These shares may, at the Company's option, be purchased at the price they were
sold if the Offering is not consummated by April 1, 1999.
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 $3.6 million and related income
tax benefit of $1.4 million or net charge of $2.2 million ($0.22 per share
basic and $0.21 per share diluted) 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 these financial
statements.
Class B Nonvoting Common Stock has all the powers, preferences and rights of
the Common Stock, except for voting rights. Each share of Class B Nonvoting is
convertible into Common Stock at the option of the holder. In the event 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 to another
corporation, each share of Class B Nonvoting Common Stock shall automatically
convert into Common Stock. The Class B Nonvoting Common Stock contains anti-
dilution provisions. Certain events require the approval of two-thirds of the
outstanding Class B Nonvoting Common Stock.
Series A Redeemable Preferred Stock--At December 31, 1998, the Company has
outstanding 6,000 shares of Series A Redeemable Preferred Stock ("Series A
Preferred Stock") which is nonvoting and mandatorily redeemable over thirty
six months commencing August 1999 together with any accrued but unpaid
dividends. The Series A 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.
Annual dividends at $75 per share are cumulative and payable in arrears on
the last day of each month commencing October 1998.
Commencing August 1, 1999, the Series A 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 Series A 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.
Series B Convertible Preferred Stock--At December 31, 1998, the Company has
outstanding 500,000 shares of Series B Convertible Preferred Stock ("Series B
Preferred Stock") which is nonvoting. After October 1, 2001, the Company shall
have the right to redeem the Series B Preferred Stock outstanding together
with any accrued but unpaid dividends. The Company shall redeem all
outstanding shares of Series B Preferred Stock upon the sale or other
disposition of the majority of the Company's assets.
Each holder of Series B Preferred Stock shall have an option to convert
shares of Series B Preferred Stock into Common Stock at any time during the
period from October 23, 1998 and ending on the later of December 31, 1999 or
on the first date upon which a registration statement filed by the Company
with the U.S. Securities and Exchange Commission ("SEC") in connection with a
public offering is declared effective.
Annual dividends at $0.90 per share are cumulative and payable in arrears
ratably each calendar quarter. The Series B Preferred Stock has liquidation
preferences as to its subscription price plus accrued but unpaid dividends.
F-24
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. STOCK OPTION AND PURCHASE PLANS
1998 Stock Option Plan--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 Non-Qualified Stock Option Plan ("NQSO Plan"). 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 (1,000,000 shares in the aggregate)
may be granted under options pursuant to each of the ISO Plan and the NQSO Plan
(subject to certain extraordinary changes in capitalization).
At December 31, 1998, the Company had outstanding options to purchase 223,500
shares of common stock at an exercise price of $12 per share, of which 71,500
were granted under the Nonqualified Stock Option Plan and 152,000 were granted
under the Incentive Stock Option Plan. The options vest ratably over four years
from the date of grant. 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.
The Company accounts for both plans in accordance with APB Opinion No. 25
which requires compensation cost to be recognized based on the excess, if any,
between the quoted market price of the stock at the date of grant and the
amount an employee must pay to acquire the stock. Under this method, no
compensation cost has been recognized for stock option awards.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value as prescribed by SFAS No. 123, the Company's
net earnings and net earnings per common share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
Nine Months
Ended
December 31,
1998
------------
<S> <C>
Net earnings, as reported.......................................... $1,016,048
==========
Net earnings, pro forma............................................ $ 997,277
==========
Basic net earnings per common share, as reported................... $ 0.15
==========
Basic net earnings per common share, pro forma..................... $ 0.15
==========
Diluted net earnings per common share, as reported................. $ 0.15
==========
Diluted net earnings per common share, pro forma................... $ 0.15
==========
</TABLE>
The weighted average fair value at date of grant for options granted during
1998 was $2.90 per share, which, for the purposes of this disclosure, is
assumed to be amortized over the respective vesting period of the grants. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: risk-free interest rate of 5.1%, and expected lives of 5.5 years.
F-25
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Transactions relative to both plans are as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
--------- --------------
<S> <C> <C>
Options outstanding at
March 31, 1998........................................ --
Granted.............................................. 223,500 $12.00
Exercised............................................ --
-------
Options outstanding at December 31, 1998............... 223,500 $12.00
======= ======
Options exercisable at December 31, 1998............... --
=======
Options available at December 31, 1998................. 776,500
=======
</TABLE>
The weighted average remaining contractual life of the outstanding options
at December 31, 1998 is 6.8 years.
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 of 15
percent 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 purchase. 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.
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 to pay any brokerage
commissions. Shares of the Company's Common Stock sold under the Employee
Stock Plan will not be restricted.
At December 31, 1998, no shares have been issued under these plans.
15. MAJOR CUSTOMERS AND CONCENTRATION OF RISK
For the period ended December 31, 1998, no single customer accounted for 10%
or greater of consolidated revenues or contract receivables.
F-26
<PAGE>
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.
16. EMPLOYEE BENEFIT PLANS
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 Parsons contributed $200,319 to these multi-employer
union pension plans during the period from the date of acquisition to March
31, 1998 and $2,105,838 during the nine months ended December 31, 1998.
Allison 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 Allison's option, but to date no contributions have been made.
Allison also sponsors a profit sharing plan for all employees providing for
benefits upon retirement. Contributions to the plan during the period from
October 22, 1998 (acquisition by Nationwide) to December 31, 1998 were
$42,081. Allison's contributions to the plan are made at the discretion of
Nationwide's Board of Directors.
Allison's 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 Allison the
Plans were approximately $642,000, during the period from October 22, 1998
(acquisition by Nationwide) to December 31, 1998.
Qualified executives, office employees, and qualifying non-union
electricians of the Henderson are included in a modified defined contribution
plan. Henderson's contributions under the plan are determined annually by
Nationwide's 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. Union employees are covered by a retirement plan determined through
collective bargaining and administered by the union. Contributions made by
Henderson to the plans during the period from October 22, 1998 (acquisition by
Nationwide) to December 31, 1998 were $15,000 and $350,793, respectively.
17. 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-27
<PAGE>
In October 1997, Allison was named as a defendant in a lawsuit arising out
of electrical work performed by Allison as a sub-contractor. The initial
complaint filed against the general contractor for the project alleges the
system installed by Allison is defective. Allison denies any responsibility
for the claims on the basis that, among other things, installation was proper
and in accordance with the approved plans and specifications of the project.
Prior to its acquisition by Nationwide, Allison entered into mediation in an
effort to settle the lawsuit. Based on settlement discussions during
mediation, Allison recorded a $1,200,000 liability in September 1998 in
accordance with the requirements of SFAS No. 5, "Accounting for
Contingencies." Under the Stock Purchase Agreement entered into with
Nationwide, former stockholders of Allison have agreed to indemnify Nationwide
for settlements reached in the above matter, accordingly, Nationwide recorded
an asset of $720,000 (which is net of associated tax benefit) to reflect such
indemnification.
See Note 13 for information regarding a nonrecurring, noncash compensation
charge to be reported in the first quarter following consummation of the
Offering.
* * * * * *
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,
September 30, -----------------------
ASSETS 1998 1998 1997
------ ------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............. $ 28,527 $ 2,441,518 $ 206,153
Contract receivables, net.............. 8,538,065 8,813,174 8,780,172
Costs and estimated earnings in excess
of billings on uncompleted contracts.. 943,073 605,101 727,129
Advances to stockholder................ 38,914 60,265 30,714
Inventories............................ 20,001 31,073 28,122
Prepaid expenses and other current
assets................................ 76,025 101,461 76,125
Income taxes receivable................ 77,822 14,094 --
----------- ----------- -----------
Total current assets................. 9,722,427 12,066,686 9,848,415
Property and equipment, net.............. 622,260 645,862 667,080
Deferred income taxes.................... 468,000 -- --
----------- ----------- -----------
Total................................ $10,812,687 $12,712,548 $10,515,495
=========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt...... $ 118,114 $ 115,210 $ 104,290
Accounts payable....................... 55,000 1,697,791 1,525,857
Accrued expenses and other current
liabilities........................... 515,368 1,153,118 853,068
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. 1,628,950 1,667,055 322,015
Notes payable.......................... -- -- 1,000,000
Income taxes payable................... -- -- 52,984
----------- ----------- -----------
Total current liabilities............ 2,317,432 4,633,174 3,858,214
Long-term debt, net of current portion... 981,515 1,012,155 1,127,348
Other long-term liabilities.............. 1,200,000 -- --
----------- ----------- -----------
Total liabilities.................... 4,498,947 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................ 406,240 406,240 406,240
Retained earnings...................... 5,907,500 6,660,979 5,123,693
----------- ----------- -----------
Total stockholders' equity........... 6,313,740 7,067,219 5,529,933
----------- ----------- -----------
Total................................ $10,812,687 $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>
Three Months Ended
September 30, Year Ended June 30,
------------------------ -------------------------------------
1998 1997 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Contract revenues....... $ 7,573,723 $ 6,571,815 $31,372,725 $27,999,871 $32,391,898
Costs of services....... 6,323,199 5,493,921 25,451,568 22,800,750 27,323,521
----------- ----------- ----------- ----------- -----------
Gross profit.......... 1,250,524 1,077,894 5,921,157 5,199,121 5,068,377
Selling, general and
administrative
expenses............... 1,257,422 633,602 3,302,175 2,660,126 2,501,818
----------- ----------- ----------- ----------- -----------
Operating income (loss). (6,898) 444,292 2,618,982 2,538,995 2,566,559
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense...... (19,267) (37,987) (115,136) (168,127) (157,400)
Other income
(expense), net....... (1,209,042) (15) -- 1,507 (32,858)
----------- ----------- ----------- ----------- -----------
(1,228,309) (38,002) (115,136) (166,620) (190,258)
----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... (1,235,207) 406,290 2,503,846 2,372,375 2,376,301
Income tax expense
(benefit).............. (481,728) 158,453 966,560 903,573 907,844
----------- ----------- ----------- ----------- -----------
Net income (loss)....... (753,479) 247,837 1,537,286 1,468,802 1,468,457
Retained earnings,
beginning of period.... 6,660,979 5,123,693 5,123,693 3,654,891 2,186,434
----------- ----------- ----------- ----------- -----------
Retained earnings, end
of period.............. $ 5,907,500 $ 5,371,530 $ 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>
Three Months Ended
September 30, Year Ended June 30,
------------------------ ------------------------------------
1998 1997 1998 1997 1996
----------- ----------- ----------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $ (753,479) $ 247,837 $ 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......... 27,973 27,731 111,799 113,171 82,126
Loss (gain) on
disposal of assets... (1,000) -- (137) (617) 37,297
Provision for deferred
taxes................ (468,000) -- -- -- --
Changes in operating
assets and
liabilities:
Contract receivables,
net................. 275,109 2,677,887 (33,002) (754,885) (3,681,313)
Costs and estimated
earnings in excess
billings............ (337,972) (784,989) 122,028 296,408 (789,618)
Due from related
parties............. 21,351 (41,287) (29,551) (29,447) (1,267)
Inventories.......... 11,072 3,122 (2,951) 7,092 6,046
Prepaid expenses and
other current
assets.............. 25,436 (37,374) (25,336) 1,289 (19,264)
Accounts payable and
accrued expenses.... (2,280,541) (1,085,997) 471,984 (561,767) 1,625,268
Billings in excess of
costs and estimated
earnings............ (38,105) 359,842 1,345,040 75,597 (42,569)
Other long-term
liabilities......... 1,200,000 -- -- -- --
Income taxes......... (63,728) 102,501 (67,078) (473,768) 438,295
----------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) operating
activities......... (2,381,884) 1,469,273 3,430,082 141,875 (876,542)
----------- ----------- ----------- ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment........ (4,371) (9,585) (93,739) (153,561) (569,312)
Proceeds from sale of
property and
equipment............ 1,000 -- 3,295 750 3,250
Other................. -- -- -- 632 15,367
----------- ----------- ----------- ---------- -----------
Net cash used in
investing
activities......... (3,371) (9,585) (90,444) (152,179) (550,695)
----------- ----------- ----------- ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from the
issuance of debt..... 1,500,000 1,500,000 -- -- 1,000,000
Payments of long-term
debt and notes
payable.............. (1,527,736) (2,525,093) (1,104,273) (94,404) (91,332)
----------- ----------- ----------- ---------- -----------
Net cash (used in)
provided by
financing
activities......... (27,736) (1,025,093) (1,104,273) (94,404) 908,668
----------- ----------- ----------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents........... (2,412,991) 434,595 2,235,365 (104,708) (518,569)
Cash and cash
equivalents, beginning
of period............. 2,441,518 206,153 206,153 310,861 829,430
----------- ----------- ----------- ---------- -----------
Cash and cash
equivalents, end of
period................ $ 28,527 $ 640,748 $ 2,441,518 $ 206,153 $ 310,861
=========== =========== =========== ========== ===========
CASH PAYMENTS FOR:
Interest.............. $ 27,954 $ 42,543 $ 131,240 $ 167,237 $ 169,739
Income taxes.......... $ 50,000 $ 55,952 $ 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. The accompanying unaudited
consolidated financial statements have been prepared according to generally
accepted accounting principles for interim financial information and include
all adjustments, consisting 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. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Results of operations
for interim periods are not necessarily indicative of results to be expected
for a full 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 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>
F-43
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Depreciation and amortization expense was $111,799, $113,171 and $82,126 for
the years ended June 30, 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 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.
At September 30, 1998, a deferred tax asset has been recorded representing
future tax benefits associated with the settlement of litigation reserves.
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 adoption of SFAS Nos. 130
and 131 did 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.
In October 1997, the Company was named as a defendant in a lawsuit arising
out of electrical work performed by the Company as a sub-contractor. The
initial complaint filed against the general contractor for the project alleges
the system installed by the Company is defective. The Company denies any
responsibility for the claims on the basis that, among other things,
installation was in accordance with the approved plans and specifications of
the project. Prior to its acquisition by Nationwide, the Company entered into
mediation in an effort to settle the lawsuit. Based on settlement discussions
during mediation, the Company recorded a $1,200,000 liability in September
1998 in accordance with the requirements of SFAS No. 5, "Accounting for
Contingencies."
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.
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,
September 30, ------------------------
1998 1998 1997
------------- ----------- -----------
(unaudited)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 367,845 $ 427,724 $ 661,684
Contract receivables, net............ 10,490,048 9,634,517 8,177,591
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................... 3,148,929 1,366,891 1,662,353
Advances to stockholder.............. 597,653 1,956,200 9,014
Inventories.......................... 155,365 147,200 112,707
Deferred income taxes................ 263,900 322,400 125,133
Other current assets................. 116 1,050 1,050
----------- ----------- -----------
Total current assets............... 15,023,856 13,855,982 10,749,532
Property and equipment, net............ 1,969,711 1,955,916 1,806,651
Equity in contractor joint ventures.... -- 5,000 47,428
Due from related parties............... 1,422,512 -- 1,813,219
Cash surrender value of life insurance. 152,440 146,440 134,347
Deferred income taxes.................. 5,500 -- --
Other assets........................... 100,073 94,025 95,153
----------- ----------- -----------
Total................................ $18,674,092 $16,057,363 $14,646,330
=========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Line-of-credit....................... $ 900,000 $ 400,000 $ 800,000
Accounts payable..................... 4,037,527 4,009,326 3,655,303
Accrued expenses and other current
liabilities......................... 2,221,447 1,657,933 1,433,982
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... 1,357,229 1,292,997 1,281,912
Current portion of long-term debt.... 219,477 278,490 253,748
----------- ----------- -----------
Total current liabilities.......... 8,735,680 7,638,746 7,424,945
Long-term debt, net of current portion. 336,202 368,632 513,623
Deferred income taxes.................. -- 53,000 27,881
Other long-term liabilities............ 150,000 150,000 --
----------- ----------- -----------
Total liabilities.................. 9,221,882 8,210,378 7,966,449
----------- ----------- -----------
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.................... 9,652,870 8,047,645 6,880,541
Less treasury stock at cost, 456
shares.............................. (228,000) (228,000) (228,000)
----------- ----------- -----------
Total stockholders' equity......... 9,452,210 7,846,985 6,679,881
----------- ----------- -----------
Total.............................. $18,674,092 $16,057,363 $14,646,330
=========== =========== ===========
</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>
Six Months
Ended September 30, March 31
------------------------ -------------------------------------
1998 1997 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Contract revenues....... $26,657,071 $20,828,110 $44,000,125 $36,408,787 $27,336,986
Costs of services....... 21,954,768 18,545,946 37,951,930 31,024,498 23,187,577
----------- ----------- ----------- ----------- -----------
Gross profit.......... 4,702,303 2,282,164 6,048,195 5,384,289 4,149,409
Selling, general and
administrative
expenses............... 2,256,990 1,849,826 4,375,844 3,439,467 3,230,624
----------- ----------- ----------- ----------- -----------
Operating income........ 2,445,313 432,338 1,672,351 1,944,822 918,785
----------- ----------- ----------- ----------- -----------
Interest and other
income (expense):
Interest income....... 44,317 37,986 165,883 109,114 85,824
Interest expense...... (33,341) (74,946) (114,907) (146,126) (145,141)
Income from joint
ventures............. 64,625 101,716 202,233 139,909 --
Gain on disposal of
partnership interest. -- -- -- 120,417 --
Other income, net..... 154,884 11,282 17,575 57,148 22,462
----------- ----------- ----------- ----------- -----------
230,485 76,038 270,784 280,462 (36,855)
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 2,675,798 508,376 1,943,135 2,225,284 881,930
Income taxes............ 1,070,573 200,908 776,031 901,550 408,521
----------- ----------- ----------- ----------- -----------
Net income.............. 1,605,225 307,468 1,167,104 1,323,734 473,409
Retained earnings,
beginning of year...... 8,047,645 6,880,541 6,880,541 5,556,807 5,083,398
----------- ----------- ----------- ----------- -----------
Retained earnings, end
of year................ $ 9,652,870 $ 7,188,009 $ 8,047,645 $ 6,880,541 $ 5,556,807
=========== =========== =========== =========== ===========
</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>
Six Months
Ended September 30, March 31
----------------------- -----------------------------------
1998 1997 1998 1997 1996
----------- ---------- ----------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 1,605,225 $ 307,468 $ 1,167,104 $ 1,323,734 $ 473,409
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation.......... 139,122 134,837 272,493 250,116 238,440
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................. (855,531) 973,204 (1,456,926) (3,294,492) 6,099
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts........... (1,782,038) (816,181) 295,462 (665,172) (52,008)
Inventories.......... (8,165) (26,107) (34,493) 89,118 6,773
Equity in contractor
joint venture....... -- 37,757 42,428 (47,428) --
Accounts payable..... 28,201 (292,700) 354,023 1,373,800 (49,386)
Accrued expenses and
other current
liabilities......... 563,514 (825,300) 223,951 655,922 23,896
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts........... 64,232 1,605,913 11,085 882,897 (89,961)
Other assets......... -- (2,941) 1,128 4,560 4,651
Other long-term
liabilities......... -- -- 150,000 -- --
----------- ---------- ----------- ----------- ---------
Net cash provided by
(used in) operating
activities......... (245,440) 1,095,950 857,323 442,918 506,840
----------- ---------- ----------- ----------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Due from related
parties, net.......... (64,081) (265,751) (133,967) (99,203) (262,432)
Purchases of property
and equipment......... (154,116) (215,186) (424,974) (419,943) (262,192)
Proceeds from sale of
property and
equipment............. 1,200 -- -- 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........ (6,000) (6,000) (12,093) (11,104) (8,231)
----------- ---------- ----------- ----------- ---------
Net cash used in
investing
activities......... (222,997) (486,937) (571,034) (233,685) (421,904)
----------- ---------- ----------- ----------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from the
issuance of long-term
debt.................. 50,124 139,728 170,289 225,044 122,842
Payments of long-term
debt.................. (141,566) (153,209) (290,538) (298,931) (236,205)
Net (payments)
borrowings on line-of-
credit................ 500,000 (400,000) (400,000) 100,000 (100,000)
----------- ---------- ----------- ----------- ---------
Net cash (used in)
provided by
financing
activities......... 408,558 (413,481) (520,249) 26,113 (213,363)
----------- ---------- ----------- ----------- ---------
Net (decrease) increase
in cash and cash
equivalents............ (59,879) 195,532 (233,960) 235,346 (128,427)
Cash and cash
equivalents, beginning
of year................ 427,724 661,684 661,684 426,338 554,765
----------- ---------- ----------- ----------- ---------
Cash and cash
equivalents, end of
year................... $ 367,845 $ 857,216 $ 427,724 $ 661,684 $ 426,338
=========== ========== =========== =========== =========
CASH PAYMENTS FOR:
Interest............... $ 33,341 $ 74,946 $ 114,907 $ 146,126 $ 145,041
Income taxes........... $ 362,478 $ 978,200 $ 1,402,000 $ 448,000 $ 490,000
</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 for interim financial
information and include all adjustments, consisting 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.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
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.
F-53
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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.
F-54
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED 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.
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 adoption of SFAS Nos. 130 and 131
did not have any significant effect on its financial statements.
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,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Current accounts.................................... $8,243,177 $7,187,962
Retention........................................... 1,594,840 1,099,129
---------- ----------
Subtotal............................................ 9,838,017 8,287,091
Less allowance for doubtful accounts................ 203,500 109,500
---------- ----------
Contract receivables, net........................... $9,634,517 $8,177,591
========== ==========
</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>
F-55
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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 revenues earned by the Company related to services on contracts of the
joint venture were $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,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Accrued payroll and related expenses............... $1,181,571 $ 742,822
Accrued income tax payable......................... 148,331 602,539
Other current liabilities.......................... 328,031 88,621
---------- ----------
Total.......................................... $1,657,933 $1,433,982
========== ==========
</TABLE>
F-56
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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>
F-57
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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
F-58
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-59
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
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.
* * * * * *
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.............................................................. 9
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Historical and Pro Forma Financial Data.......................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 34
Management................................................................ 44
Certain Transactions...................................................... 49
Principal Stockholders.................................................... 51
Description of Capital Stock.............................................. 51
Shares Eligible for Future Sale........................................... 55
Underwriting.............................................................. 57
Legal Matters............................................................. 58
Experts................................................................... 59
Additional Information.................................................... 59
Index to Financial Statements............................................. F-1
</TABLE>
------------
Until , 1999 (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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 Shares
[logo]
NATIONWIDE ELECTRIC, INC.
Common Stock
------------
PROSPECTUS
------------
BT Alex. Brown
Piper Jaffray Inc.
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for
any transaction from which the director derived an improper personal benefit.
II-2
<PAGE>
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 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 Amended and Restated 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 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 Amended and Restated 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 Amended and Restated Bylaws is not
exclusive of any other rights to which those seeking indemnification may be
otherwise entitled.
The Company has entered into indemnification agreements (the "Agreements")
with each of the Company's directors and officers. The Agreements 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 is 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 is indemnity
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 is 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 has obtained 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.
On October 22, 1998, the Company issued 975,397 shares of its Common Stock
in connection with the Acquisitions based on a price of $12.00 per share. Such
number of shares shall be adjusted proportionately if the initial public
offering price is below $12.00 per share. Each of these transactions were
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.
On October 22, 1998, Nationwide issued 1,000,000 shares of Class B Nonvoting
Common Stock and 500,000 shares of Series B Convertible Preferred Stock to KLT
Energy Services, Inc. for consideration of $18 million. The shares of Class B
Nonvoting Common Stock issued to KLT are convertible into an equal number of
shares of Common Stock, except that each number of shares shall be increased
proportionately if the initial public offering price (net of underwriting
discounts and commissions) is less than $12.00 per share. This issue was
exempt from registration under Section 4(2) of the Securities Act of 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 First Amendment to Agreement and Plan of Merger
2.4 First Amendment to Stock Purchase Agreement
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
3.4 Certificate of Amendment of Amended and Restated Certificate of
Incorporation
3.5 Certificate of Correction of Amended and Restated Certificate of
Incorporation
3.6 Certificate of Amendment of Certificate of Designation,
Preferences and Rights of Series A Nonvoting Convertible Preferred
Stock
3.7 Certificate of Designation, Preferences and Rights of Series B
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
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------------------------------------------------------------
<C> <S>
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 Frederick C. Green IV
10.2* Employment Agreement dated as of April 1, 1998 between Nationwide
Electric, Inc. and David Smith
10.3* Employment Agreement dated as of April 1, 1998 between Nationwide
Electric, Inc. and Frank R. Clark
10.4 Non-Qualified Stock Option Plan
10.5 Incentive Stock Option Plan
10.6 Executive Stock Purchase Plan
10.7* Form of Indemnification Agreement (and list of parties to such
agreement)
10.8* Restricted Stock Purchase Agreement dated as of April 7, 1998
between Nationwide Electric, Inc. and Frederick C. Green IV
10.9* Restricted Stock Purchase Agreement dated as of April 1, 1998
between Nationwide Electric, Inc. and David Smith
10.10* Restricted Stock Purchase Agreement dated as of April 1, 1998
between Nationwide Electric, Inc. and Frank R. Clark
10.11 Credit Agreement among Nationwide Electric, Inc., as Borrower,
Various Financial Institutions and Norwest Bank, Minnesota, N.A.
10.12 Security Agreement (Nationwide Electric, Inc.)
10.13 Security Agreement (The Allison Company)
10.14 Security Agreement (Allison-Smith Company)
10.15 Security Agreement (Henderson Electric Co., Inc.)
10.16 Security Agreement (Eagle Electric Holdings, Inc.)
10.17 Security Agreement (Eagle Electric Holdings, Inc.)
10.18 Security Agreement (Eagle Electrical Systems, Inc.)
10.19 Security Agreement (Parsons Electric Co.)
10.20 Security Agreement (Parsons Electric Holdings, Inc.)
10.21 Guaranty by Corporation (The Allison Company)
10.22 Guaranty by Corporation (Allison-Smith Company)
10.23 Guaranty by Corporation (Henderson Electric Co., Inc.)
10.24 Guaranty by Corporation (Eagle Electric Holdings, Inc.)
10.25 Guaranty by Corporation (Eagle Electric Holdings, Inc.)
10.26 Guaranty by Corporation (Eagle Electrical Systems, Inc.)
10.27 Guaranty by Corporation (Parsons Electric Co.)
10.28 Guaranty by Corporation (Parsons Electric Holdings, Inc.)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ------------------------------------------------------------------
<C> <S>
10.29 Collateral Pledge Agreement (The Allison Company)
10.30 Collateral Pledge Agreement (Eagle Electric Holdings, Inc.)
10.31 Collateral Pledge Agreement (Parsons Electric Holdings, Inc.)
10.32 First Amendment to Credit Agreement
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.
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 February 1, 1999.
Nationwide Electric, Inc.
/s/ Gregory J. Orman
By: _________________________________
Gregory J. Orman
Chairman of the Board
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Gregory J. Orman and Frederick C. Green the true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to execute in the name
of each such person who is then an officer or director of the Registrant, and
to file, any amendments (including post-effective amendments) to this
Registration Statement and any registration statement for the same offering
filed pursuant to rule 462 under the Securities Act and to file the same, with
all exhibits thereto and all other documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing appropriate or
necessary to be done, as fully and for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or their substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1993, as amended, this
Amendment No. 3 to Registration Statement has been signed by the following
persons in the capacities indicated on February 1, 1999.
<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
/s/ Ronald G. Wasson Director
___________________________________________
Ronald G. Wasson
</TABLE>
/s/ Gregory J. Orman
*By__________________________________
Gregory J. Orman
Attorney-in-fact
II-8
<PAGE>
EXHIBIT 2.3
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT, dated October 21, 1998 ("Amendment"), to the
Agreement and Plan of Merger (the "Original Agreement"), dated June 12, 1998,
among Nationwide Electric, Inc., a Delaware corporation ("NEI"), Henderson
Electric Company, Inc., a Kentucky corporation (the "Company"), and the
shareholders of the Company ("Shareholders") identified in Schedule A to the
Original Agreement and executing counterparts of this Agreement (capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
them in the Original Agreement).
WHEREAS, NEI has determined not to conduct its IPO of its common stock at
this time; and
WHEREAS, notwithstanding the decision not to proceed with the IPO at this
time, the parties to the Original Agreement desire to proceed with the merger of
the Company into NEI, pursuant to which Company Stock will be exchanged for cash
and stock of NEI in accordance with the terms and conditions of the Original
Agreement as amended by this Amendment; and
WHEREAS, in lieu of the IPO, NEI has determined to conduct a private
offering of its securities, a portion of the proceeds of which will be used to
provide cash necessary to consummate the transactions contemplated by the NEI
Plan of Organization.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto,
intending to be legally bound hereby, agree to amend the Agreement as follows:
1. Amendment to Article I. Article I of the Agreement is hereby amended
as follows:
(a) The following shall be added to such Article I:
"Private Offering Memorandum" shall mean the private offering
memorandum, dated September 29, 1998, prepared by NEI in connection with
the offering of capital stock of NEI in an offering which will be exempt
from the registration requirements of the 1933 Act, as it may be amended to
reflect negotiations between the proposed purchasers of such stock.
"Purchasers" shall mean the prospective purchasers of stock of NEI
offered pursuant to the Private Offering Memorandum.
"Series B Convertible Preferred Stock" shall mean the Series B
Convertible Preferred Stock, par value $.01 per share, of NEI.
<PAGE>
"Series C Convertible Preferred Stock" shall mean the Series C
Convertible Preferred Stock, par value $.01 per share, of NEI.
(b) All references to the Registration Statement" and/or the
"Prospectus" (except as either of those terms may be used in the Agreement
without initial capital letters) shall be deleted and replaced by the
"Private Offering Memorandum."
(c) The following definitions as set forth in the Original Agreement
shall be deleted in their entirety and the following definition shall be
substituted in lieu thereof:
"Other Founding Company" shall mean The Allison Company, a Georgia
corporation.
"NEI Plan of Organization" shall mean the acquisition or merger of the
Founding Companies by or into NEI or its subsidiaries.
(d) The following definitions set forth in the Original Agreement
shall be deleted in their entirety: "IPO," "Pricing" and "Underwriters."
2. Amendment to Section 2.6. Section 2.6 of the Agreement is amended by
deleting the first sentence of Section 2.6 of the Original Agreement in its
entirety and substituting in lieu thereof the following sentence:
The aggregate Merger Consideration to be received by the Shareholders in
exchange for the Company Stock shall consist of cash and shares of NEI
Stock determined in accordance with SCHEDULE 2.6 attached hereto; provided
however, that the actual number of shares of NEI Stock shall be based upon
a value of $12.00 per share of NEI Stock, rounded up to the nearest whole
share; provided further, that if the price per share in NEI's next round of
financing subsequent to the private placement to Kansas City Power & Light
Company or its affiliates, whether in a private placement or an initial
public offering (the "Price") is less than $12.00 per share, then an
additional number of shares shall be issued to the Shareholders, in the
same proportions set forth above, as if such Price had been used in making
the computation in the immediately preceding clause, less the number of
shares of NEI Stock issued pursuant to the Merger.
3. Amendment to Section 2.9. Section 2.9 of the Agreement is amended by
deleting the clause "which may be prior or subsequent to the Pricing," in the
first sentence of Section 2.9 of the Original Agreement.
4. Amendment to Section 2.10. Section 2.10 of the Agreement is amended by
deleting the clause "which shall be not later than 15 days after the closing of
the IPO," in the first sentence of Section 2.10 of the Original Agreement.
2
<PAGE>
5. Deletion of Section 2.11. Section 2.11 of the Original Agreement is
deleted in its entirety.
6. Amendment to Section 2.13. Section 2.13 of the Agreement is amended by
deleting the clause "244 shares of the Company Stock" in the first sentence of
Section 2.13 of the Original Agreement and replacing it with "150 shares of the
Company Stock."
7. Amendment to Section 2.15. Section 2.15 of this Agreement is amended
by deleting the second sentence of Section 2.15 of the Original Agreement and
replacing it with the following sentence:
Within thirty (30) days after the Merger Date, NEI shall pay as additional
Merger Consideration an amount equal to 100% of the after-tax income of the
Company for the period from August 15, 1998 through the Merger Date, which
amount shall be paid pro rata among the Shareholders in accordance with
their respective Company Stock ownership; provided that 5% of such amount
shall be reserved by NEI and retained in the Basket in accordance with the
provisions relating thereto in Section 2.6.
8. Amendment to Section 3.23.2. Section 3.23.2 of the Agreement is
amended by deleting the first sentence of Section 3.23.2 of the Original
Agreement in its entirety and substituting in lieu thereof the following
sentence:
If, prior to the Merger Date, the Company or any Shareholder becomes aware
of any fact or circumstance which would affect in any material respect the
accuracy of a representation or warranty of the Company or the Shareholders
in this Agreement or a representation or disclosure with respect to the
Company or the Shareholders in the Private Offering Memorandum, the Company
and the Shareholders shall immediately give notice of such fact or
circumstance to NEI.
9. Amendment to Section 3.24. Section 3.24 of the Agreement is amended by
deleting the first sentence of Section 3.24 of the Original Agreement in its
entirety and substituting in lieu thereof the following sentence:
3.24 Acknowledgment. The Shareholders acknowledge and agree: (a) that
there exists no firm commitment, binding agreement or promise of any kind,
express or implied, that the offering described in the Private Offering
Memorandum will be consummated; (b) that neither NEI or any of its
officers, directors, agents or representatives nor any Purchasers shall
have any liability to the Company, the Shareholders or any other Person for
any failure of the private offering described in the Private Offering
Memorandum to be consummated or the failure of NEI to sell its securities
in such offering at a particular price or within a particular range of
prices or to occur at all; (c) that NEI has not committed to pay any
dividends on the NEI Stock and that, in all likelihood, no dividends will
be paid on the NEI Stock in the foreseeable future;
3
<PAGE>
(d) that there is no guaranty the NEI Stock will appreciate or not
depreciate in value, that an active market will exist for the NEI Stock, or
that the Shareholders will be able in the future to sell their NEI Stock at
a price equal to or greater than the offering price described in the
Private Offering Memorandum; and (e) that the decision of the Shareholders
to enter into this Agreement and to exchange the Company Stock for NEI
Stock and cash has been made independent of, and without reliance upon, any
statements, opinions, communications or due diligence investigations made
or performed by any Purchasers.
10. Amendment to Section 4.3. Section 4.3 of the Agreement is hereby
amended by deleting the first sentence of Section 4.3 of the Original Agreement
in its entirety and substituting in lieu thereof the following sentence:
The authorized capital stock of NEI consists of (a) 30,000,000 shares of
voting common stock, par value $.01 per share, (b) 1,200,000 shares of
Class A Nonvoting Common Stock, par value $.01 per share, (c) 1,250,000
shares of Class B Nonvoting Common Stock, par value $.01 per share, and (d)
10,000,000 shares of Preferred Stock, par value $.01 per share, of which
6,000 shares have been designated Series A Nonvoting Convertible Preferred
Stock, 1,000,000 shares have been designated Series B Convertible Preferred
Stock and 1,000,000 shares have been designated Series C Convertible
Preferred Stock, and all such shares are free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions,
encumbrances and claims of every kind.
11. Amendment to Section 4.4. Section 4.4 of the Agreement is hereby
amended by deleting Section 4.4 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 4.4:
4.4 Transactions in Capital Stock. Except as otherwise contemplated
with respect to (i) the Other Agreements and the rights and privileges
associated with the 6,000 shares of Series A Nonvoting Convertible
Preferred Stock, 500,000 shares of Series B Preferred Stock, 1,089,999
shares of Class A Nonvoting Common Stock and 1,000,000 shares of Class B
Nonvoting Common Stock issued to KLT Energy Services, Inc. and Reardon
Capital, LLC, (ii) the shares of Series C Preferred Stock available for
issuance upon exchange of NEI Stock being offered to the shareholders of
the Founding Companies, (iii) as contemplated by the Private Offering
Memorandum, including, without limitation, the grant and exercise of
options to employees of Nationwide and its subsidiaries, and (iv) in
connection with any future acquisitions, mergers or financings which may be
conducted by NEI or its subsidiaries: (a) there are no options, warrants,
calls, conversion rights or commitments of any kind which obligate NEI to
issue any of its authorized but unissued capital stock; and (b) NEI has no
obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its securities or any interest therein nor any obligation to
pay any dividend or make any distribution in respect of any of its capital
stock.
4
<PAGE>
12. Amendment to Section 4.8.3. Section 4.8.3 of the Agreement is hereby
amended by deleting clauses (a) and (b) of Section 4.8.3 set forth in the
Original Agreement in their entirety.
13. Deletion of Section 4.13. Section 4.13 of the Original Agreement is
deleted in its entirety.
14. Amendment to Section 5.1. Section 5.1 of the Agreement is hereby
amended by deleting Section 5.1 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 5.1:
5.1 Access. Shareholders and the Company shall permit NEI and its
representatives and the Purchasers and their representatives to perform
such inspections, investigations and due diligence with respect to the
Company, its assets, business and financial condition, as NEI or the
Purchasers deem advisable. Shareholders and the Company shall provide NEI
and its representatives and the Purchasers and their representatives full
access to and an opportunity to inspect all properties, facilities, books,
records, accounts, contracts and documents of the Company, and shall make
themselves, their counsel and the officers of the Company available to NEI
and the Purchasers and otherwise cooperate with NEI's and the Purchasers'
due diligence investigations. Shareholders and the Company shall furnish
NEI and its representatives and the Purchasers and their representatives
all information with respect to the business and affairs of the Company as
NEI or the Purchasers reasonably request. Shareholders and the Company
shall permit NEI and the Purchasers to have access to other third parties,
including contractors, suppliers and bankers with which the Company does
business, as reasonably required for verification of any information
obtained by NEI or the Purchasers during their due diligence investigation,
provided such investigation is conducted only in the presence of
representatives of the Company and at times reasonably acceptable to the
Company. Shareholders and the Company shall permit NEI to conduct
appraisals of the Company's equipment and/or real estate at NEI's expense.
NEI will coordinate such due diligence investigations with Shareholders to
avoid disruption or undue interference with the operations of the Company.
Shareholders shall deliver to NEI copies of all environmental audits, risk
assessments and other investigations performed with respect to the Company
or its assets at any time prior to the Merger Date. Notwithstanding the
foregoing, the representations and warranties in Article III shall not be
affected by any due diligence investigation conducted by NEI, the
Purchasers or their respective representatives. NEI will promptly advise
the Company and Shareholders if it learns of any facts which conflict with
any of the representations and warranties made by the Company and
Shareholders herein.
15. Amendment to Section 5.16. Section 5.16 of the Agreement is hereby
amended by deleting Section 5.16 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 5.16:
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5.16 Cooperation in Preparation of Private Offering Memorandum. The
Company and the Shareholders shall furnish or cause to be furnished to NEI
all information concerning the Company and the Shareholders required for
inclusion in, and will cooperate with NEI in the preparation of, the
Private Offering Memorandum (including audited and unaudited historical and
pro forma financial statements prepared in accordance with GAAP, in form
suitable for inclusion in the Private Offering Memorandum). The disclosure
of information with respect to the Company and the Shareholders in the
Private Offering Memorandum and in the conduct of the offering described
therein shall not constitute a violation of any confidentiality agreement,
including Section 11.2 of this Agreement, among the parties hereto. All
information and disclosures provided by Shareholders or the Company in
accordance with this Section 5.16 shall be subject to the provisions of
Sections 3.23, 3.24 and 3.26 hereof. The Company and the Shareholders agree
promptly to advise NEI if at any time prior to the Merger Date they
discover that any information contained in the Private Offering Memorandum
concerning the Company or the Shareholders becomes inaccurate or incomplete
in any material respect, and to provide the information needed to correct
any such inaccuracy.
16. Amendment to Section 5.17. Section 5.17 of the Agreement is hereby
amended by deleting Section 5.17 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 5.17:
5.17 Authorized Capital. Prior to the Merger Date, NEI shall maintain
its authorized capital stock as set forth in Section 4.3 hereof.
17. Amendment to Section 6.3. Section 6.3 of the Agreement is hereby
amended by deleting Section 6.3 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 6.3:
6.3 No Litigation. No action or proceeding before any court or
governmental agency shall have been instituted or threatened to restrain or
prohibit the Merger or the private offering described in the Private
Offering Memorandum.
18. Deletion of Section 6.4. The second sentence of Section 6.4 of the
Original Agreement is deleted in its entirety.
19. Deletion of Section 6.5. Section 6.5 of the Original Agreement is
deleted in its entirety.
20. Amendment to Section 6.8. Section 6.8 of the Agreement is hereby
amended by deleting Section 6.8 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 6.8:
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6.8 Opinion of Counsel. Shareholders shall have received from NEI's
counsel a written opinion, dated as of the Merger Date, in substantially
the form attached hereto as Schedule 6.8.
21. Amendment to Section 7.6. Section 7.6 of the Agreement is hereby
amended by deleting Section 7.6 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 7.6:
7.6 Employment Agreements. NEI or its Affiliate shall have entered
into Employment Agreements acceptable to NEI with Rod Henderson and Bruce
Henderson in accordance with the terms recited in Section 6.4, and shall
have made such other arrangements with respect to the Company's key
employees as NEI deems advisable.
22. Amendment to Section 7.8. Section 7.8 of the Agreement is hereby
amended by deleting Section 7.8 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 7.8:
7.8 Opinion of Counsel for Shareholders. NEI shall have received from
Shareholders' counsel a written opinion, dated as of the Merger Date, in
substantially the form attached hereto as Schedule 7.8.
23. Amendment to Section 7.11. Section 7.11 of the Agreement is hereby
amended by deleting Section 7.11 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 7.11:
7.11 No Litigation. No action or proceeding before any court or
governmental agency shall have been instituted or threatened to restrain or
prohibit the Merger or the private offering described in the Private
Offering Memorandum.
24. Amendment to Section 7.14. Section 7.14 of the Agreement is hereby
amended by deleting Section 7.14 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 7.14:
7.14 Other Founding Company. NEI shall have entered into the Other
Agreement with the Other Founding Company and the closing of Other
Agreement with the Other Founding Company shall have occurred, or shall
occur simultaneously with Closing of this Agreement.
25. Deletion of Section 7.16. Section 7.16 of the Original Agreement is
deleted in its entirety.
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26. New Section 8.4. The Agreement is amended by adding the following new
Section 8.4:
8.4 Exchange Right. If on or before December 31, 1999, NEI has not
consummated an initial public offering of its NEI Stock, the Shareholders
shall have the right to exchange their shares of NEI Stock received
pursuant to the Merger for an equal number of shares of Series C
Convertible Preferred Stock upon the surrender to NEI of the certificates
evidencing such shares of NEI Stock endorsed in blank. Upon receipt of such
certificates from a Shareholder endorsed in blank, NEI shall promptly
deliver to such Shareholder a certificate evidencing an equal number of
shares of Series C Convertible Preferred Stock.
27. Amendment to Section 9.1. Clause (c) of the first sentence of Section
9.1 of the Agreement is hereby amended by deleting such clause in the Original
Agreement in its entirety and substituting in lieu thereof the following new
clause (c) to the first sentence of Section 9.1:
(c) any liability under the 1933 Act, the 1934 Act or other federal or
state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of material
fact relating to the Company or the Shareholders which was based upon
information provided to NEI or its counsel by the Company or the
Shareholders and contained in the Private Offering Memorandum, or arising
out of or based upon any omission or alleged omission to state therein a
material fact relating to the Company or the Shareholders required to be
stated therein or necessary to make the statements therein not misleading;
provided, that such indemnity shall not inure to the benefit of NEI to the
extent such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary draft of the
Private Offering Memorandum and the Shareholders provided written corrected
information to NEI for inclusion in the final Private Offering Memorandum
and such information was not so included, and provided further, that no
Shareholder shall be liable for any indemnification pursuant to this
Section 9.1(c) to the extent solely attributable to a breach of any
representation, warranty or agreement made by any other Shareholder;
28. Amendment to Section 9.2. Clause (c) of the first sentence of Section
9.2 of the Agreement is hereby amended by deleting such clause in the Original
Agreement in its entirety and substituting in lieu thereof the following new
clause (c) to the first sentence of Section 9.2:
(c) any liability under the 1933 Act, the 1934 Act or other federal or
state law or regulation, at common law or otherwise arising out of or based
upon any untrue statement or alleged untrue statement of material fact
relating to NEI or any of the Other Founding Company contained in the
Private Offering Memorandum or arising out of or based upon any omission or
alleged omission to state therein a material fact relating to NEI or any of
the Other Founding Company required to be stated therein or necessary to
make the
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statements therein not misleading, except to the extent such statement or
omission relates to the Company or the Shareholders;
29. Amendment to Section 10.1. Section 10.1 of the Agreement is hereby
amended by deleting Section 10.1 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 10.1:
10.1 Termination. This Agreement may be terminated at any time prior
to the Merger Date, but only:
10.1.1 By the mutual written consent of NEI and the
Shareholders;
10.1.2 By the Shareholders and the Company if the applicable
conditions set forth in Article VI hereof have not been satisfied or
waived by December 31, 1998;
10.1.3 By NEI if the applicable conditions set forth in Article
VII hereof have not been satisfied or waived by December 31, 1998; or
10.1.4 By NEI if NEI in its sole discretion elects not to
consummate the securities offering described in the Private Offering
Memorandum or if NEI in its sole discretion elects not to proceed with
the NEI Plan of Organization.
30. Amendment to Section 11.2.1. Section 11.2.1 of the Agreement is
hereby amended by deleting Section 11.2.1 set forth in the Original Agreement in
its entirety and substituting in lieu thereof the following new Section 11.2.1:
11.2.1 Shareholders jointly and severally agree that they shall not
disclose to any Person (other than NEI and its representatives and the
Purchasers and their representatives) nor use for any purpose (other than
in connection with the offering described in the Private Offering
Memorandum or the conduct of the Company's business prior to the Merger
Date or pursuant to any subpoena or order of any court or administrative
agency) any confidential information, trade secrets, customer lists, price
lists, bids, technical know-how or other confidential or proprietary
information of or with respect to the Company, whether or not marked or
specifically identified as confidential.
31. Amendment to Section 14.1. Section 14.1 of the Agreement is amended
by adding the following clause (c) to the end of the first sentence of Section
14.1 of the Original Agreement:
or, (c) a registration statement filed with the SEC pursuant to the 1933
Act in connection with NEI's initial public offering.
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<PAGE>
32. Amendment to Section 14.6.1. Section 14.6.1 of the Agreement is
hereby amended by deleting Section 14.6.1 set forth in the Original Agreement in
its entirety and substituting in lieu thereof the following new Section 14.6.1:
14.6.1 Make current public information regarding NEI available as
contemplated in Rule 144 under the 1933 Act for a period of five years
beginning 90 days following the effective date of the registration
statement filed with the SEC pursuant to the 1933 Act in connection with
NEI's initial public offering.
33. Amendment to Section 15.3. The addresses and facsimile numbers for
notice pursuant to Section 15.3 of the Agreement for NEI are amended in their
entirety by substituting in the following addresses and facsimile numbers:
If to NEI: Nationwide Electric, Inc.
250 Marquette, Suite 125
Minneapolis, MN 55401-2188
FAX: (612) 371-8036
Attn: President
with a copy to: Stinson, Mag & Fizzell, P.C.
1201 Walnut Street, Suite 2800
Kansas City, MO 64106
FAX: (816) 691-3495
Attn: John A. Granda, Esq.
34. Amendment to Schedules. Schedules A, 2.6, 3.1, 3.3, 3.4, 3.6.2,
3.10.1, 3.10.3, 3.10.6 and 5.3 of the Agreement are hereby amended by deleting
such Schedules attached to the Original Agreement in their entirety and
substituting in lieu thereof the new Schedules A, 2.6, 3.1, 3.3, 3.4, 3.6.2,
3.10.1, 3.10.3, 3.10.6 and 5.3 attached hereto. Schedules 3.6.1 and 3.13.1 of
the Agreement are hereby amended by adding to such Schedules the new Schedules
3.6.1 and 3.13.1 attached hereto. Schedule 3.10.2 of the Agreement is hereby
amended by deleting the first two pages of such Schedule in its entirety and
substituting in lieu thereto the new Schedule 3.10.2, with no amendment or
deletion of the pages following the second page of such Schedule attached to the
Original Agreement.
35. Waiver of Certain Consents. The Shareholders hereby waive as a
condition under Section 6.7 of the Agreement to their obligations on the Merger
Date, of and NEI hereby waives as a condition under Section 7.18 of the
Agreement, the receipt by the Company of consents to the merger from Toyota
Motor Manufacturing North America, Inc., Haden, Inc., and H K Systems, Inc.
36. Full Force and Effect. All provisions of the Original Agreement not
specifically affected by this Amendment shall remain in full force and effect
without alteration or modification.
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Sections of the Original Agreement which are deleted by this Amendment shall
remain intentionally omitted and no renumbering of subsequent Section headings
shall be made.
37. Counterparts. This Amendment may be executed in counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute a single instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
set forth above.
NATIONWIDE ELECTRIC, INC.
By: /s/ Gregory J. Orman
------------------------------------
"NEI"
HENDERSON ELECTRIC COMPANY, INC.
By: /s/ Rodney Henderson
------------------------------------
The "Company"
SHAREHOLDERS:
/s/ Rodney Henderson
----------------------------------------
Rodney Henderson
/s/ Bruce Henderson
----------------------------------------
Bruce Henderson
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SCHEDULE 2.6
MERGER CONSIDERATION
TOTAL AGGREGATE MERGER CONSIDERATION $11,835,026
Cash/(1)(2)/ $5,305,767
NEI Stock $6,250,008
Basket $279,251
- -----------------------
/(1)/ This amount takes into account $6,912,331 which was the consolidated
book value of the Company as of March 31, 1998 (computed in accordance
with GAAP, after reflecting the entries related to consummation of the
redemption transaction referred to in Section 2.13 (without taking
into account the Tax consequences thereof) and after deducting the
Company's investment in Eagle Electric Company, Inc. in the amount of
$518,445). The Shareholders and NEI have agreed that to the extent
such amount is greater than $6,577,305, the cash portion of the Merger
Consideration shall be increased by the amount of such excess.
Accordingly, the cash portion of the Merger Consideration is equal to
$5,250,000 plus $335,018.
/(2)/ Subject to increase in accordance with the provisions of Section 2.15.
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EXHIBIT 2.4
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT, dated October 21, 1998 ("Amendment"), to the Stock
Purchase Agreement (the "Original Agreement"), dated June 12, 1998, among
Nationwide Electric, Inc., a Delaware corporation ("NEI"), The Allison Company,
a Georgia corporation (the "Company"), the shareholders of the Company
("Shareholders"), and Allison-Smith Company, a Georgia corporation (the
"Operating Company") (capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Original Agreement).
WHEREAS, NEI has determined not to conduct an Initial Public Offering of
its common stock at this time; and
WHEREAS, notwithstanding the decision not to proceed with such offering at
this time, the parties to the Original Agreement desire to proceed with the
closing of the exchange of Company Stock for cash and stock of NEI in accordance
with the terms and conditions of the Original Agreement as amended by this
Amendment; and
WHEREAS, in lieu of such offering, NEI has determined to conduct a private
offering of its securities, a portion of the proceeds of which will be used to
provide cash necessary to consummate the transactions contemplated by the NEI
Plan of Organization.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto,
intending to be legally bound hereby, agree to amend the Agreement as follows:
1. Amendment to Article I. Article I of the Agreement is hereby amended
as follows:
(a) The following shall be added to such Article I:
"Private Offering Memorandum" shall mean the private offering
memorandum, dated September 29, 1998, prepared by NEI in connection with
the offering of capital stock of NEI in an offering which will be exempt
from the registration requirements of the 1933 Act, as it may be amended to
reflect (i) negotiations between the proposed purchasers of such stock, and
(ii) the termination of the Asset Purchase Agreement, dated June 2, 1998,
between NEI, Potter Electric Company and Ralph Pangonis, Sr.
"Purchasers" shall mean the prospective purchasers of stock of NEI
offered pursuant to the Private Offering Memorandum.
"Series B Convertible Preferred Stock" shall mean the Series B
Convertible Preferred Stock, par value $.01 per share, of NEI.
<PAGE>
"Series C Convertible Preferred Stock" shall mean the Series C
Convertible Preferred Stock, par value $.01 per share, of NEI.
(b) All references to the "Registration Statement" and/or the
"Prospectus" (except as either of those terms may be used in the Agreement
without initial capital letters) shall be deleted and replaced by the
"Private Offering Memorandum." All references to "Allison-Smith Electric
Company, Inc." shall refer to Allison-Smith Company, a Georgia corporation.
(c) The following definitions set forth in the Original Agreement
shall be deleted in their entirety and the following definitions shall be
substituted in lieu thereof:
"Other Founding Company" shall mean Henderson Electric Company, Inc.,
a Kentucky corporation.
"NEI Plan of Organization" shall mean the acquisition or merger of the
Founding Companies by or into NEI or its subsidiaries.
(d) The following definitions set forth in the Original Agreement
shall be deleted in their entirety: "Effective Date," "IPO," "Pricing,"
"Prospectus," "Registration Statement" and "Underwriters."
2. Amendment to Section 2.2. Section 2.2 of the Agreement is amended by
deleting the first sentence of Section 2.2 of the Original Agreement in its
entirety and substituting in lieu thereof the following sentence:
The aggregate Purchase Price to be received by the Shareholders in exchange
for the Company Stock shall consist of cash and shares of NEI Stock
determined in accordance with SCHEDULE 2.2 attached hereto; provided,
however, that the actual number of shares of NEI Stock shall be based upon
a value of $12.00 per share of NEI Stock, rounded up to the nearest whole
share; provided, further, that if the price per share in NEI's next round
of financing (which is a bona fide third party transaction involving the
sale of securities for aggregate consideration in excess of $1,000,000)
subsequent to the private placement to Kansas City Power & Light Company or
its affiliates in which it acquired 500,000 shares of Series B Preferred
Stock and 1,000,000 shares of Class B Nonvoting Common Stock at a price of
$12.00 per share (with certain ratchet protections substantially similar to
those provided for in this Section 2.2), whether in a private placement or
an initial public offering (the "Price") is less than $12.00 per share,
then an additional number of shares shall be issued to the Shareholders, in
the same proportions set forth above, as if such Price had been used in
making the computation in the immediately preceding clause, less the number
of shares of NEI Stock issued at the Closing.
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3. Amendment to Section 2.3. Section 2.3 of the Agreement is amended by
deleting the clause "which may be prior or subsequent to the Pricing," in the
first sentence of Section 2.3 of the Original Agreement.
4. Amendment to Section 2.4. Section 2.4 of the Agreement is amended by
deleting the clause "which shall be not later than 15 days after the closing of
the IPO," in the first sentence of Section 2.4 of the Original Agreement and
substituting therefor "which shall occur not later than 15 days following the
date of the Amendments.
5. Deletion of Section 2.5. Section 2.5 of the Original Agreement is
deleted in its entirety.
6. Amendment to Section 3.23.2. Section 3.23.2 of the Agreement is
amended by deleting the first sentence of Section 3.23.2 of the Original
Agreement in its entirety and substituting in lieu thereof the following
sentence:
If, prior to the Closing Date, the Company or the Operating Company or any
Shareholder becomes aware of any fact or circumstance which would affect in
any material respect the accuracy of a representation or warranty of the
Company or the Operating Company or the Shareholders in this Agreement or a
representation or disclosure with respect to the Company or the Operating
Company or the Shareholders in the Private Offering Memorandum, the
Company, the Operating Company and the Shareholders shall immediately give
notice of such fact or circumstance to NEI.
7. Amendment to Section 3.24. Section 3.24 of the Agreement is amended by
deleting the first sentence of Section 3.24 of the Original Agreement in its
entirety and substituting in lieu thereof the following sentence:
3.24 Acknowledgment. The Shareholders acknowledge and agree: (a)
that there exists no firm commitment, binding agreement or promise of any
kind, express or implied, that the offering described in the Private
Offering Memorandum will be consummated; (b) that neither NEI or any of its
officers, directors, agents or representatives nor any Purchasers shall
have any liability to the Company, the Operating Company, the Shareholders
or any other Person for any failure of the private offering described in
the Private Offering Memorandum to be consummated or the failure of NEI to
sell its securities in such offering at a particular price or within a
particular range of prices or to occur at all; (c) that NEI has not
committed to pay any dividends on the NEI Stock and that, in all
likelihood, no dividends will be paid on the NEI Stock in the foreseeable
future; (d) that there is no guaranty the NEI Stock will appreciate or not
depreciate in value, that an active market will exist for the NEI Stock, or
that the Shareholders will be able in the future to sell their NEI Stock at
a price equal to or greater than the offering price described in the
Private Offering Memorandum; and (e) that the decision of the Shareholders
to enter into this Agreement and to exchange the Company
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Stock for NEI Stock and cash has been made independent of, and without
reliance upon, any statements, opinions, communications or due diligence
investigations made or performed by any Purchasers.
8. Amendment to Section 4.3. Section 4.3 of the Agreement is hereby
amended by deleting the first sentence of Section 4.3 of the Original Agreement
in its entirety and substituting in lieu thereof the following sentence:
The authorized capital stock of NEI consists of (a) 30,000,000 shares of
voting common stock, par value $.01 per share, (b) 1,200,000 shares of
Class A Nonvoting Common Stock, par value $.01 per share, (c) 1,250,000
shares of Class B Nonvoting Common Stock, par value $.01 per share, and (d)
10,000,000 shares of Preferred Stock, par value $.01 per share, of which
6,000 shares have been designated Series A Nonvoting Convertible Preferred
Stock, 1,000,000 shares have been designated Series B Convertible Preferred
Stock and 1,000,000 shares have been designated Series C Convertible
Preferred Stock, and all such shares are free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions,
encumbrances and claims of every kind.
9. Amendment to Section 4.4. Section 4.4 of the Agreement is hereby
amended by deleting Section 4.4 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 4.4:
4.4 Transactions in Capital Stock. Except (i) for the Other
Agreements and the rights and privileges associated with the 6,000 shares
of Series A Nonvoting Convertible Preferred Stock, the 500,000 shares of
Series B Preferred Stock, 1,089,999 shares of Class A Nonvoting Common
Stock and 1,000,000 shares of Class B Nonvoting Common Stock issued to KLT
Energy Services, Inc., (ii) for the shares of Series C Preferred Stock
available for issuance upon exchange of NEI Stock being offered to the
shareholders of the Founding Companies, (iii) as contemplated by the
Private Offering Memorandum, including, without limitation, the grant and
exercise of options to employees of NEI and its subsidiaries, and (iv) in
connection with any future acquisitions, mergers or financings which may be
conducted by NEI or its subsidiaries: (a) there are no options, warrants,
calls, conversion rights or commitments of any kind which obligate NEI to
issue any of its authorized but unissued capital stock; and (b) NEI has no
obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its securities or any interest therein or to pay any
dividend or make any distribution in respect thereof.
10. Amendment to Section 4.8.3. Section 4.8.3 of the Agreement is hereby
amended by deleting clauses (a) and (b) and the words "and (c)" of Section 4.8.3
set forth in the Original Agreement in their entirety.
11. Deletion of Section 4.13. Section 4.13 of the Original Agreement is
deleted in its entirety.
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12. Amendment to Section 5.1. Section 5.1 of the Agreement is hereby
amended by deleting Section 5.1 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 5.1:
5.1 Access. Shareholders, the Company and the Operating Company
shall permit NEI and its representatives and the Purchasers and their
representatives to perform such reasonable inspections, investigations and
due diligence with respect to the Company and the Operating Company and
their respective assets, business and financial condition as NEI or the
Purchasers reasonably deem advisable. Shareholders, the Company and the
Operating Company shall provide NEI and its representatives and the
Purchasers and their representatives full access to and an opportunity to
inspect all properties, facilities, books, records, accounts, contracts and
documents of the Company and the Operating Company, and shall make
themselves, their counsel and the officers and employees of the Company and
the Operating Company reasonably available to NEI and its representatives
and the Purchasers and their representatives and otherwise cooperate with
NEI's and the Purchasers' due diligence investigations. Shareholders and
the Company shall furnish NEI and its representatives and the Purchasers
and their representatives all information with respect to the business and
affairs of the Company and the Operating Company as any such persons may
reasonably request. Shareholders, the Company and the Operating Company
shall permit NEI and its representatives and the Purchasers and their
representatives to have access to other third parties, including
contractors, suppliers and bankers with which the Company or the Operating
Company does business, as reasonably required for verification of any
information obtained by NEI or the Purchasers during their due diligence
investigation. Shareholders and the Company shall permit NEI to conduct
appraisals of the Operating Company's equipment and/or real estate at NEI's
expense. NEI will provide prior notice to and will coordinate such due
diligence investigations with Shareholders to avoid disruption or undue
interference with the operations of the Operating Company or relations with
customers or other third parties. Shareholders shall deliver to NEI copies
of all environmental audits, risk assessments and other investigations
performed with respect to the Operating Company or its assets at any time
prior to the Closing Date. Notwithstanding the foregoing, the
representations and warranties in Article III shall not be affected by any
due diligence investigation conducted by NEI, the Purchasers or their
respective representatives.
13. Amendment to Section 5.16. Section 5.16 of the Agreement is hereby
amended by deleting Section 5.16 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 5.16:
5.16 Cooperation in Preparation of Private Offering Memorandum. The
Company, the Operating Company and the Shareholders shall furnish or cause
to be furnished to NEI all information concerning the Company, the
Operating Company and the Shareholders required for inclusion in, and will
cooperate in all reasonable respects with NEI in the preparation of, the
Private Offering Memorandum (including audited and
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unaudited historical and pro forma financial statements prepared in
accordance with GAAP, in form suitable for inclusion in the Private
Offering Memorandum). The disclosure of information with respect to the
Company, the Operating Company and the Shareholders in the Private Offering
Memorandum and in the conduct of the offering described therein shall not
constitute a violation of any confidentiality agreement, including Section
11.2 of this Agreement, among the parties hereto. All information and
disclosures provided by Shareholders, the Operating Company or the Company
in accordance with this Section 5.16 shall be subject to the provisions of
Sections 3.23, 3.24 and 3.26 hereof. The Company, the Operating Company and
the Shareholder Representative agree promptly to advise NEI if at any time
prior to the Closing Date they discover that any information contained in
the Private Offering Memorandum concerning the Company, the Operating
Company or the Shareholders becomes inaccurate or incomplete in any
material respect, and to provide the information needed to correct any such
inaccuracy. NEI shall reimburse Shareholders for any legal and accounting
fees incurred by them in performing the covenants in this Section 5.16, up
to a maximum aggregate reimbursement of $2,000.
14. Amendment to Section 5.17. Section 5.17 of the Agreement is hereby
amended by deleting Section 5.17 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 5.17:
5.17 Authorized Capital. Prior to the Closing Date, NEI shall
maintain its authorized capital stock as set forth in Section 4.3 hereof.
15. Amendment to Section 6.3. Section 6.3 of the Agreement is hereby
amended by deleting Section 6.3 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 6.3:
6.3 No Litigation. No action or proceeding before any court or
governmental agency shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock or the private offering
described in the Private Offering Memorandum.
16. Deletion of Section 6.5. Section 6.5 of the Original Agreement is
deleted in its entirety.
17. Amendment to Section 6.7. Section 6.7 of the Agreement is hereby
amended by deleting Section 6.7 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 6.7:
6.7 Opinion of Counsel. Shareholders shall have received from NEI's
counsel a written opinion, dated as of the Closing Date, in substantially
the form attached hereto as Schedule 6.7.
6
<PAGE>
18. Amendment to Section 6.8. Section 6.8 of the Agreement is hereby
amended by deleting Section 6.8 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 6.8:
6.8 No Material Adverse Change. There shall not have been any
material adverse change in the business or financial condition of NEI on a
consolidated basis from that reflected in the Private Offering Memorandum,
and the closing of Other Agreement with the Other Founding Company shall
have occurred, or shall occur simultaneously with Closing of this
Agreement.
19. Amendment to Section 7.8. Section 7.8 of the Agreement is hereby
amended by deleting Section 7.8 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 7.8:
7.8 Opinion of Counsel. NEI shall have received from Shareholders'
counsel a written opinion, dated as of the Closing Date, in substantially
the form attached hereto as Schedule 7.8.
20. Amendment to Section 7.11. Section 7.11 of the Agreement is hereby
amended by deleting Section 7.11 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 7.11:
7.11 No Litigation. No action or proceeding before any court or
governmental agency shall have been instituted or threatened to restrain or
prohibit the purchase and sale of the Company Stock.
21. Amendment to Section 7.14. Section 7.14 of the Agreement is hereby
amended by deleting Section 7.14 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 7.14:
7.14 Other Founding Company. NEI shall have entered into the Other
Agreement with the Other Founding Company and the closing of Other
Agreement with the Other Founding Company shall have occurred, or shall
occur simultaneously with Closing of this Agreement.
22. Deletion of Section 7.16. Section 7.16 of the Original Agreement is
deleted in its entirety.
23. New Section 8.6. The Agreement is amended by adding the following new
Section 8.6:
8.6 Exchange Right. If on or before December 31, 1999, NEI has not
consummated an initial public offering of its NEI Stock, the Shareholders
shall have the
7
<PAGE>
right to exchange their shares of NEI Stock received pursuant to this
Agreement for an equal number of shares of Series C Convertible Preferred
Stock upon the surrender to NEI of the certificates evidencing such shares
of NEI Stock endorsed in blank. Upon receipt of such certificates from a
Shareholder endorsed in blank, NEI shall promptly deliver to such
Shareholder a certificate evidencing an equal number of shares of Series C
Convertible Preferred Stock. Upon issuance, all shares of Series C
Convertible Preferred Stock will be duly authorized, validly issued, fully
paid and nonassessable and will be offered and issued by NEI in compliance
with all applicable securities laws.
24. Amendment to Section 9.1. Clause (c) of the first sentence of Section
9.1 of the Agreement is hereby amended by deleting such clause in the Original
Agreement in its entirety and substituting in lieu thereof the following new
clause (c) to the first sentence of Section 9.1:
(c) any liability under the 1933 Act, the 1934 Act or other federal or
state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of material
fact relating to the Company or the Operating Company or the Shareholders
which was based upon information provided to NEI or its counsel by the
Company or the Operating Company or the Shareholders and contained in the
Private Offering Memorandum, or arising out of or based upon any omission
or alleged omission to state therein a material fact relating to the
Company or the Operating Company or the Shareholders required to be stated
therein or necessary to make the statements therein not misleading;
provided, that such indemnity shall not inure to the benefit of NEI to the
extent such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary draft of the
Private Offering Memorandum and the Shareholders provided written corrected
information to NEI for inclusion in the final Private Offering Memorandum
and such information was not so included, and provided further, that no
Shareholder shall be liable for any indemnification pursuant to this
Section 9.1(c) to the extent solely attributable to a breach of any
representation, warranty or agreement made by any other Shareholder;
25. Amendment to Section 9.2. Clause (c) of the first sentence of Section
9.2 of the Agreement is hereby amended by deleting such clause in the Original
Agreement in its entirety and substituting in lieu thereof the following new
clause (c) to the first sentence of Section 9.2:
(c) any liability under the 1933 Act, the 1934 Act or other federal or
state law or regulation, at common law or otherwise arising in connection
with the Other Agreements, or arising out of or based upon any untrue
statement or alleged untrue statement of material fact relating to NEI or
any of the Other Founding Companies contained in the Private Offering
Memorandum or arising out of or based upon any omission or alleged omission
to state therein a material fact relating to NEI or any of the Other
Founding Companies required to be stated
8
<PAGE>
therein or necessary to make the statements therein not misleading, except
to the extent such statement or omission relates to the Company, the
Operating Company or the Shareholders;
26. Amendment to Section 10.1. Section 10.1 of the Agreement is hereby
amended by deleting Section 10.1 set forth in the Original Agreement in its
entirety and substituting in lieu thereof the following new Section 10.1:
10.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date, but only:
10.1.1 By the mutual written consent of NEI and the
Shareholders;
10.1.2 By the Shareholders if this transaction shall not have
Closed by January 22, 1999, for any reason other than failure of the
Shareholders to satisfy any of the conditions in Article VII which are
within their control;
10.1.3 By the Shareholders, the Company and the Operating
Company if the applicable conditions set forth in Article VI hereof
have not been satisfied or waived by January 22, 1999;
10.1.4 By NEI if the applicable conditions set forth in Article
VII hereof have not been satisfied or waived by January 22, 1999; or
10.1.5 By NEI if NEI in its sole discretion elects not to
consummate the securities offering described in the Private Offering
Memorandum or if NEI in its sole discretion elects not to proceed with
the NEI Plan of Organization.
27. Amendment to Section 11.2.1. Section 11.2.1 of the Agreement is
hereby amended by deleting Section 11.2.1 set forth in the Original Agreement in
its entirety and substituting in lieu thereof the following new Section 11.2.1:
11.2.1 Shareholders jointly and severally agree that they shall not
disclose to any Person (other than NEI and its representatives and the
Purchasers and their representatives) nor use for any purpose (other than
in connection with the offering described in the Private Offering
Memorandum or the conduct of the Operating Company's business prior to the
Closing Date or pursuant to any subpoena or order of any court or
administrative agency) any confidential information, trade secrets,
customer lists, price lists, bids, technical know-how or other confidential
or proprietary information of or with respect to the Company or the
Operating Company, whether or not marked or specifically identified as
confidential.
9
<PAGE>
28. Amendment to Section 14.1. Section 14.1 of the Agreement is amended
by adding the following clause (c) to the end of the first sentence of Section
14.1 of the Original Agreement:
or, (c) a registration statement filed with the SEC pursuant to the 1933
Act in connection with NEI's initial public offering.
29. Amendment to Section 14.6.1. Section 14.6.1 of the Agreement is
hereby amended by deleting Section 14.6.1 set forth in the Original Agreement in
its entirety and substituting in lieu thereof the following new Section 14.6.1:
14.6.1 Make current public information regarding NEI available as
contemplated in Rule 144 under the 1933 Act for a period of five years
beginning 90 days following the effective date of the registration
statement filed with the SEC pursuant to the 1933 Act in connection with
NEI's initial public offering.
30. Amendment to Section 15.3. The addresses and facsimile numbers for
notice pursuant to Section 15.3 of the Agreement for NEI are amended in their
entirety by substituting in the following addresses and facsimile numbers:
If to NEI: Nationwide Electric, Inc.
250 Marquette, Suite 125
Minneapolis, MN 55401-2188
FAX: (612) 371-8036
Attn: President
with a copy to: Stinson, Mag & Fizzell, P.C.
1201 Walnut Street, Suite 2800
Kansas City, MO 64106
FAX: (816) 691-3495
Attn: John A. Granda, Esq.
31. Amendment to Section 15.12. Section 15.12 of the Agreement is hereby
amended by adding the following subsection (f) to the end of Section 15.12 of
the Original Agreement:
(f) NEI covenants and agrees to cause one or more of the following
events to occur as NEI shall determine: (1) the continuation and
maintenance of the Allison Smith Company Profit Sharing Plan (the "Plan")
in full force and effect for the benefit of participants who shall include
the current participants in the Plan during the period described in the
following sentence; (2) the merger of the assets of the Plan into another
plan (the "Successor Plan") intended to be qualified under Section 401(a)
of the Internal Revenue Code, which shall include the current participants
in the Plan as participants in the Successor Plan; or (3) the termination
of the Plan with the option being given to all participants who are current
participants in the Plan to direct the transfer of their account balances
to another plan (the
10
<PAGE>
"Transfer Plan") intended to be qualified under Section 401(a) of the
Internal Revenue Code. NEI further covenants and agrees to keep the Plan or
the Successor Plan or the Transfer Plan in effect as long as any of the
Shareholders remain employed by NEI or any of its affiliates.
32. Amendment to Schedules. Schedule 2.2 of the Agreement is hereby
amended by deleting Schedule 2.2 attached to the Original Agreement in its
entirety and substituting in lieu thereof the new Schedule 2.2 attached hereto.
Schedules 6.7 and 7.4 attached hereto are added to the Agreement.
33. Full Force and Effect. All provisions of the Original Agreement not
specifically affected by this Amendment shall remain in full force and effect
without alteration or modification. Sections of the Original Agreement which are
deleted by this Amendment shall remain intentionally omitted and no renumbering
of subsequent Section headings shall be made.
34. Counterparts. This Amendment may be executed in counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute a single instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
set forth above.
NATIONWIDE ELECTRIC, INC.
By: /s/ Gregory J. Orman
----------------------------------
Title: Chairman of the Board
----------------------------------
"NEI"
SHAREHOLDERS: THE ALLISON COMPANY
/s/ Robert Allison By: /s/ Robert Allison
- ------------------------------------ ----------------------------------
Robert Allison Title: President
----------------------------------
The "Company"
/s/ David Cartwright
- ------------------------------------
David Cartwright ALLISON-SMITH COMPANY
/s/ Lanny Thomas By: /s/ Robert Allison
- ------------------------------------ ----------------------------------
Lanny Thomas Title: President
----------------------------------
The "Operating Company"
The Allison-Smith Company Profit
Sharing Trust Segregated Accounts
F/B/O Robert Allison, David Cartwright
and Lanny Thomas
By: Compass Bank, Trustee
By: /s/ Joe Stork
---------------------------------
Title: Vice President
------------------------------
12
<PAGE>
SCHEDULE 2.2
PURCHASE PRICE
--------------
TOTAL PURCHASE PRICE DUE AT CLOSING/(1)/ $15,585,000
Cash 65%
NEI Stock 35%
ASSETS TO BE RETAINED All furniture and office furnishings in
BY SHAREHOLDERS Robert Allison's individual office
LIABILITIES TO BE
LIQUIDATED BY
SHAREHOLDERS PRIOR
TO THE CLOSING DATE None
The Purchase Price shall be allocated amongst the Shareholders as follows:
<TABLE>
<CAPTION>
Number
Total Cash of Shares Stock Basket
----- ---- --------- ----- ------
<S> <C> <C> <C> <C> <C>
Robert Allison $4,200,157.50 $4,095,153.56 0 $ 0 $105,003.94
Lanny Thomas 900,033.75 877,532.91 0 0 22,500.84
David Cartwright 900,033.75 877,532.91 0 0 22,500.84
Robert Allison Segregated Account 6,709,342.50 2,723,268.94 318,195 3,818,340 167,733.56
Lanny Thomas Segregated Account 1,437,716.25 583,565.34 68,184 818,208 35,942.91
David Cartwright Segregated Account 1,437,716.25 583,565.34 68,184 818,208 35,942.91
</TABLE>
Robert Allison and the Robert Allison Segregated Account will not share in the
Earnout.
- --------------------------
/(1)/ In addition to the cash portion of the Purchase Price payable at
Closing, NEI agrees to pay to the Shareholders as additional Purchase Price, in
cash, an earnout amount (the "Earnout") equal to 25% of the amount by which the
consolidated EBIT of the Company (without taking into effect any overhead or
other costs attributable to NEI or any Other Founding Company) for each of the
fiscal years ending March 31, 1999 and 2000 (each, an "Earnout Period") exceeds
$2,500,000. For purposes of this provision, "consolidated" shall mean the
Company and the Operating Company only. The Earnout, if any, shall be paid by
wire transfer to the account or accounts designated by the Shareholder
Representative, not later than 15 business days after NEI's independent
certified public accountants shall have delivered to NEI, with a copy to the
Shareholder Representative, the audited consolidated financial statements of the
Company for each fiscal year during the Earnout Period. For purposes of
computing the Earnout, NEI shall maintain separate consolidated books and
records for the Company and the Operating Company or the Division corresponding
thereto.
<PAGE>
Exhibit 3.4
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NATIONWIDE ELECTRIC, INC.
-------------------------
The undersigned, Nationwide Electric, Inc., a Delaware corporation
(the "Corporation"), for the purpose of amending the Amended and Restated
Certificate of Incorporation of the Corporation, in accordance with the General
Corporation Law of Delaware, does hereby make and execute this Certificate of
Amendment of the Certificate of Incorporation and does hereby certify that:
I. The following resolutions proposed by the Board of Directors and
adopted by the stockholders of the Corporation set forth the amendments adopted:
RESOLVED, that the Amended and Restated Certificate of Incorporation
of the Corporation be amended by deleting the first paragraph of ARTICLE IV
and inserting in lieu thereof the following paragraph:
The total number of shares of capital stock which may be issued
by the Corporation is 42,450,000 shares, of which 30,000,000 shares
shall be Common Stock, par value $0.01 per share, 1,200,000 shares
shall be Class A Nonvoting Common Stock, par value $0.01 per share,
1,250,000 shares shall be Class B Nonvoting Common Stock, par value
$0.01 per share, and 10,000,000 shares shall be Preferred Stock, par
value $0.01 per share.
FURTHER RESOLVED, that the Amended and Restated Certificate of
Incorporation be further amended by adding in ARTICLE IV thereof,
immediately following the section entitled "GENERAL PROVISIONS RELATING TO
CLASS A NONVOTING COMMON STOCK" the following new section entitled "GENERAL
PROVISIONS RELATING TO CLASS B NONVOTING COMMON STOCK":
GENERAL PROVISIONS RELATING TO
CLASS A NONVOTING COMMON STOCK
1. The Class B Nonvoting Common Stock shall have all of the
powers, preferences and rights of the Common Stock except that the
Class B Nonvoting Common Stock shall not have any voting rights.
2. The Class B Nonvoting Common Stock shall be convertible at
the option of the holder thereof into the Class B Conversion Shares
(as defined below).
<PAGE>
3. No fractional shares of Common Stock shall be issued upon
conversion of the Class B Nonvoting Common Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the
fair market value of such fractional shares of Common Stock as
determined in good faith by the Corporation's Board of Directors,
whose determination shall be conclusive.
4. The Corporation shall at all times when the Class B Nonvoting
Common Stock shall be outstanding, reserve and keep available out of
the authorized but unissued Common Stock, for the purpose of effecting
the conversion of the Class B Nonvoting Common Stock, such number of
its duly authorized shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding Class B
Nonvoting Common Stock.
5. Each share of Class B Nonvoting Common Stock shall be
converted, in accordance with these General Provisions, into one share
of Common Stock, adjusted as follows ("Class B Conversion Share"). In
case the Corporation shall hereafter: (i) subdivide its outstanding
shares of Common Stock; (ii) combine its outstanding Common Stock into
a smaller number of shares; or (iii) issue other securities of the
Corporation by reclassification of its Common Stock (including any
such reclassification in connection with a consolidation or merger in
which the Corporation is the continuing corporation), the number and
kind of Class B Conversion Shares at the effective date of such
subdivision, combination or reclassification shall be proportionately
adjusted so that the owner of any Class B Nonvoting Common Stock
converted after such date shall be entitled to receive the number and
kind of Conversion Shares which, if such Class B Nonvoting Common
Stock had been converted immediately prior to such time, he or she
would have owned upon such conversion and been entitled to receive
upon such subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above
shall occur; appropriate adjustment (as determined in good faith by
the Board of Directors of the Corporation) shall be made to apply
these General Provisions to any Class B Conversion Shares which are
not Common Stock in a manner as similar as possible to that for the
Common Stock. In case of any consolidation or merger of the
Corporation with or into another corporation or the sale of all or
substantially all of the assets of the Corporation to another
corporation, each share of Class B Nonvoting
2
<PAGE>
Common Stock shall automatically convert into the kind and amount of
shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Corporation deliverable
upon conversion of such Class B Nonvoting Common Stock would have been
entitled upon such consolidation, merger or sale; appropriate
adjustment (as determined in good faith by the Board of Directors of
the Corporation) shall be made to apply these General Provisions to
any Class B Conversion Shares which are not Common Stock in a manner
as similar as possible to that of the Common Stock.
6. As long as any Class B Nonvoting Common Stock of this
Corporation is outstanding, this Corporation shall not without the
consent of the holders of at least two-thirds of the outstanding Class
B Nonvoting Common Stock, given in person or by proxy at a meeting of
stockholders called for that purpose, or given in writing:
(a) Amend or repeal any provision of the Certificate of
Incorporation of this Corporation or any amendment thereof or add
any provision to such Certificate, if such action would alter the
preferences, special rights or powers of the Class B Nonvoting
Common Stock so as to affect that stock adversely; or
(b) Authorize or create, or increase the authorized amount
of, any stock ("Prior Preference Stock") having preferential
rights (to dividends or to assets on the dissolution, liquidation
or winding up of this Corporation) which are prior to those of
the Class B Nonvoting Common Stock; or
(c) Authorize or create any stock, security, debt or
obligation convertible into or exchangeable for Prior Preference
Stock or evidencing the right to purchase Prior Preference Stock;
or
(d) Increase the authorized amount of Class B Nonvoting
Common Stock or authorize or increase the authorized amount of
any other stock; or
(e) Reclassify any shares of Common Stock or any shares of
junior stock that may hereafter be created into Prior Preference
Stock, Class B Nonvoting Common Stock, or any stock having
preferential rights to dividends or to assets of this Corporation
on dissolution, liquidation or winding up, which
3
<PAGE>
are on a parity with those of the Class B Nonvoting Common Stock;
or
(f) By voluntary action dissolve, liquidate or wind up the
Corporation, or sell, lease or convey all or substantially all of
the assets of the Corporation (but, the execution and delivery of
a mortgage, deed of trust or instrument of pledge, covering all
or substantially all of the assets of the Corporation shall not
be considered a sale or conveyance thereof); or
(g) Effect the merger or consolidation of the Corporation,
unless: (i) the surviving or resulting corporation (which may be
this Corporation or another corporation) will have, immediately
after the merger or consolidation, no stock either authorized or
outstanding ranking prior to or on a parity with the Class B
Nonvoting Common Stock as to dividends or as to assets upon
dissolution, liquidation or winding up of the surviving or
resulting corporation, except the same or a lesser number of
shares of stock having such priority or parity with the same or
lesser rights, preferences and powers as the stock of this
Corporation authorized and outstanding immediately before the
merger or consolidation; and (ii) each holder of Class B
Nonvoting Common Stock immediately before the merger or
consolidation shall be entitled to retain or receive the same
number of shares (with the same rights, preferences and powers)
of the resulting corporation.
Any action specified in this Section 6 as requiring the consent
of the holders of two-thirds of the outstanding Class B Nonvoting
Common Stock may (unless otherwise provided by statute or this
Certificate of Incorporation) be taken with that consent.
(h) As long as any Class B Nonvoting Common Stock is
outstanding, this Corporation shall not without the consent of
the holders of all the outstanding Class B Nonvoting Common Stock
(given in person or by proxy at a meeting of stockholders called
for that purpose, or given in writing) amend, repeal or add to
Section 6 of these General Provisions.
FURTHER RESOLVED, that the Amended and Restated Certificate of
Incorporation of the Corporation be further amended by deleting paragraph 1
of ARTICLE XIII and inserting in lieu thereof the following new paragraph
1:
4
<PAGE>
1. In addition to any requirements of any other provisions of
this Certificate of Incorporation (and notwithstanding the fact that a
lesser percentage may be specified by law or this Certificate of
Incorporation), the affirmative vote, at an annual or special meeting
of the stockholders, of the holders of two-thirds (66-2/3%) or more of
the combined voting power of the then outstanding shares of Voting
Stock (as defined in Section 1 of ARTICLE VIII), voting together as a
single class shall be required to amend, alter or repeal, or adopt any
provision inconsistent with, ARTICLES V, VII, X and XIV.
FURTHER RESOLVED, that the Amended and Restated Certificate of
Incorporation be further amended by adding an Article XIV thereto, which
Article XIV shall read as follows:
ARTICLE XIV
1. The original Bylaws of the Corporation shall be adopted in
any manner provided by law.
2. In furtherance, and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make,
adopt, alter, amend or repeal the Bylaws of the Corporation by the
vote of not less than a majority of the whole Board of Directors.
3. Notwithstanding any other provisions in this Certificate of
Incorporation or the Bylaws of the Corporation, and notwithstanding
the fact that some lesser percentage may be specified by law, the
stockholders of the Corporation shall also have the power, to the
extent such power is at the time in question conferred on them by
applicable law, to make, adopt, alter, amend or repeal the Bylaws
of the Corporation only upon the affirmative vote of two-thirds
(66-2/3%) or more of the combined voting power of the then outstanding
shares of Voting Stock (as defined in Section 1 of ARTICLE VIII)
voting together as a single class.
4. In addition to any requirements of any other provisions of
the Certificate of Incorporation (and notwithstanding the fact that a
lesser percentage may be specified by law or this Certificate of
Incorporation), the affirmative vote, at an annual or special meeting
of the stockholders, of the holders of two-thirds (2/3) or more of the
combined voting power of the then outstanding shares of Voting Stock
voting together as a single class shall be required to amend,
5
<PAGE>
alter or repeal, or adopt any provisions in the Certificate of
Incorporation inconsistent with this ARTICLE XIV.
II. Such amendment has been duly adopted in accordance with the
provisions of Section 242 of the Delaware Corporation Law, as amended.
IN WITNESS WHEREOF, this Certificate of Amendment has been executed on
behalf of the Corporation by its President and attested by its Secretary as of
October 20, 1998, and each of them does hereby affirm and acknowledge that this
Certificate of Amendment is the act and deed of the Corporation and that the
facts stated herein are true.
NATIONWIDE ELECTRIC, INC.
By: /s/ Frederick C. Green, IV
-----------------------------
Frederick C. Green, IV
President and CEO
(CORPORATE SEAL)
ATTEST:
By: /s/ Frank R. Clark
-----------------------
Frank R. Clark
Secretary
6
<PAGE>
Exhibit 3.5
CERTIFICATE OF CORRECTION
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NATIONWIDE ELECTRIC, INC.
The undersigned, Nationwide Electric, Inc., a Delaware corporation
(the "Corporation") does hereby adopt the following Certificate of Correction:
I. The name of the corporation is Nationwide Electric, Inc.
II. The Amended and Restated Certificate of Incorporation was filed by the
Secretary of State of Delaware on June 17, 1998, and said Certificate requires
correction as permitted by subsection (f) of Section 103 of the General
Corporation Law of the State of Delaware.
III. The inaccuracy or defect of said Amended and Restated Certificate of
Incorporation is as follows: Section 1 under the heading "GENERAL PROVISIONS
RELATING TO PREFERRED STOCK" of ARTICLE IV intended to state that the
Certificate of Designation, Preferences and Rights of Series A Nonvoting
Convertible Preferred Stock filed with the Secretary of State of Delaware on
June 11, 1998 was to continue in full force and effect and to be deemed to be
incorporated into and remain part of the Amended and Restated Certificate of
Incorporation, until such Series A Nonvoting Convertible Preferred Stock is
eliminated by resolution adopted by the Board of Directors and filed with the
Secretary of State pursuant to Section 151 of the General Corporation Law of
Delaware.
IV. Section 1 under the heading "GENERAL PROVISIONS RELATING TO PREFERRED
STOCK" of ARTICLE IV of the Amended and Restated Certificate of Incorporation is
correct to read as follows:
1. The Preferred Stock may be issued from time to time in one or
more series, each of such series to have such voting powers (full or limited or
without voting powers), designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereof as are stated and expressed herein, or in a resolution or resolutions
providing for the issue of such series adopted by the Board of Directors as
hereinafter provided. The Certificate of Designation, Preferences and Rights of
Series A Nonvoting Convertible Preferred Stock filed with the Secretary of State
of Delaware on June 11, 1998 shall continue in full force and effect and be
deemed to be incorporated into and remain part of the Amended and Restated
Certificate of Incorporation, until such Series A Nonvoting Convertible
Preferred Stock is eliminated by resolution adopted by the Board of Directors
and filed with the Secretary of State pursuant to Section 151 of the General
Corporation Law of Delaware.
IN WITNESS WHEREOF, this Certificate of Correction has been executed
and acknowledged on behalf of the Corporation by its Vice President as of
December 22, 1998.
/s/ Frank R. Clark
__________________________________
Frank R. Clark, Vice President
<PAGE>
Exhibit 3.6
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A NONVOTING CONVERTIBLE PREFERRED STOCK
OF
NATIONWIDE ELECTRIC, INC.
-------------------------
The undersigned, Nationwide Electric, Inc., a Delaware corporation
(the "Corporation"), for the purpose of amending the Certificate of Designation,
Preferences and Rights of Series A Nonvoting Convertible Preferred Stock of the
Corporation, in accordance with the General Corporation Law of Delaware, does
hereby make and execute this Certificate of Amendment of the Certificate of
Designation, Preferences and Rights of Series A Nonvoting Convertible Preferred
Stock (the "Certificate of Designations") and does hereby certify that:
I. The following resolution proposed by the Board of Directors and
adopted by the stockholders of the Corporation sets forth the amendment adopted:
RESOLVED, that the Certificate of Designations be amended by deleting
Paragraph (a) of Section 2 and substituting in lieu thereof the following:
(a) The Series A Preferred Stock shall have no voting rights. The
holders of Series A Preferred Stock shall be entitled to receive, out of
funds legally available for that purpose, cash dividends at the rate of
$75.00 per annum per share, and no more. Such dividends shall be
cumulative from February 27, 1998, the date that 6,000 shares of Nonvoting
Preferred Stock were issued by Galt Financial, Inc. to KLT (the "Issue
Date") and shall be payable in arrears, on the last day of each month (each
such date being referred to as a "Dividend Payment Date"), commencing
October 1998. The monthly period between consecutive Dividend Payment
Dates shall be referred to as a "Dividend Period." Each such dividend
shall be paid to the holders of record of the Series A Preferred Stock as
their names appear on the share register of the Corporation on the
corresponding Record Date. As used above, the term "Record Date" means the
fifteenth day of the month in which such dividend is payable, or such other
record date designated by the Board of Directors of the Corporation with
respect to the dividend payable on such respective Dividend Payment Date.
Dividends on account of arrears for any past Dividend Periods may be
declared and paid at any time, without reference to any Dividend Payment
Date, to holders of record on such date, not exceeding 50 days preceding
the payment date thereof, as may be fixed by the Board of Directors.
IN WITNESS WHEREOF, this Certificate of Amendment has been executed on
behalf of the Corporation by its President and attested by its Secretary as of
December 11, 1998, and each of them does hereby affirm and acknowledge that this
Certificate of Amendment is the act and deed of the Corporation and that the
facts stated herein are true.
<PAGE>
NATIONWIDE ELECTRIC, INC.
/s/ Frederick C. Green, IV
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By: Frederick C. Green, IV
President and CEO
(Corporate Seal)
ATTEST:
/s/ Frank R. Clark
- --------------------------------
By: Frank R. Clark
Secretary
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Exhibit 3.7
NATIONWIDE ELECTRIC, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
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Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------------------
Nationwide Electric, Inc. (the "Corporation"), certifies that pursuant to
the authority contained in Article IV of its Certificate of Incorporation, and
in accordance with the provisions of Section 151 of the General Corporation Law
of the State of Delaware, its Board of Directors has adopted the following
resolution creating a series of the Preferred Stock, $.01 par value, designated
as Series B Convertible Preferred Stock:
RESOLVED, that a series of the class of Preferred Stock, $.01 par value, of
the Corporation be hereby created, and that the designation and amount thereof
and the voting powers, preferences, and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are set forth in this Certificate of
Designation, Preferences and Rights of Series B Convertible Preferred Stock (the
"Certificate of Designation") as follows:
1. Designation and Amount. Preferred Stock of the Corporation created
and authorized for issuance hereby shall be designated as "Series B Convertible
Preferred Stock" (herein referred to as "Series B Preferred Stock"), having a
par value per share equal to $.01, and the number of shares constituting such
series shall be 500,000.
2. Powers, Preferences and Rights of Series B Preferred Stock.
(a) Except as set forth in Section 6 or as otherwise provided by law,
the Series B Preferred Stock shall have no voting rights. Subject to the
prior and superior rights of the holders of any shares of any other series
of Preferred Stock of the Corporation ("Preferred Stock"), or any similar
stock ranking prior and superior to the shares of Series B Preferred Stock
with respect to dividends, the holders of Series B Preferred Stock shall be
entitled to receive, out of funds legally available for that purpose, cash
dividend payments on January 1, April 1, July 1 and October 1 in each year
(each such date being referred to herein as a "Dividend Payment Date") in
the amount (rounded to the nearest cent) determined by multiplying (i)
seven and one-half percent (7.5%) times (ii) twelve dollars ($12.00) (the
"Stated Amount") times (iii) a fraction, the numerator of which is the
number of days in the three month period concluding immediately prior to
the applicable Dividend Payment Date or such portion thereof, as the case
may be, and the denominator of which is 360. The period
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between consecutive Dividend Payment Dates shall be referred to as a
"Dividend Period." Each such dividend shall be paid to the holders of
record of the Series B Preferred Stock as their names appear on the share
register of the Corporation on the corresponding Record Date. As used
above, the term "Record Date" means the fifteenth day of the month prior to
the month in which such dividend is payable, or such other record date
designated by the Board of Directors of the Corporation with respect to the
dividend payable on such respective Dividend Payment Date. Dividends on
account of arrears for any past Dividend Periods may be declared and paid
at any time, without reference to any Dividend Payment Date, to holders of
record on such date, not exceeding 50 days preceding the payment date
thereof, as may be fixed by the Board of Directors.
(b) If, on any Dividend Payment Date, the holders of the Series B
Preferred Stock shall not have received the full dividends provided for in
the other provisions of this paragraph 2, then such dividends shall
cumulate and accrue, whether or not earned or declared, with additional
dividends thereon for each succeeding full Dividend Period during which
such dividends shall remain unpaid. Unpaid dividends for any period less
than a full Dividend Period shall cumulate on a day-to-day basis and shall
be computed on the basis of a 360 day year.
(c) So long as any shares of Series B Preferred Stock shall be
outstanding, the Corporation shall not declare or pay on any Junior Stock
(defined as the Common Stock, the Class A Nonvoting Common Stock and any
other class or series of stock of the Corporation not entitled to receive
any dividends in any Dividend Period unless all dividends required to have
been paid or declared and set apart for payment on the Series B Preferred
Stock shall have been so paid or declared and set apart for payment) any
dividend whatsoever, whether in cash, property or otherwise (other than
dividends payable in shares of the class or series upon which such
dividends are declared or paid, or payable in shares of Common Stock with
respect to Junior Stock other than Common Stock), nor shall the Corporation
make any distribution on any Junior Stock, nor shall any Junior Stock be
purchased or redeemed by the Corporation or any Subsidiary, nor shall any
monies be paid or made available for a sinking fund for the purchase or
redemption of any Junior Stock, unless all dividends to which the holders
of Series B Preferred Stock shall have been entitled for all previous
Dividend Periods shall have been paid or declared and a sum of money
sufficient for the payment thereof set apart.
(d) So long as any shares of Series B Preferred Stock shall be
outstanding and whenever dividends required to have been paid or declared
and set apart for payment on the Series B Preferred Stock shall not have
been so paid or declared and set apart for payment, the Corporation shall
neither (i) declare or pay on any shares of Parity Stock (as defined in
Section 5), except dividends paid ratably on the shares of Series B
Preferred Stock and all such Parity Stock on which dividends are payable or
in arrears in proportion to the total amounts to which the holders of all
such shares are then entitled; nor (ii) redeem or purchase or otherwise
acquire for consideration any shares of Parity Stock, provided that the
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Corporation may at any time redeem, purchase or otherwise acquire shares of
any such Parity Stock in exchange for shares of any Junior Stock.
(e) In the event of any voluntary or involuntary liquidation,
dissolution or other winding up of the affairs of the Corporation, before
any distribution or payment shall be made to the holders of Junior Stock,
the holders of the Series B Preferred Stock shall be entitled to be paid
the Stated Amount per share for all outstanding shares of Series B
Preferred Stock held by such holders as of the date of such liquidation or
dissolution or such other winding up, plus any accrued and unpaid dividends
thereon to the date of such distribution or payment, and no more, in cash
or in property taken at its fair value as determined by the Board of
Directors, or both, at the election of the Board of Directors. If such
payment shall have been made in full to the holders of the Series B
Preferred Stock, the remaining assets and funds of the Corporation may be
distributed among the holders of Junior Stock, according to their
respective shares and priorities. If, upon any such liquidation,
dissolution or other winding up of the affairs of the Corporation and after
satisfaction in full of all preferences as to all series of preferred stock
ranking senior to the Series B Preferred Stock as to the distribution of
assets in such events, the net assets of the Corporation distributable
among the holders of all outstanding shares of the Series B Preferred Stock
and of any Parity Stock shall be insufficient to permit the payment in full
to such holders of the preferential amounts to which they are entitled,
then the entire net assets of the Corporation shall be distributed among
the holders of the Series B Preferred Stock and Parity Stock ratably in
proportion to the full amounts to which they would otherwise be
respectively entitled. Neither the consolidation or merger of the
Corporation into or with another corporation or corporations, nor the sale
of all or substantially all of the assets of the Corporation to another
corporation or corporations shall be deemed a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this
paragraph (e).
3. Optional Redemption. The Series B Preferred Stock shall be subject to
optional redemption as follows:
(a) After October 1, 2001, the Corporation, at the election of the
Board of Directors, shall have the right to call for redemption, in whole
or in part, from time to time, the shares of Series B Preferred Stock
outstanding. All outstanding shares of Series B Preferred Stock called for
redemption shall be redeemed at a cash amount per share equal to the Stated
Amount, together with any accrued but unpaid dividends thereon to and
including the date of redemption (such price referred to as the "Redemption
Price"). If less than all of the outstanding shares of Series B Preferred
Stock are to be redeemed, such shares shall be redeemed pro rata or by lot
as determined by the Board of Directors in its sole discretion.
(b) The Corporation shall redeem all outstanding shares of Series B
Preferred Stock, at the Redemption Price, upon any closing of the sale or
other disposition of a majority of the Corporation's assets.
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(c) Notice of every redemption of Series B Preferred Stock shall be
sent by or on behalf of the Corporation, by first class mail, postage
prepaid, to the holders of record of the shares to be redeemed at their
respective addresses as they shall appear on the records of the
Corporation, not less than ten (10) days nor more than twenty (20) days
prior to the date fixed for redemption (the "Redemption Date") (i)
notifying such holders of the election of the Corporation to redeem such
shares and of the date of redemption, (ii) stating the place or places at
which the shares called for redemption shall, upon presentation and
surrender of the certificates evidencing such shares, be redeemed, and the
Redemption Price therefor, and (iii) stating the name and address of any
redemption agent selected by the Corporation and the name and address of
the Corporation's transfer agent for the Series B Preferred Stock. The
Corporation may act as the transfer agent for the Series B Preferred Stock.
(d) If notice of redemption shall have been given as hereinbefore
provided, and the Corporation shall not default in the payment of the
Redemption Price, then each holder of shares called for redemption shall be
entitled to all preferences and relative and other rights accorded by this
resolution until and including the date prior to the Redemption Date. If
the Corporation shall default in making payment or delivery as aforesaid on
the Redemption Date, then each holder of the shares called for redemption
shall be entitled to all preferences and relative and other rights accorded
by this resolution until and including the date prior to the date (the
"Final Redemption Date") when the Corporation makes payment or delivery as
aforesaid to the holders of the Series B Preferred Stock. From and after
the Redemption Date or, if the Corporation shall default in making payment
or delivery as aforesaid, the Final Redemption Date, the shares called for
redemption shall no longer be deemed to be outstanding, and all rights of
the holders of such shares shall cease and terminate, except the right of
the holders of such shares, upon surrender of certificates therefor, to
receive amounts to be paid hereunder. The deposit of monies in trust with
any redemption agent shall be irrevocable except that the Corporation shall
be entitled to receive from the redemption agent the interest or other
earnings, if any, earned on any monies so deposited in trust, and the
holders of any shares redeemed shall have no claim to such interest or
other earnings, and any balance of monies so deposited by the Corporation
and unclaimed by the holders of the Series B Preferred Stock entitled
thereto at the expiration of two (2) years from the Redemption Date (or the
Final Redemption Date, as applicable) shall be repaid, together with any
interest or other earnings thereon, to the Corporation, and after any such
repayment, the holders of the shares entitled to the funds so repaid to the
Corporation shall look only to the Corporation for such payment, without
interest.
4. Conversion into Common Stock. Each holder of Series B Preferred Stock
shall have an optional right to convert any or all shares of Series B Preferred
Stock into Common Stock, upon the terms described in this Section 4, at any time
during the period (i) commencing on the day following the consummation of the
simultaneous acquisition by the Corporation of all of the capital stock of The
Allison Company, a Georgia corporation, and the merger into the Corporation of
the Henderson Electric Company, Inc., a Kentucky corporation, and (ii) ending on
the later of December 31, 1999 or on the first date upon which any registration
statement filed by the
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Corporation with the U.S. Securities and Exchange Commission ("SEC") in
connection with a public offering of the Common Stock is declared effective by
the SEC (any date on which such conversion occurs is referred to hereinafter as
the "Optional Conversion Date").
(a) Subject to and upon compliance with the provisions of this
paragraph 4, on any Optional Conversion Date each share of Series B
Preferred Stock shall convert into a number of fully paid and nonassessable
shares of Common Stock, determined based on a conversion ratio equal to the
Stated Amount per share, plus any accrued and unpaid dividends thereon to
such Optional Conversion Date, divided by the Conversion Price (as defined
below).
(b) If a holder of Series B Preferred Stock desires to exercise such
right of conversion, such Holder shall give written notice to the
Corporation (the "Conversion Notice") of that holder's election to convert
a stated whole number of shares of Series B Preferred Stock (the
"Conversion Shares") into shares of Common Stock, and surrender to the
Corporation or any transfer agent of the Corporation such holder's
certificate or certificates evidencing such Conversion Shares. As promptly
as practicable thereafter, the Corporation shall issue and deliver to or
upon the written order of such holder a certificate or certificates for the
number of full shares of Common Stock to which such holder is entitled and
a check or cash with respect to any fractional interest in a share of
Common Stock (valued at the fair market value thereof as determined by the
Board of Directors in good faith).
(c) The "Conversion Price" shall initially be $12.00 per share of
Common Stock, subject to adjustment from time to time in certain instances
as hereinafter provided. The Conversion Price in effect at any time shall
be subject to adjustment as follows (no adjustment of the Conversion Price,
however, shall be made in an amount less than $.0001 per share, but any
such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which, together with
any adjustments so carried forward, shall amount to $.0001 per share or
more):
(i) In case the Corporation shall at any time subdivide the
outstanding shares of Common Stock into a greater number of shares of
such stock, the Conversion Price in effect immediately prior to such
subdivision shall be proportionately decreased, and in case the
Corporation shall at any time combine the outstanding shares of Common
Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased. Any such adjustment shall become effective at the close of
business on the date that such subdivision or combination shall become
effective.
(ii) If at any time after the date of this Certificate of
Designations there is a reclassification of the Common Stock (other
than a subdivision or combination of its outstanding shares and other
than a change in par value or from no par value to par
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value), then the Conversion Price in effect immediately prior thereto
shall be adjusted so that the holder of a share of the Series B
Preferred Stock shall be entitled to receive on the conversion of such
share the number of shares of Common Stock (as reclassified) which
such holder would have owned or been entitled to receive after the
happening of such reclassification had such share of Series B
Preferred Stock been converted at the Conversion Price in effect
immediately prior to such reclassification or any record date with
respect thereto.
(iii) Any adjustment under this paragraph (c) shall be effective
immediately after the effective date of any subdivision, split,
combination or reclassification.
(d) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of the Series B Preferred Stock,
such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series B
Preferred Stock. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of
all then outstanding shares of Series B Preferred Stock, the Company will
use its reasonable best efforts to take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
5. Ranking. The shares of Series B Preferred Stock shall rank, as to
payment of dividends and the distribution of assets, (i) Junior to Series A
Convertible Preferred Stock ("Series A Preferred Stock"); (ii) on a parity with
Series C Convertible Preferred Stock ("Series C Preferred Stock") and other
series of preferred stock which specifically provide that it shall rank on a
parity with Series B Preferred Stock and/or Series C Preferred Stock
(collectively "Parity Stock"); and (iii) senior to all other series of the
Preferred Stock, or any similar stock, other than those that specifically
provide that they shall rank prior to, or on a parity with, the shares of Series
B Preferred Stock as to payment of dividends and the distribution of assets,
unless in any such case the terms of any such series shall provide otherwise.
Nothing herein shall preclude the Board of Directors from creating any series of
Preferred Stock or any similar stock ranking senior to, or on a parity with, the
shares of Series B Preferred Stock as to the payment of dividends or the
distribution of assets.
6. No Impairment. As long as any Series B Preferred Stock of this
Corporation is outstanding, this Corporation shall not without the consent of
the holders of at least a majority of that outstanding Series B Preferred Stock,
given in person or by proxy at a meeting of the holders of the Series B
Preferred Stock called for that purpose, or given in writing:
(a) Amend or repeal any provision of the Certificate of Incorporation
of this Corporation or any amendment thereto or add any provision to the
certificate, if such action would alter the preferences, special rights or
powers of the Series B Preferred Stock so as to affect that stock
adversely; or
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(b) Authorize or create, or increase the authorized amount of, any
stock having preferential rights to dividends or the assets of this
Corporation on dissolution, liquidation or winding up, which are senior to
or on a parity with those of the Series B Preferred Stock; or
(c) Reclassify any shares of Common Stock or any shares of junior
stock that may hereafter be created into Series B Preferred Stock, or any
stock having rights to dividends or to assets of this Corporation on
dissolution, liquidation or winding up, which are senior to or on a parity
with those of the Series B Preferred Stock; or
(d) Effect the merger or consolidation of the Corporation; unless each
holder of Series B Preferred Stock immediately before the merger or
consolidation shall be entitled to retain or receive the same number of
shares (with the same rights, preferences and powers) of the resulting or
surviving corporation.
7. Severability. If any right, preference or limitation of the Series B
Preferred Stock set forth in this Certificate of Designation (as such
Certificate may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
rights, preferences and limitations set forth in this Certificate of Designation
(as so amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall, nevertheless, remain in
full force and effect, and no right, preference or limitation herein set forth
shall be deemed dependent upon any other such right, preference or limitation
unless so expressed herein.
IN WITNESS WHEREOF, the Corporation has caused the foregoing certificate to
be signed and attested as of October 21, 1998.
NATIONWIDE ELECTRIC, INC.
By: /s/ Frank R. Clark
-----------------------------------
Frank R. Clark, Vice President
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Exhibit 10.4
NATIONWIDE ELECTRIC, INC.
NON-QUALIFIED STOCK OPTION PLAN
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This Non-Qualified Stock Option Plan (the "Plan"), originally executed
effective as of April 1, 1998, by Nationwide Electric, Inc. (the "Corporation")
for the benefit of certain of the Corporation's employees, is hereby amended and
restated effective as of October 15, 1998 having been approved by the holders of
a majority of the issued and outstanding shares of common stock of the
Corporation voting by unanimous consent.
Whereas, the Corporation believes it is in the best interest of the
Corporation and its employees to establish a plan for the purpose of
providing certain benefits for eligible employees; and
Whereas, the Corporation wishes to offer an inducement to the eligible
employees to remain as employees in the form of additional compensation for
services which they have rendered or will hereafter render.
Now, therefore, the Corporation establishes the following Plan.
1. Definitions and Purpose
(a) Definitions. Unless otherwise specified or unless the
context otherwise requires, the following terms have the following
meanings:
i. "Board of Directors" or "Board" means the Board of
Directors of Nationwide Electric, Inc.
ii. "Code" means the United States Internal Revenue Code
of 1986, as amended from time to time.
iii. "Compensation Committee" means the Board of Directors
or a committee selected by the Board of Directors to administer the
Plan.
iv. "Corporation" or "Company" means Nationwide Electric,
Inc., a Delaware corporation.
v. "Disability" or "Disabled" shall mean any ailment,
illness or other physical or mental incapacity or condition, which
despite reasonable accommodation by the Corporation, disables Employee
or Consultant from performing substantially all of his or her duties
with the Corporation for a period of ninety (90) days, whether or not
consecutive, during any 360 day period. A determination of disability
shall be made by a physician satisfactory to the Corporation. If the
Employee or Consultant has a written employment or
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consulting agreement with the Corporation which contains a specific
definition of "Disability" or "Disabled", then that definition shall
control.
vi. "Discharged for Cause" shall mean the termination of
employment or consultation for any of the following reasons:
dishonesty of the Employee with respect to the Company; willful
misfeasance or nonfeasance of duty intended to injure or having the
effect of injuring the reputation, business or business relationships
of the Corporation or its respective officers, directors or employees;
upon a charge by a governmental entity against the Employee of any
crime involving moral turpitude or which could reflect unfavorably
upon the Corporation or upon the filing of any civil action involving
a charge of embezzlement, theft, fraud or other similar act; willful
or prolonged absence from work by the Employee (other than by reason
of Disability) or failure, neglect or refusal by the Employee to
perform his or her duties and responsibilities without the same being
corrected upon ten (10) days prior written notice; or breach by the
Employee of any of the covenants contained in an employment agreement
with the Corporation. If the Employee has a written employment
agreement with the Corporation which contains a specific definition of
"Discharged for Cause" or "Cause", then that definition shall control.
vii. "Employee" means an employee of the Corporation.
viii. "Nonqualified Option" shall mean an Option, as
defined below, which is designated as such and which, when granted, is
not intended to be an "incentive stock option" as defined in Code
Section 422.
ix. "Option" means an option to purchase certain shares
of the Corporation's common stock granted under the Plan.
x. "Optionee" means an Employee to whom one or more
Options are granted under the Plan.
xi. "Plan" means this Nonqualified Stock Option Plan.
xii "Shares" means shares of the common stock, $0.01 par
value, of the Corporation, or any shares of capital stock into which
the Shares are changed or for which they are exchanged pursuant to
Article 7 of the Plan.
xiii. "Subsidiary" shall mean any corporation, the majority
of the outstanding capital stock of which is owned, directly or
indirectly, by the Corporation.
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(b) Purpose. The purpose of the Plan is to advance the
interests of the Corporation and its shareholders by affording to key
management employees of the Company an opportunity to acquire or increase
their proprietary interest in the Corporation by the grant to such
employees of Options or Awards under the terms set forth herein. By thus
encouraging such employees to become owners of Company shares, the Company
seeks to motivate, retain, and attract those highly competent individuals
upon whose judgment, initiative, leadership, and continued efforts the
success of the Company in large measure depends.
2. Eligibility. Any Employee of the Corporation or its Subsidiaries
shall be eligible to participate in the Plan.
3. Shares subject to the Plan. The aggregate number of Shares as to
which Options may be granted from time to time shall be 500,000 (as adjusted
pursuant to Article 6). The Shares to be issued shall be made available from
authorized but unissued Shares. If any Option granted under the Plan shall
expire, be canceled or terminate without being exercised in whole or in part,
new Options may be granted covering the Shares not purchased.
4. Administration of the Plan. The Plan shall be administered by
the Compensation Committee. The Compensation Committee shall have full power and
authority to construe, interpret and administer the Plan, and may from time to
time adopt such rules and regulations for carrying out this Plan as it may deem
proper and in the best interests of the Company. Subject to the terms,
provisions and conditions of the Plan, the Compensation Committee shall have
exclusive authority (i) to select key employees to whom options shall be
granted, (ii) to determine the number of shares subject to each option, (iii) to
determine the time or times when options will be granted, (iv) to determine the
option price of the shares subject to each option, (v) to determine the time
when each option may be exercised, (vi) to fix such other provisions of each
option agreement as the Compensation Committee may deem necessary or desirable,
consistent with the terms of this Plan, and (vii) to determine all other
questions relating to the administration of this Plan. The interpretation and
construction of this Plan by the Compensation Committee shall be final,
conclusive and binding upon all persons.
5. Terms and Conditions of Options.
(a) General. Any Option granted under the Plan shall be in such
form as the Compensation Committee may from time to time approve. Any such
Option shall be subject to the below terms and conditions and may contain
such additional terms and conditions, not inconsistent with the Plan, as
the Compensation Committee shall deem desirable. Options granted pursuant
to the Plan shall be evidenced by option agreements in such form,
consistent with the Plan, as the Compensation Committee shall prescribe
from time to time. Any Option granted prior to the approval by the
Corporation's shareholders of the Plan shall be granted subject to such
approval.
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(b) Option Price. The purchase price of each of the Shares
purchasable under an Option shall be as determined by the Compensation
Committee.
(c) Option Period. The period of each Option shall be fixed by
the Compensation Committee, but no Option shall be exercisable after the
expiration of ten years from the date the Option is granted or upon an
Optionee failing to meet the requirements of exercising the Option as set
forth in the Plan or the associated option agreement.
(d) Exercise of Option. Except as provided in Section 5.e or
Section 5.f of this Plan, or in the associated option agreement, Options
become vested, and may be exercised, in four (4) annual amounts equal to
twenty five percent (25%) of the total Options granted to the Optionee,
with the first twenty five percent (25%) amount vested and exercisable no
sooner than the first anniversary of the Option grant. Unless earlier
terminated, one hundred percent (100%) of the granted Options will
automatically vest and become exercisable on the fourth anniversary date of
the Options being granted. Options will not ratably vest for a portion of
any year or period, unless such vesting is specifically allowed under the
associated option agreement. Optionee may exercise any vested Options,
prior to such Options being terminated, by giving written notice of
exercise to the Corporation, specifying the number of Shares to be
purchased, together with payment in full of the purchase price. Payment
must be made by cash or check equal to the exercise price. In addition to
and at the time of such payment, Optionee shall pay to the Corporation the
full amount of all federal and state withholding or other employment taxes
applicable to the taxable income of such Optionee resulting from such
exercise. An Optionee shall have the rights of a shareholder only with
respect to Shares for which Options have been exercised, full payment made
and certificates therefor issued. Any term or provision set forth in this
Section 5.d. may be as otherwise set forth in the specific option
agreement, with such agreement's language controlling. Notwithstanding
anything to the contrary herein, no transfer or issuance of Shares pursuant
to the exercise of an Option shall be made by the Corporation while the
stock transfer books are closed. Any Option exercise attempted during the
period in which the stock transfer books are closed shall only take place
after the stock transfer books have been reopened.
(e) Termination of Employment. Except to the extent otherwise
provided in any option agreement, the Options and all rights granted by
this Plan, to the extent those rights have not been exercised, will
terminate and become null and void on the Option termination date or sooner
if the Employee ceases to be in the continuous employ of the Company
(whether by resignation, retirement, dismissal, or otherwise). However, in
the event of the termination of such employment for any reason other than
the Employee's death or Disability, the Employee may exercise the Option at
any time within the following three-month period to the extent such Option
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was exercisable by him on the date of termination of such employment. If
the Employee dies while employed by the Company, or if Employee's
employment is terminated because of Disability, the Employee or the person
or persons to whom his rights under the Option shall pass, whether by will
or by the applicable laws of descent and distribution, as applicable, may
exercise such Option to the extent the Employee was entitled to exercise it
on the date of his death or termination of employment because of
Disability, for a period of one year following such death or termination of
employment because of Disability, as applicable.
(f) Change of Control, Dissolution and Liquidation. In the
event of any Change in Control of the Company, as hereinafter defined, the
Compensation Committee or any successor to such Compensation Committee,
may, in its sole discretion, as to any option, either at the time an option
is made hereunder or any time thereafter, take any one or more of the
following actions: (i) provide for the acceleration of any time periods
relating to the exercise or realization of any such option so that such
option may be exercised or realized in full on or before a date fixed by
the Compensation Committee or its successor; (ii) require the mandatory
surrender to the Company by any Optionee of some or all of the outstanding
options held by such Optionee (irrespective of whether such options are
then exercisable under the provisions of this Plan) as of a date (before or
after such Change in Control) specified by the Compensation Committee or
its successor, in which event the Compensation Committee or its successor
shall thereupon cancel such options and pay to each Optionee an amount of
cash per share equal to the amount that could have been attained upon the
exercise of such option or realization of the Optionee's rights had such
option been currently exercisable or payable; (iii) make such adjustment to
any such option then outstanding as the Compensation Committee or its
successor deems appropriate to reflect such Change in Control; or (iv)
cause any such option then outstanding to be assumed, or new rights
substituted therefor, by the acquiring or surviving corporation after such
Change in Control. The Compensation Committee or its successor may, in its
discretion, include such further provisions and limitations in any
agreement documenting such options as it may deem equitable and in the best
interests of the Company.
For purposes of this Plan a "Change in Control" shall be deemed to have occurred
if (i) any Person other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, and other than the Company or a
corporation owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
20% or more of the combined voting power of the Company's then outstanding
securities; or (ii) during any period of two consecutive years, individuals who
are at the
5
<PAGE>
beginning of such period constitute the Board and any new Director (other than
Director designated by a person who has entered into an agreement with the
Company to effect a transaction described in (i) above) whose election by the
Board or nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds (2/3) of the Directors then still in office who
either were Directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof.
6. Adjustments upon Changes in Capitalization. If the number of
authorized shares are changed by reason of stock dividends, recapitalizations,
mergers, consolidations, split-ups, combinations or exchanges of shares or the
like, the aggregate number of shares to which Options may be granted to
Employees shall be ratably adjusted by the Compensation Committee and, in the
case of each Option outstanding at the time of any such action, the number and
class of shares which may thereafter be purchased thereunder and the exercise
price of each Option shall be adjusted to such ratable extent as determined by
the Compensation Committee, whose determination shall be conclusive and without
a right of review.
7. Leave of Absence. The Compensation Committee shall determine the
extent to which military or Government service or leave of absence for any other
reason shall constitute termination of employment for the purposes of the Plan
or any Option.
8. Fair Market Value of Shares and Options. In the event the fair
market value of either Shares or Options shall be required for any reason
related to this Plan, such fair market value shall be determined by the
Corporation appointing one appraiser and the Optionees appointing one appraiser.
The two appraisers so appointed shall appoint a third appraiser. The decision
of the three appraisers shall be by majority vote and shall be binding upon all
parties disputing or requiring the establishment of fair market value under this
Plan.
9. Government Regulations. The Plan, the grant and exercise of
Options and the obligations of the Corporation to sell and deliver Shares under
such Options shall be subject to all applicable federal and state laws, rules
and regulations, and to such approvals by any regulatory or governmental agency
as may be required, including but not limited to the admission of such Shares to
listing on all stock exchanges on which the Corporation's stock is then listed,
the completion of any registration or other qualification of such shares under
any federal or state law or under the rulings or regulations of the Securities
and Exchange Commission or any other governmental regulatory body, which the
Compensation Committee shall in its sole discretion deem necessary or advisable,
and the obtaining of any approval or other clearance from any federal or state
governmental agency which the Compensation Committee shall in its sole
discretion determine to be necessary or advisable.
6
<PAGE>
10. Term and Termination of the Plan. The Plan shall become
effective on the date that the shareholders of the Corporation shall, by
unanimous consent or by the affirmative vote of a majority in interest of the
common shares, in addition to the affirmative vote of a majority in interest of
all the shares of the Corporation, have approved the Plan, and shall terminate
on December 31, 2018. The Plan may be terminated at an earlier date by the
Compensation Committee; provided, however, that any such earlier termination
shall not effect any Options granted prior to the date of such termination.
11. Amendments. The Plan may be amended by the Compensation
Committee; provided, however, that no such amendment may increase the number of
Shares for which Options may be granted (except as provided by Article 6) and no
such amendment may alter the designation of the class of persons eligible to
receive Options under the Plan, unless such amendment is approved by the
shareholders of the Corporation. No amendment shall affect any Options
previously granted unless such amendment shall expressly so provide and unless
any Optionee to whom an Option has been granted who would be adversely affected
by such amendment consents in writing.
12. No Guarantee of Grant or Continued Employment. The adoption of
this Plan shall not be deemed to give any Employee any right to be granted an
Option to purchase Shares, except to the extent and upon such terms and
conditions as may be determined by the Compensation Committee. Nothing herein
contained shall be deemed to be a guarantee or other assurance of continued
employment of an Employee or Optionee, or be deemed to prevent the Corporation
from terminating such employment for any reason, with or without cause.
13. Miscellaneous Provisions.
(a) The Corporation and Optionees (by acceptance of Options)
agree to execute such further instruments and to take such further action
as may reasonably be necessary to carry out the intent of this Agreement.
(b) Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by registered or certified
mail with postage and fees prepaid, addressed to Optionee at his address
shown on the Corporation's employment records and to the Corporation at the
address of its principal corporate offices (attention: President) or at
such other address as such party may designate by ten days' advance written
notice to the other party hereto.
7
<PAGE>
(c) This agreement shall be construed, interpreted and enforced
in accordance with the laws of the State of Delaware, without giving effect
to that State's conflict of laws provisions.
(d) 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.
(e) No delay or omission by the Corporation in exercising any
right under this Plan shall operate as a waiver of that or any other right.
A waiver or consent given by the Corporation on any one occasion shall be
effective only in that instance and shall not be construed as a bar or
waiver of any right on any other occasion.
(f) The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
(g) In case any provision of this Plan shall be invalid, illegal
or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
In witness whereof, the Corporation has executed this Plan as of the
date first above written.
8
<PAGE>
Exhibit 10.5
NATIONWIDE ELECTRIC, INC.
INCENTIVE STOCK OPTION PLAN
---------------------------
NATIONWIDE ELECTRIC, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Company"), hereby amends and restates
the Nationwide Electric, Inc. Incentive Stock Option Plan (the "Plan"),
originally adopted June 15, 1998, having been approved by the holders of a
majority of the issued and outstanding shares of common stock of the Company
("NEI Common Stock") voting by unanimous consent, an incentive stock option plan
for key employees of the Company and its subsidiaries as follows:
1. Purpose of Plan. The purpose of this Plan 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.
2. Effectiveness of Plan. The provisions of this Plan shall become
effective on the date the Plan is adopted by the Board of Directors of the
Company (the "Board of Directors").
3. Administration. This Plan shall be administered by the Board of
Directors or by a compensation committee which shall be selected by the Board of
Directors (collectively, the "Compensation Committee"). The Compensation
Committee shall have full power and authority to construe, interpret and
administer the Plan, and may from time to time adopt such rules and regulations
for carrying out this Plan as it may deem proper and in the best interests of
the Company. Subject to the terms, provisions and conditions of the Plan, the
Compensation Committee shall have exclusive authority (i) to select key
employees to whom options shall be granted, (ii) to determine the number of
shares subject to each option, (iii) to determine the time or times when options
will be granted, (iv) to determine the option price of the shares subject to
each option, (v) to determine the time when each option may be exercised, (vi)
to fix such other provisions of each option agreement as the Compensation
Committee may deem necessary or desirable, consistent with the terms of this
Plan, and (vii) to determine all other questions relating to the administration
of this Plan. The interpretation and construction of this Plan by the
Compensation Committee shall be final, conclusive and binding upon all persons.
4. Eligibility. Options to purchase shares of NEI Common Stock
shall be granted under this Plan only to key employees of the Company or of any
of its subsidiary corporations, as the term "subsidiary corporations" is defined
in Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code").
Key employees to whom options may be granted under this Plan will be those
employees selected by the Compensation Committee from time to time who, in the
sole discretion of the Compensation Committee, have made material contributions
in the past, or who are expected to make material contributions in the future,
to the
<PAGE>
successful performance of the Company. However, in no event shall an employee
who owns more than 5 percent of the total combined voting power of all classes
of stock of the Company or of any of its subsidiary corporations be eligible to
receive an option under this Plan.
5. Shares Subject to the Plan. Options granted under this Plan
shall be granted solely with respect to shares of NEI Common Stock. Subject to
any adjustments made pursuant to the provisions of Section 13, the aggregate
number of shares of NEI Common Stock which may be issued upon exercise of the
options which will be granted under this Plan shall not exceed 500,000.
If any option granted under this Plan shall expire or terminate for
any reason without having been exercised in full, the unpurchased shares subject
to such option shall be added to the number of shares otherwise available for
options which may be granted in accordance with the terms of this Plan.
The shares to be delivered upon exercise of the options granted under
this Plan shall be made available, at the discretion of the Board of Directors,
from either the authorized but unissued shares of NEI Common Stock or any
treasury shares of NEI Common Stock held by the Company.
6. Option Agreement. Each option granted under this Plan shall be
evidenced by an incentive stock option agreement (the "Agreement"), which shall
be signed by an officer of the Company and by the employee to whom the option is
granted (the "Optionee"). The terms of such Agreement shall be in accordance
with the provisions of this Plan, but it may include such other provisions as
may be approved by the Compensation Committee. The granting of an option under
this Plan shall be deemed to occur on the date on which the Agreement evidencing
such option is executed by the Company and the Optionee. Each Agreement shall
constitute a binding contract between the Company and the Optionee, and every
Optionee, upon the execution of an Agreement, shall be bound by the terms and
restrictions of this Plan and such Agreement.
7. Option Price. The price at which shares of NEI Common Stock may
be purchased under an option granted pursuant to this Plan shall be determined
by the Compensation Committee, but in no event shall the price be less than the
greater of (a) the par value thereof, or (b) 100 percent of the fair market
value of such shares on the date that the option is granted. The fair market
value of shares of NEI Common Stock for purposes of this Plan shall be
determined by using the closing price on the New York Stock Exchange or other
exchange on the latest date prior to option grant. In the absence of finding
such a closing price, the fair market value shall be determined by the
Compensation Committee, in its sole discretion, and the Compensation Committee
may adopt such formulas as in its opinion shall reflect the true fair market
value of such stock from time to time, and may rely on such independent advice
with respect to such fair market value as the Compensation Committee shall deem
appropriate.
2
<PAGE>
8. Period and Exercise of Option.
(a) Period--Subject to the provisions of Sections 10, 11 and 14
hereof with respect to the death or termination of employment of an
Optionee and the change in control of the Company, the period during which
each option granted under this Plan may be exercised shall be fixed by the
Compensation Committee at the time such option is granted, provided that
such period shall expire no later than seven years from the date on which
the option is granted.
(b) Exercise--Any option granted under this Plan may be exercised
by the Optionee (or by a purchaser acting under Section 11 below) only by
(i) delivering to the Company written notice of the number of shares with
respect to which the Optionee is exercising his or her option right, (ii)
paying in full the option price of the purchased shares, and (iii) if the
shares to be purchased have not been registered under the applicable
securities laws and if necessary, in the opinion of counsel for the Company
to secure an exemption from such registration, furnishing to the Company
such representation or agreement in writing signed by the Optionee (or
purchaser) as shall be necessary in the opinion of such counsel to secure
such exemption. Subject to the limitations of this Plan and the terms and
conditions of the respective Agreement, each option granted under this Plan
shall be exercisable in whole or in part at such time or times as the
Compensation Committee may specify in such Agreement.
(c) Payment for shares--Payment for shares of NEI Common Stock
purchased pursuant to an option granted under this Plan may be made either
in cash or in other shares of NEI Common Stock. If NEI Common Stock is used
for payment, the value of such Common Stock shall be the fair market value
of such shares on the latest date prior to payment. The fair market value
of such shares shall be determined in the manner set forth in Section 7 of
this Plan.
(d) Delivery of certificates--As soon as practicable after
receipt by the Company of the notice and representation described in
subsection (b), and payment in full of the option price for all of the
shares being purchased pursuant to an option granted under this Plan, a
certificate or certificates representing such shares of stock shall be
registered in the name of the Optionee and shall be delivered to the
Optionee. No certificate for fractional shares of stock shall be issued by
the Company, but in lieu thereof the Company shall distribute at such time
to the Optionee who otherwise would have been entitled to receive a
fractional share an amount in cash equal to the value of such fractional
share determined by multiplying the fraction either by (i) the average of
the high and low bid prices of NEI Common Stock on the date on which the
Company receives the notice and representation described in subsection (b),
if NEI Common Stock is then listed on the New York Stock Exchange or (ii)
the fair value of NEI Common Stock on the date on which the Company
receives the notice and representation described in subsection (b), if
3
<PAGE>
NEI Common Stock is not then so listed. Neither any Optionee, nor the legal
representative, legatee or distributee of any Optionee, shall be deemed to
be a holder of any shares of stock subject to an option granted under this
Plan unless and until the certificate or certificates for such shares have
been issued. All stock certificates issued upon the exercise of any options
granted pursuant to this Plan may bear such legend as the Compensation
Committee shall deem appropriate regarding restrictions upon the transfer
or sale of the shares evidenced thereby.
(e) Limitations on exercise--Except as provided in Sections 10,
11 and 14 hereof, no option granted under this Plan shall be exercised
unless the Optionee is at the time of such exercise employed by the Company
or one of its subsidiary corporations and shall have been so employed by
the Company or one of its subsidiary corporations at all times since the
date on which such option was granted.
9. Limitation on Options Granted to Individual Employees. The
aggregate fair market value (determined at the time the options are granted) of
stock with respect to which incentive stock options are exercisable for the
first time by any individual during any calendar year under this Plan (and under
any other plan or plans of such individual's employer corporation and any parent
or subsidiary corporation or corporations) shall not exceed $100,000. The
limitation provided by the preceding sentence shall be applied by taking options
into account in the order in which they are granted.
10. Termination of Employment. If an Optionee shall cease to be
employed by the Company or any of its subsidiary corporations for any reason
other than death, any option or unexercised portion thereof granted to him or
her under this Plan which is otherwise exercisable shall terminate unless it is
exercised within thirty days of the date on which such Optionee ceases to be so
employed, and in any event no later than the expiration date of such option as
specified in the respective Agreement. Nothing in this Plan or in any Agreement
shall be construed as an obligation on the part of the Company or any of its
subsidiary corporations to continue the employment of any employee.
11. Death of Optionee. In the event of the death of an Optionee
while he or she is an employee of the Company or any of its subsidiary
corporations (or within ninety days of the date on which such Optionee ceases to
be so employed) any option or unexercised portion thereof granted to him or her
under this Plan which is otherwise exercisable may be exercised by the person or
persons to whom such Optionee's rights under the option pass by operation of the
Optionee's will or the laws of descent and distribution, at any time within a
period of ninety days following the death of the Optionee (but in no event later
than the expiration date of the option as specified in the respective
Agreement).
4
<PAGE>
12. Nontransferability of Options. No option granted under this Plan
shall be transferable or assignable by the Optionee other than by will or the
laws of descent and distribution, and during the lifetime of the Optionee may be
exercised only by the Optionee.
13. Adjustments upon Changes in Capitalization. In the event of any
change in the capital structure of the Company, including but not limited to a
change resulting from a stock dividend, stock split, reorganization, merger,
consolidation, liquidation or any combination or exchange of shares, the number
of shares of NEI Common Stock subject to this Plan and the number of such shares
subject to each option granted hereunder shall be correspondingly adjusted by
the Compensation Committee. The option price for which shares of NEI Common
Stock may be purchased pursuant to an option granted under this Plan shall also
be adjusted so that there will be no change in the aggregate purchase price
payable upon the exercise of any option.
14. Change in Control of the Company. In the event of any Change in
Control of the Company, as hereinafter defined, the Compensation Committee or
any successor to such Compensation Committee, may, in its sole discretion, as to
any option, either at the time an option is made hereunder or any time
thereafter, take any one or more of the following actions: (i) provide for the
acceleration of any time periods relating to the exercise or realization of any
such option so that such option may be exercised or realized in full on or
before a date fixed by the Compensation Committee or its successor; (ii) require
the mandatory surrender to the Company by any Optionee of some or all of the
outstanding options held by such Optionee (irrespective of whether such options
are then exercisable under the provisions of this Plan) as of a date (before or
after such Change in Control) specified by the Compensation Committee or its
successor, in which event the Compensation Committee or its successor shall
thereupon cancel such options and pay to each Optionee an amount of cash per
share equal to the amount that could have been attained upon the exercise of
such option or realization of the Optionee's rights had such option been
currently exercisable or payable; (iii) make such adjustment to any such option
then outstanding as the Compensation Committee or its successor deems
appropriate to reflect such Change in Control; or (iv) cause any such option
then outstanding to be assumed, or new rights substituted therefor, by the
acquiring or surviving corporation after such Change in Control. The
Compensation Committee or its successor may, in its discretion, include such
further provisions and limitations in any agreement documenting such options as
it may deem equitable and in the best interests of the Company.
For purposes of this Plan a "Change in Control" shall be deemed to
have occurred if (i) any Person other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, and other than the
Company or a corporation owned, directly or indirectly, by the shareholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, is or becomes the "beneficial owner"
5
<PAGE>
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities; or (ii) during any period of two
consecutive years, individuals who are at the beginning of such period
constitute the Board and any new Director (other than Director designated by a
person who has entered into an agreement with the Company to effect a
transaction described in (i) above) whose election by the Board or nomination
for election by the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the Directors then still in office who either were Directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof.
15. Amendment and Termination of Plan. No option shall be granted
pursuant to this Plan after October 15, 2008, on which date this Plan will
expire except as to options then outstanding under the Plan, which options shall
remain in effect until they have been exercised or have expired. The Board of
Directors may at any time before such date amend, modify or terminate the Plan;
provided, however, that the Board of Directors may not, without further approval
by the holders of a majority of the issued and outstanding shares of NEI Common
Stock voting in person or by proxy at a duly constituted meeting of the
stockholders of the Company, (i) increase the maximum number of shares of NEI
Common Stock as to which options may be granted pursuant to this Plan, (ii)
change the class of employees eligible to be granted options pursuant to the
Plan, (iii) extend the period under this Plan during which options may be
granted or exercised, or (iv) change the provisions of Section 7 hereof with
respect to the determination of the option price, other than to change the
manner of determining the fair market value of shares of NEI Common Stock to
conform with any then applicable provisions of the Internal Revenue Code or the
regulations issued thereunder. No amendment, modification or termination of
this Plan may adversely affect the rights of any Optionee under any then
outstanding option granted hereunder without the consent of such Optionee.
16. Governing Law. This Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the laws of the
State of Delaware.
6
<PAGE>
EXHIBIT 10.6
NATIONWIDE ELECTRIC, INC.
EXECUTIVE STOCK PURCHASE PLAN
-----------------------------
1. Purpose.
This purpose of this Plan (the "Plan") is to amend and restate the
original Nationwide Electric, Inc. Executive Stock Purchase Plan which was
effective August 1, 1998. This restated Plan is intended to promote the
interests of Nationwide Electric, Inc. (the "Corporation") and its stockholders
by providing an incentive for key executives of the Corporation and its
subsidiaries.
2. Adoption and Administration of Plan.
The Plan shall become effective as of October 15, 1998. Absent
contrary action by the Corporation's Board of Directors (the "Board"), any
action taken by the Board, or by a committee appointed by the Board to
administer the Plan (collectively, the "Compensation Committee"), with respect
to the Plan's implementation, interpretation, or administration, shall be final,
conclusive and binding.
3. Stock Subject to Plan.
There is hereby established an Executive Stock Purchase Plan Reserve
(the "Reserve") to which shall be allocated 250,000 shares of common stock, par
value $.01 per share, of the Corporation ("Stock"). If the shares of Stock of
the Corporation should, as a result of a stock split, stock dividend,
combination of shares, or any other change or exchange for other securities by
reclassification, reorganization, redesignation, merger, consolidation,
recapitalization or otherwise, be increased or decreased or changed into, or
exchanged for, a different number or kind of shares of stock or other securities
of the Corporation or of another corporation, the number of shares then
remaining in the Reserve shall be appropriately adjusted to reflect such action.
If any such adjustment shall result in a fractional share, such fraction shall
be disregarded. Upon the sale of shares pursuant to this Plan, the Reserve will
be reduced by the number of shares sold, and upon the repurchase of any shares
sold hereunder upon exercise of the Corporation's right of first refusal, the
Reserve will be increased by such number of shares, and such reacquired shares
may again be sold under this Plan. Sales under this Plan may be made from
authorized but unissued shares or from treasury shares.
4. Eligibility.
The Compensation Committee will designate, from time to time, key
executives of the Corporation or any of its subsidiaries, or parents or
affiliated corporations (including officers and directors of the Corporation),
engaged in activities which further the Corporation's objectives, who will be
eligible to purchase shares under the Plan (the "Offeree") and the number of
shares of
<PAGE>
Stock to be sold to each Offeree. In selecting the Offeree and in determining
the number of shares to be offered, the Compensation Committee will consider the
position and responsibilities of such Offeree, the value of his or her services
to the Corporation or its subsidiaries, and such other factors as the
Compensation Committee deems pertinent.
5. Rights to Purchase.
After the Compensation Committee has determined to offer an Offeree
the right to purchase shares under the Plan (the "Offer"), it will advise the
Offeree in writing of the Offer's terms, including the number of shares which
the Offeree will be entitled to purchase, the purchase price per share, and any
other terms, conditions, and restrictions relating thereto. This notice will
also provide that the Offeree has 45 days from the date of the Offer to accept
the Offer in the manner set forth therein. The form by which the Offer will be
made is attached hereto and incorporated herein as "Exhibit A." The
Compensation Committee may, in the exercise of its discretion, extend the
Offer's term. Subject to the Plan's express provisions, the Compensation
Committee may make such Offer subject to any terms and conditions it
establishes, and the Offer made to different Offerees, or to the same Offeree at
different times, may be subject to terms, conditions and restrictions which
differ from each other.
6. Terms of Offers.
(a) Purchase Price. The Compensation Committee will determine the purchase
price of the shares being offered under this Plan. As determined by the
Compensation Committee, the purchase price will reflect a discount from the then
current market value of the shares due to the lack of marketability because of
the provisions of the Plan. The purchase price must be paid in full, in cash or
certified bank check, at the Corporation's principal office before the Offer
expires, for the Offer's acceptance to be effective. The date upon which the
purchase price is paid and the Offer is accepted is hereinafter called the
"Closing Date." On the Closing Date, the Corporation shall deliver the shares
registered in the name of the Offeree and the Offeree shall concurrently deliver
cash or a certified bank check for the purchase price of the shares.
(b) Financing. The Corporation will arrange a full-recourse loan in an
amount not to exceed 85% of the purchase price, to be evidenced by a promissory
note, to be dated as of the Closing Date, payable with interest at the prime
rate (as quoted in the Wall Street Journal as the base rate on corporate loans
posted by at least 75% of the nation's 30 largest banks) and payable to the
Corporation, to pay a portion of the purchase price for the shares. To secure
the obligations of the Offeree under the loan, the Offeree will enter into a
pledge agreement with the Corporation.
2
<PAGE>
(c) Vesting. Shares purchased pursuant to this Plan shall constitute
"Vested Shares" in accordance with the following schedule:
<TABLE>
<CAPTION>
Portion of Shares
Which Are Vested
-----------------
<S> <C>
Closing Date 1/3
First Anniversary of Closing Date 2/3
Second Anniversary of Closing Date 100%
</TABLE>
"Unvested Shares" shall mean shares which are not "Vested Shares."
(d) Termination of Employment. If the employment of the Offeree with the
Corporation is terminated for any reason, including the Offeree's death or
disability, any Unvested Shares shall first be offered for sale to the
Corporation, within 30 days from the date of termination, at the original price
paid for such shares by the Offeree under the terms of this Plan. If the
Corporation chooses to repurchase such shares from the Offeree, the Corporation
shall have 30 days to exercise such right. Under no circumstance is the
Corporation obligated to repurchase such shares.
(e) Restrictions. By purchasing the shares under this Plan being offered
to him or her, the Offeree agrees and consents to the following:
(i) No shares purchased hereunder will be conveyed, transferred, encumbered
or otherwise disposed of (any such disposition being herein called a
"transfer") by the Offeree unless all shares covered by this Plan owned by
the Offeree first have been offered to the Corporation (the "Repurchase
Offer") if the proposed transfer occurs within one year after the Closing
Date, at a price per share equal to the original price paid by the Offeree
for such shares. The Corporation will have 15 business days from the date
it receives any such Repurchase Offer to accept. The Corporation will
accept by giving notice to the Offeree. If the Corporation does accept the
Repurchase Offer, the purchase and sale of such shares will occur at the
Corporation's principal office at the time and date specified in such
notice of acceptance. In no event, however, will the date for consummating
the transaction be later than 30 business days from the date of the notice
of acceptance of the Repurchase Offer. At the closing, the Offeree will
deliver to the Corporation certificates representing all of the shares
subject to the Repurchase Offer, duly endorsed, with all necessary transfer
stamps affixed. Upon receipt of such share certificates, the Corporation
will deliver to the Offeree a check in the amount of the purchase price.
3
<PAGE>
(ii) Any transfer or purported transfer of shares acquired pursuant to this
Plan made by a Offeree, except at the times and in the manner specified in
this Plan, will be null and void and the Corporation shall not recognize or
give effect to such transfer on its books and records or recognize the
person or persons to whom such proposed transfer has been made as the legal
or beneficial holder of those shares.
(iii) If the Corporation fails to accept the Repurchase Offer within the
15 business day period of subparagraph 6(e)(i) above, then the shares shall
become freely transferable.
(iv) Upon the death of a Offeree, any vested yet restricted shares subject
to this Plan held by such Offeree may be conveyed by will or by the laws of
descent and distribution without first being offered to the Corporation.
Any successor in interest to the Offeree in such event may not further
convey, transfer, encumber or otherwise dispose of such shares until such
shares would have otherwise become unrestricted shares as provided herein.
(v) Certificates representing shares which are subject to this Plan will
bear the following legend, in addition to such other legends as counsel to
the Corporation may deem appropriate.
RESTRICTED SHARES
"The shares represented by this certificate may be subject to Nationwide
Electric, Inc.'s right of first refusal to purchase and to all other terms,
conditions, and restrictions of the Corporation's Executive Stock Purchase
Plan, a copy of which is on file and available for inspection during normal
business hours at the Corporation's principal office."
7. Expenses.
The Corporation will pay all expenses and costs in connection with the
Administration of the Plan.
8. No Prior Right of Offer.
Nothing in the Plan will be deemed to give any director, officer, or
employee, or such individual's legal representatives or assigns, or any other
person or entity claiming under or through such individual, any contractual or
other right to participate in the benefits of the Plan.
4
<PAGE>
9. Change in Control of the Corporation.
In the event of any Change in Control of the Corporation, as
hereinafter defined, the Compensation Committee or any successor to such
Compensation Committee, may, in its sole discretion, as to any Offer, either at
the time an Offer is made hereunder or any time thereafter: (i) require the
mandatory surrender by any Offeree of any rights to purchase Shares of the
Corporation by paying such Offeree an amount of cash per share equal to the
bargain that such Offeree would have realized had such Offeree purchased the
Shares; or (ii) make such adjustment to any such Offer then outstanding as the
Compensation Committee or its successor deems appropriate to reflect such Change
in Control.
For purposes of this Plan a "Change in Control" shall be deemed to
have occurred if (i) any Person other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation, and other than the
Corporation or a corporation owned, directly or indirectly, by the shareholders
of the Corporation in substantially the same proportions as their ownership of
stock of the Corporation, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding securities; or (ii) during any period of two
consecutive years, individuals who are at the beginning of such period
constitute the Board and any new Director (other than Director designated by a
person who has entered into an agreement with the Corporation to effect a
transaction described in (i) above) whose election by the Board or nomination
for election by the Corporation's shareholders was approved by a vote of at
least two-thirds (2/3) of the Directors then still in office who either were
Directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof.
10. Indemnification of the Compensation Committee.
In addition to such other rights or indemnification as they may have,
the Corporation will indemnify members of the Compensation Committee against all
costs and expenses reasonably incurred by them or any of them in connection
with: any action, suit, or proceeding to which they or any of them may be a
party by reason of any action taken, or failure to act, under or in connection
with the Plan or any award granted pursuant thereto and against all amounts paid
by them in settlement thereof (provided such settlement is approved by legal
counsel selected by the Corporation) or paid by them in satisfaction of a
judgment in any action, suit or proceeding; provided that upon institution of
any such action, suit, or proceeding, the person desiring indemnification gives
the Corporation an opportunity, at its own expense, to handle and defend the
same.
5
<PAGE>
11. Amendment and Termination of Plan.
The Board may at any time terminate or extend the Plan, or modify the
Plan as it deems advisable. No termination or amendment of the Plan shall,
without the consent of any person affected thereby, modify or in any way affect
any right or obligation created prior to such termination or amendment.
12. Liability of Corporation.
The Corporation's liability under this Plan and any sale made
hereunder is limited to the obligations set forth with respect to such sale and
nothing in this Plan will be construed to impose any liability on the
Corporation in favor of the purchaser with respect to any loss, cost, or expense
which the purchaser may incur in connection with, or arising out of, any
transaction in connection therewith.
13. No Agreement to Employ.
Nothing in the Plan will be construed to constitute, or evidence, an
agreement or understanding, express or implied, by the Corporation to employ or
retain the Offeree for any specific period of time.
14. Notices.
Any notice or other communication required or permitted to be made or
given hereunder will be sufficiently made or given if sent by certified mail
addressed to the Offeree or holder at such individual's address as set forth in
the Corporation's regular books and records and, if to the Corporation,
addressed to it at its principal office.
6
<PAGE>
EXHIBIT 10.11
CREDIT AGREEMENT
AMONG
NATIONWIDE ELECTRIC, INC.,
AS BORROWER,
VARIOUS FINANCIAL INSTITUTIONS
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
AS AGENT,
CLOSING DATE: DECEMBER 22, 1998
========================================
$30,000,000 REVOLVING AND TERM
CREDIT FACILITY
========================================
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I Definitions........................................................................... 1
Section 1.1 Definitions....................................................................... 1
Section 1.2 Cross References.................................................................. 13
ARTICLE II Amount and Terms of the Loans........................................................ 13
Section 2.1 Revolving Advances................................................................ 13
Section 2.2 Term Facility..................................................................... 14
Section 2.3 Redemption of Preferred Stock..................................................... 14
-----------------------------
Section 2.4 Increase in Facility Amounts...................................................... 15
----------------------------
Section 2.5 Procedures for Borrowing.......................................................... 16
Section 2.6 Converting Floating Rate Advances to Eurodollar Rate Advances; Procedures......... 17
Section 2.7 Procedures at End of a Interest Period............................................ 18
Section 2.8 Setting and Notice of Rates....................................................... 18
Section 2.9 Funding Losses.................................................................... 18
Section 2.10 Right of Banks to Fund through Other Offices...................................... 18
Section 2.11 Discretion of Banks as to Manner of Funding....................................... 19
Section 2.12 Letters of Credit................................................................. 19
Section 2.13 Payment of Amounts Drawn Under Letters of Credit; Obligation of Reimbursement..... 20
Section 2.14 Special Account................................................................... 21
Section 2.15 Obligations Absolute.............................................................. 21
Section 2.16 Interest; Participations; Usury................................................... 22
Section 2.17 Payment of Term Advances.......................................................... 23
Section 2.18 Collateral........................................................................ 23
Section 2.19 Fees.............................................................................. 23
Section 2.20 Voluntary Prepayments............................................................. 24
Section 2.21 Mandatory Prepayment.............................................................. 25
Section 2.22 Computation of Interest and Fees; When Interest Due and Payable................... 25
Section 2.23 Payment........................................................................... 25
Section 2.24 Payment on Nonbusiness Days....................................................... 25
Section 2.25 Use of Proceeds................................................................... 25
Section 2.26 Permitted Acquisitions............................................................ 26
----------------------
Section 2.27 Capital Adequacy; Increased Costs and Reduced Return.............................. 26
Section 2.28 Funding Exceptions................................................................ 27
------------------
Section 2.29 Liability Records................................................................. 28
ARTICLE III Conditions Precedent................................................................ 28
Section 3.1 Initial Conditions Precedent...................................................... 28
Section 3.2 Conditions Precedent to Advances Used for Permitted Acquisitions.................. 30
----------------------------------------------------------------
Section 3.3 Conditions Precedent to All Advances.............................................. 30
ARTICLE IV Representations and Warranties....................................................... 30
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 4.1 Corporate Existence and Power.............................................. 30
Section 4.2 Authorization of Borrowing; No Conflict as to Law or Agreements............ 31
Section 4.3 Legal Agreements........................................................... 31
Section 4.4 Corporate Structure........................................................ 31
---------
Section 4.5 Financial Condition........................................................ 31
Section 4.6 Adverse Change............................................................. 31
Section 4.7 Litigation................................................................. 31
Section 4.8 Hazardous Substances....................................................... 32
Section 4.9 Investment Company Act..................................................... 32
----------------------
Section 4.10 Public Utility Holding Company Act......................................... 32
----------------------------------
Section 4.11 Default.................................................................... 32
Section 4.12 Regulation U............................................................... 32
Section 4.13 Taxes...................................................................... 32
Section 4.14 Titles and Liens........................................................... 32
Section 4.15 Solvency................................................................... 33
--------
Section 4.16 ERISA...................................................................... 33
ARTICLE V Affirmative Covenants.......................................................... 34
Section 5.1 Financial Statements....................................................... 34
Section 5.2 Books and Records; Inspection and Examination.............................. 36
Section 5.3 Compliance with Laws....................................................... 36
Section 5.4 Payment of Taxes and Other Claims.......................................... 36
Section 5.5 Maintenance of Properties.................................................. 36
Section 5.6 Insurance.................................................................. 36
Section 5.7 Preservation of Corporate Existence........................................ 37
Section 5.8 Year 2000.................................................................. 37
---------
Section 5.9 Maximum Consolidated Cash Flow Leverage Ratio.............................. 37
Section 5.10 Minimum Consolidated Fixed Charge Coverage Ratio........................... 37
------------------------------------------------
Section 5.11 Minimum Consolidated Tangible Net Worth.................................... 37
---------------------------------------
ARTICLE VI Negative Covenants............................................................ 38
Section 6.1 Liens...................................................................... 38
Section 6.2 Indebtedness............................................................... 39
Section 6.3 Guaranties................................................................. 40
Section 6.4 Investments................................................................ 40
Section 6.5 Dividends; Redemptions..................................................... 40
----------------------
Section 6.6 Issuance of Stock.......................................................... 41
Section 6.7 Sale of Assets............................................................. 41
Section 6.8 Consolidation and Merger; Change of Control................................ 41
-----------------
Section 6.9 Sale and Leaseback......................................................... 42
Section 6.10 Subordinated Debt.......................................................... 42
Section 6.11 Capital Expenditures....................................................... 42
Section 6.12 Accounts Payable........................................................... 42
----------------
Section 6.13 Hazardous Substances....................................................... 42
Section 6.14 Restrictions on Nature of Business......................................... 42
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII Events of Default, Rights and Remedies.......................................... 43
Section 7.1 Events of Default............................................................. 43
Section 7.2 Rights and Remedies........................................................... 45
ARTICLE VIII Agency........................................................................ 45
Section 8.1 Authorization; Powers; Agent for Collateral Purposes.......................... 45
Section 8.2 Distribution of Collections; Norwest Advances; Banks' Right to Refuse to Fund
-----------------------
Advances During Default Periods; Bank Refuses to Fund........................ 46
-----------------------------------------------------
Section 8.3 Expenses...................................................................... 47
Section 8.4 Use of the Term "Agent"....................................................... 48
-----------------------
Section 8.5 Collections Received Directly by Banks........................................ 48
Section 8.6 Indemnification............................................................... 48
Section 8.7 Priority in Collateral........................................................ 48
Section 8.8 Exculpation................................................................... 49
Section 8.9 Agent and Affiliates.......................................................... 49
Section 8.10 Credit Investigation.......................................................... 49
Section 8.11 Defaults...................................................................... 49
--------
Section 8.12 Resignation................................................................... 50
Section 8.13 Obligations Several........................................................... 50
Section 8.14 Sale or Assignment; Addition of Banks......................................... 50
-------------------------------------
Section 8.15 Participation................................................................. 51
-------------
Section 8.16 Borrower not a Beneficiary or Party........................................... 52
-----------------------------------
ARTICLE IX MISCELLANEOUS.................................................................... 52
Section 9.1 No Waiver; Cumulative Remedies................................................ 52
Section 9.2 Amendments, Etc............................................................... 52
Section 9.3 Notices....................................................................... 52
Section 9.4 Consent of Required Banks; Amendments, Requested Waivers, Etc................. 53
Section 9.5 Disclosure of Information..................................................... 53
Section 9.6 Costs and Expenses............................................................ 53
Section 9.7 Indemnification by Borrower................................................... 54
Section 9.8 Execution in Counterparts..................................................... 54
Section 9.9 Binding Effect, Assignment.................................................... 54
Section 9.10 Governing Law................................................................. 54
Section 9.11 Severability of Provisions.................................................... 54
Section 9.12 Prior Agreements.............................................................. 55
Section 9.13 Headings...................................................................... 55
Section 9.14 Consent to Jurisdiction....................................................... 55
-----------------------
Section 9.15 Waiver of Jury Trial.......................................................... 55
</TABLE>
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<PAGE>
CREDIT AGREEMENT
Dated as of December 22, 1998
Nationwide Electric, Inc., a Delaware corporation (the "Borrower"),
Norwest Bank Minnesota, National Association, a national banking association
("Norwest" and in its capacity as administrative agent for the Banks as
specified below, the "Agent") and each of the banks appearing on the signature
pages hereof, together with such other banks as may from time to time become a
party to this Agreement pursuant to the terms and conditions of Article VIII
------------
hereof (collectively the "Banks" and individually each called a "Bank"), agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement, except as
-----------
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means, as to any Person, the aggregate unpaid obligations
of customers and other account debtors to such Person arising out of the
sale or lease of goods or rendition of services by such Person on an open
account or deferred payment basis.
"Advance" means an advance of funds by the Banks to the Borrower
pursuant to Article II.
"Affiliate" means as to any Company, (a) any other Company, (b) any
director or officer of any Company, (c) any Person who, individually or
with his immediate family, beneficially owns or holds 5% or more of the
voting interest of any Company, or (d) any Limited Liability Entity,
partnership or other Person in which any Person or group of Persons
described above directly or indirectly owns a 5% or greater equity
interest.
"Agent" means Norwest in its separate capacity as administrative agent
under this Agreement.
"Aggregate Revolving Facility Amount" means the sum of the Revolving
Facility Amounts of the all of the Banks.
"Aggregate Term Facility Amount" means the sum of the Term Facility
Amounts of the all of the Banks.
<PAGE>
"Agreement" means this Credit Agreement, as the same may be amended,
supplemented or restated from time to time.
"Banking Day" means a day other than a Saturday, Sunday or other day
on which banks are generally not open for business in Minneapolis,
Minnesota and New York, New York, and, if such day relates to a Eurodollar
Rate Advance, a day on which dealings are carried on in the London
interbank Eurodollar market.
"Base Rate" means the rate of interest publicly announced from time to
time by the Agent as its "prime" or "base" rate or, if the Agent ceases to
announce a rate so designated, any similar successor rate designated by the
Bank.
"Borrowing Base" means, at any time, the lesser of:
(i) the sum of the Aggregate Revolving Facility Amount and the
Aggregate Term Facility Amount, or
(ii) subject to change from time to time in the reasonable discretion
of all the Banks, the sum of:
(A) 80% of the Eligible Accounts of the Companies; plus
----
(B) 50% of the Eligible Inventory of the Companies; plus
----
(C) 50% of the net book value of Eligible Equipment of the
Companies; minus
-----
(D) the Reserve;
in each case computed on the basis of the most recent Borrowing Base
Certificate furnished to the Agent as required by Section 3.1(n) or 5.1(d).
"Borrower Pledge Agreement" means a Collateral Pledge Agreement
executed by the Borrower, granting the Agent a security interest in all
stock of the Subsidiaries now or hereafter owned by the Borrower to secure
payment of the Obligations.
"Borrowing Base Certificate" means a certificate in the form of
Exhibit D hereto correctly setting forth the Accounts, the Eligible
Accounts, Inventory, Eligible Inventory, net book value of Equipment and
the Borrowing Base of the Companies as of a particular date.
"Capital Expenditure" means any expenditure of money for the purchase
or construction of fixed assets or for the purchase or construction of any
other assets, or for improvements or additions thereto, which are
capitalized on a Person's balance sheet.
"Capitalized Lease Liabilities" of any Person means all monetary
obligations of such Person under any leasing or similar arrangement which,
in accordance with GAAP,
-2-
<PAGE>
would be classified as capitalized leases, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Cash Flow Leverage Ratio" as of a date of determination means the
ratio of (i) Funded Debt as of such date less Subordinated Debt as of such
date to (ii) EBITDA for the four quarters ending on such date.
"Collateral Pledge Agreement" means a Collateral Pledge Agreement,
substantially in the form of Exhibit J, executed by the Borrower or a
Guarantor, granting the Agent a security interest in stock of one or more
Subsidiaries to secure payment of the Obligations and, in the case of a
Guarantor, such Guarantor's Guaranty.
"Collections" means any amounts paid by or recovered from (i) the
Borrower pursuant to the Loan Documents, (ii) any Guarantor or other Person
liable in respect of any of the Obligations, (iii) any Bank's exercise of
any right of setoff against the Borrower or any Guarantor, and (iv) the
recovery or realization on any collateral securing the Obligations or the
Guaranties, or any property or claim given in substitution therefor.
"Commitment" means, for Norwest, its commitment to make Advances to
and to issue Letters of Credit for the account of the Borrower, and for the
other Banks, their commitments to make Advances to the Borrower and to
participate in the Obligation of Reimbursement in accordance with Article
II.
"Company" means the Borrower or any Existing Subsidiary or new
Subsidiary acquired directly or indirectly by the Borrower in accordance
with Section 2.26 and "Companies" means the Borrower, the Existing
Subsidiaries and each new Subsidiary acquired directly or indirectly by the
Borrower in accordance with Section 2.26.
"Compliance Certificate" means a certificate in substantially the form
of Exhibit C, or such other form as the Borrower and the Agent may from
time to time agree upon in writing, executed by the chief financial officer
of the Borrower, stating (i) that any financial statements delivered
therewith have been prepared in accordance with GAAP, subject to year-end
adjustments, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the facts
with respect thereto and (iii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the Financial Covenants.
"Consolidated Cash Flow Leverage Ratio" as of a date of determination
means the consolidated Cash Flow Leverage Ratio of the Borrower and the
Subsidiaries, calculated in accordance with GAAP on a trailing four fiscal
quarter basis, after giving pro forma effect to the acquisition of the
Existing Subsidiaries and any Permitted Acquisition after the date hereof.
-3-
<PAGE>
"Consolidated Fixed Charge Coverage Ratio" as of a date of
determination means the ratio of (a) the sum of (i) EBITDA less (ii) cash
----
expenditures for taxes, (iii) unfinanced Capital Expenditures and (iv)
dividends on all stock (including preferred stock) of the Borrower to (b)
the sum of (i) twenty percent (20%) of the outstanding principal balance of
all Term Advances on the date of determination, and (ii) payments made on
Capitalized Lease Liabilities, (iii) Interest Expense for the Borrower and
(iv) scheduled payments on Funded Debt other than the Term Advances,
determined on a trailing four fiscal quarter basis, after giving pro forma
effect to the acquisition of the Existing Subsidiaries and any Permitted
Acquisition after the date hereof.
"Consolidated Net Income" means, with respect to the applicable period
of computation, the after tax net income from continuing operations of the
Borrower and all Subsidiaries on a consolidated basis, determined in
accordance with GAAP.
"Consolidated Tangible Net Worth" as of a date of determination means
the consolidated Tangible Net Worth of the Borrower and the Subsidiaries.
"Debt" of any Person means (i) all items of indebtedness or liability
which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that
Person as at the date as of which Debt is to be determined, excluding,
however, accounts payable and accrued liabilities incurred in the ordinary
course of that Person's business that are owed to sellers of goods or
services to that Person and are in an amount not greater than the cost of
such goods or services, and (ii) indebtedness secured by any Lien on
property owned by such Person, whether or not the indebtedness secured
thereby shall have been assumed, and (iii) guaranties and endorsements
(other than (a) any Guaranty by a Subsidiary or (b) for purposes of
collection in the ordinary course of business) by such Person and other
contingent obligations of such Person in respect of, or to purchase or
otherwise acquire, indebtedness of others. For purposes of determining a
Person's aggregate Debt at any time, "Debt" shall also include the
aggregate payments required to be made by such Person at any time under any
lease that is considered a capitalized lease under GAAP.
"Default" means an event that, with the giving of notice, the passage
of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date the Bank notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to two percent (2%) over the
Floating Rate or the Eurodollar Rate, which rate shall change when and as
such rates change.
"EBITDA" means, the sum of (i) pretax earnings from continuing
operations, (ii) Interest Expense and (iii) depreciation, depletion, and
amortization of tangible and intangible assets, in each case calculated in
accordance with GAAP on a trailing four
-4-
<PAGE>
fiscal quarter basis, after giving pro forma effect to the acquisition of
the Existing Subsidiaries and any Permitted Acquisition after the date
hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any regulations issued thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is, along with the Borrower, a member of a controlled
group of corporations or a controlled group of trades or businesses, as
described in sections 414(b) and 414(c), respectively, of the Internal
Revenue Code of 1986, as amended.
"Eligible Accounts" means the dollar value of the Accounts of the
Companies in which the Agent holds a first perfected security interest
reduced by:
(i) the amount of any Account which is not paid by the account
debtor within 90 days from the invoice date;
(ii) the amount of any Account as to which the account debtor
disputes liability or makes any claim with respect to the
Account;
(iii) the amount of any Account as to which a Company has knowledge
that a petition in bankruptcy or other application for relief
under any insolvency law has been filed with respect to the
account debtor owing the Account or as to which the account
debtor on the Account has made an assignment for the benefit of
creditors, or failed, suspended or gone out of business;
(iv) Accounts which are subject to any Lien in favor of any Person
other than Agent, provided, however, that Accounts subject to a
-------- -------
bond shall not fail to qualify as "Eligible Accounts" under
this clause (iv) except to the extent they exceed twenty
percent (20%) of all Eligible Accounts;
(v) the amount of any Account which is owed by a Person that does
not have its principal place of business in the United States
or Canada unless supported by a letter of credit in the amount
of the Account issued by a financial institution reasonably
satisfactory to the Agent;
(vi) the amount of any Account which is owed by any account debtor
who has not paid 10% or more of any such account debtor's
Accounts within 90 days from the invoice date, to the extent
not deducted pursuant to clause (i);
(vii) the amount of any Account as to which the account debtor is an
Affiliate;
(viii) the amount of any creditor balances; and
(ix) all other Accounts deemed ineligible by the Agent in its
reasonable discretion.
-5-
<PAGE>
"Eligible Equipment" means all Equipment of the Companies, excluding,
however, fixtures, leasehold improvements, and Equipment subject to a Lien
in favor of any Person other than the Agent or the Banks.
"Eligible Inventory" means all Inventory of the Companies, at the
lower of cost or market value as determined in accordance with GAAP;
provided, however, that the following shall not in any event be deemed
Eligible Inventory:
(i) Inventory that is: in-transit; located at any warehouse, job
site or other premises not approved by the Agent in writing;
located outside of the states, or localities, as applicable, in
which financing statements have been filed to perfect a first
priority security interest in such Inventory in favor of the
Agent; covered by any negotiable or non-negotiable warehouse
receipt, bill of lading or other document of title; on
consignment from any Person; on consignment to any Person or
subject to any bailment unless such consignee or bailee has
executed an agreement with the Agent;
(ii) Supplies, packaging, maintenance parts or sample Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory of a Company that is damaged, obsolete, designated as
slow moving by that Company's independent public accountants, or
not currently saleable in the normal course of such Company's
operations;
(v) Inventory that a Company has returned, has attempted to return,
is in the process of returning or intends to return to the
vendor thereof;
(vi) Inventory that is subject to a security interest in favor of any
Person other than the Agent; and
(vii) Inventory otherwise deemed ineligible by the Agent in its
reasonable discretion.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq. as amended by
------
the Superfund Amendment and Reauthorization Act of 1996, the Resource
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the Hazardous
-------
Materials Transportation Act, 49 U.S.C. (S) 1802 et seq., the Toxic
-------
Substances Control Act, 15 U.S.C. (S) 2601 et seq., the Federal Water
-------
Pollution Control Act, 33 U.S.C. (S) 1252 et seq., the Clean Water Act, 33
-------
U.S.C. (S) 1321 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et seq., and
------- -------
any other federal, state, county, municipal, local or other statute, law,
ordinance or regulation which may relate to or deal with human health or
the environment, all as may be from time to time amended.
-6-
<PAGE>
"Eurodollar Business Day" means a Bank Business Day on which dealings
in U.S. dollar deposits are carried on in the London interbank market.
"Eurodollar Rate" means the annual rate equal to the sum of (i) the
rate obtained by dividing (a) the rate (rounded up to the nearest 1/8 of
1%) determined by the Agent to be the average rate at which U.S. dollar
deposits are offered to the Agent by major banks in the London interbank
market for funds to be made available on the first day of any Interest
Period in an amount approximately equal to the amount for which a
Eurodollar Rate quotation has been requested and maturing at the end of
such Interest Period, by (b) a percentage equal to 100% minus the Federal
Reserve System requirement (expressed as a percentage) applicable to such
deposits, and (ii) the applicable Margin.
"Eurodollar Rate Advance" means any Advance which bears interest at a
rate determined by reference to a Eurodollar Rate.
"Event of Default" has the meaning specified in Section 7.1.
"Existing Subsidiaries" means Eagle Electric Holdings, Inc., a
Minnesota corporation, Eagle Electric Holdings, Inc., a Delaware
corporation, Eagle Electrical Systems, Inc., an Ohio corporation, Parsons
Electric Holdings, Inc., a Delaware corporation, Parsons Electric Co., a
Minnesota corporation, The Allison Company, a Georgia corporation, Allison-
Smith Company, a Georgia corporation, and Henderson Electric Co., Inc., a
Delaware corporation.
"Facility" means the Revolving Facility or the Term Facility and
"Facilities" means both the Revolving Facility and the Term Facility.
"Facility Amount" means the Revolving Facility Amount or the Term
Facility Amount.
"Federal Funds Rate" means the average rate for overnight federal
funds transactions, as determined by the Agent in any reasonable manner.
"Financial Covenant" means any of the Borrower's obligations set forth
in Sections 5.9, 5.10, 5.11, 6.11 and 6.12.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
and the applicable Margin, which rate shall change when and as the Base
Rate or the Margin changes.
"Floating Rate Advance" means any Advance which bears interest at a
rate determined by reference to the Floating Rate.
"Funded Debt", for any Person, means all interest bearing Debt of such
Person and shall include all interest-bearing Debt created, assumed or
guaranteed by such Person either directly or indirectly, including
obligations secured by liens upon property
-7-
<PAGE>
of such Person and upon which such entity customarily pays the interest,
all rental payments under capitalized leases and, in the case of the
Borrower, the L/C Amount.
"GAAP" means generally accepted accounting principles applied on a
basis consistent with the accounting practices applied in the annual
financial statements referred to in Section 4.5.
"Guarantor Documents" means, for each Guarantor, that Gurantor's
Guaranty, its Guarantor Security Agreement and any Collateral Pledge
Agreement executed by that Guarantor.
"Guarantor Security Agreement" means a Security Agreement,
substantially in the form of Exhibit H, by a Guarantor in favor of the
Agent.
"Guarantors" means the Existing Subsidiaries and any other Person now
or hereafter guarantying the Obligations.
"Guaranty" means a Guaranty, substantially in the form of Exhibit I,
by a Guarantor in favor of the Agent.
"Hazardous Substance" means any asbestos, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), nuclear fuel or material, chemical
waste, radioactive material, explosives, known carcinogens, petroleum
products and by-products and other toxic or hazardous pollutants,
contaminants, chemicals, materials or substances listed or identified in,
or regulated by, any Environmental Law.
"Interest Expense" means, as to any Person for a designated period,
that Person's total gross interest expense during such period (excluding
interest income), determined in accordance with GAAP.
"Interest Period" means, relative to any Eurodollar Rate Advance, the
period beginning on (and including) the date on which such Eurodollar Rate
Advance is made, or continued as, or converted into, a Eurodollar Rate
Advance pursuant to Sections 2.5, 2.6 or 2.7 and shall end on (but exclude)
the day which numerically corresponds to such date one (1), two (2), three
(3), or six (6) months thereafter (or, if such month has no numerically
corresponding day, on the last Business Day of such month), as the Borrower
may select in its relevant notice pursuant to Sections 2.5, 2.6, or 2.7;
provided, however, that:
-------- -------
(a) no more than three (3) different Interest Periods may be
outstanding at any one time;
(b) if an Interest Period would otherwise end on a day which is
not a Banking Day, such Interest Period shall end on the next
following Banking Day (unless such next following Banking Day is the
first Banking Day of a month, in
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<PAGE>
which case such Interest Period shall end on the next preceding
Banking Day); and
(c) no Interest Period applicable to an Advance may end later
than the Maturity Date.
"Inventory" means, as to any Person, all of such Person's inventory,
as such term is defined in the UCC, whether now owned or hereafter
acquired, whether consisting of whole goods, spare parts or components,
supplies or materials, whether acquired, held or furnished for sale, for
lease or under service contracts or for manufacture or processing, and
wherever located.
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C Application" means an application and agreement for letters of
credit in Norwest's then-current standard form.
"Letter of Credit" has the meaning specified in Section 2.12.
"Lien" means any mortgage, deed of trust, lien, pledge, security
interest or other charge or encumbrance, of any kind whatsoever, including
but not limited to the interest of the lessor or titleholder under any
capitalized lease, title retention contract or similar agreement.
"Limited Liability Entity" means any corporation, limited liability
company, limited partnership, business trust or any other form of entity
which under the applicable law pursuant to which it is organized the owners
of the equity interests thereof are shielded from personal liability for
the debts or obligations of such entity.
"Loan Documents" means this Agreement, the Notes and the Security
Agreement and each Borrower Pledge Agreement.
"Margin" means, with respect to computation of the Eurodollar Rate,
the Floating Rate and the unused line fee described in Section 2.19(b), the
applicable increment (expressed in basis points) set forth and described in
the table below, established as of the last day of each fiscal quarter
according to the Borrower's Consolidated Cash Flow Leverage Ratio as shown
on its Compliance Certificate:
Margins
-------------------------------------
Consolidated Cash Flow Floating Eurodollar
Leverage Ratio Rate Rate unused fee
1.50 to 1.00 or less 0 140 25
Greater than 1.50 to 1.00 0 165 30
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but less than or equal
to 2.00 to 1.00
Greater than 2.00 to 1.00 25 190 35
"Material Adverse Effect" means, with respect to any event or
circumstance, a material adverse effect on:
(a) the business, financial condition or operations of the Companies
and Permitted Acquisitions, taken as a whole;
(b) the validity or enforceability of any Loan Document or Guarantor
Document; or
(d) the status, existence, perfection, priority (subject to Permitted
Liens) or enforceability of the Liens granted to the Banks pursuant to the
Security Documents or the Guarantor Documents.
"Maturity Date" means December 1, 2001.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Net Equity Proceeds" means the net cash proceeds actually received by
the Borrower from sale of additional common or preferred stock of the
Borrower or instruments convertible into common or preferred stock of the
Borrower on or after the Funding Date, after payment of all fees,
discounts, commissions and expenses to underwriters, placement agents,
legal counsel, accountants and other miscellaneous fees and expenses
related to such sale.
"Notes" means the Revolving Notes or the Term Notes.
"Obligation of Reimbursement" has the meaning given in Section
2.13(a).
"Obligations" means each and every debt, liability and obligation of
every type and description arising under or in connection with any of the
Loan Documents, which the Borrower may now or at any time hereafter owe to
a Bank, whether such debt, liability or obligation now exists or is
hereafter created or incurred, whether it is direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, the Obligation of Reimbursement and any
L/C Application completed by the Borrower, and all indebtedness,
liabilities and obligations of the Borrower arising under or evidenced by
the Notes.
"Percentage" means as to each Bank, its Revolving Facility Percentage
or its Term Facility Percentage.
"Permitted Acquisitions" has the meaning given in Section 2.26.
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"Permitted Liens" has the meaning given in Section 6.1.
"Permitted Preferred Stock Dividends" means dividends payable on (i)
Series A Preferred Stock, as set forth in the Certificate of Designation,
Preferences and Rights of Series A Nonvoting Convertible Preferred Stock
dated May 31, 1998 and (ii) the Borrower's Series B Convertible Preferred
Stock, as set forth in the Certificate of Designation, Preferences and
Rights of Series B Convertible Preferred Stock dated October 22, 1998.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower or any ERISA Affiliate and covered by Title IV of
ERISA.
"Platform Acquisition" means a Permitted Acquisition in a market in
which the Borrower does not have operations at the time of the acquisition.
"Redemption Revolving Advances" has the meaning given in Section 2.3.
"Reportable Event" means (i) a "reportable event" described in Section
4043 of ERISA and the regulations issued thereunder, (ii) a withdrawal from
any Plan, as described in Section 4063 of ERISA, (iii) an action to
terminate a Plan for which a notice is required to be filed under Section
4041 of ERISA, (iv) any other event or condition that might constitute
grounds for termination of, or the appointment of a trustee to administer,
any Plan, or (v) a complete or partial withdrawal from a Multiemployer Plan
as described in Sections 4203 and 4205 of ERISA.
"Required Banks" means Banks holding together at least 66.67% of the
Obligations, determined as if a Settlement Date had just occurred.
"Reserve" has the meaning given in Section 2.3(a).
"Revolving Facility" means the revolving credit facility described in
Section 2.1 and the letter of credit facility described in Section 2.12.
"Revolving Facility Amount" means, with respect to each Bank, the
amount designated as such opposite that Bank's name on the signature page
hereof, unless said amount is reduced pursuant to Section 2.20, in which
event it means the amount to which said amount is reduced.
"Revolving Facility Availability" means the Borrowing Base less the
----
L/C Amount and the outstanding principal balance of the Term Notes.
"Revolving Facility Percentage" means, with respect to each Bank, the
percentage designated as such opposite that Bank's name on the signature
page hereof.
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"Revolving Notes" means the Borrower's promissory notes payable to the
order of each of the Banks in substantially the form attached hereto as
Exhibit A, dated as of the Funding Date.
"Security Agreement" means the Security Agreement of the Borrower in
favor of the Agent of even date herewith.
"Series A Preferred Stock" means the Borrower's Series A Nonvoting
Convertible Preferred Stock, with the rights and privileges described in
the Certificate of Designation, Preferences and Rights of Series A
Nonvoting Convertible Preferred Stock dated May 31, 1998.
"Settlement Date" means (a) every Tuesday hereafter, commencing with
Tuesday, December 29, 1998, or, if such day is not a Banking Day, the next
succeeding Banking Day, and (b) any other Banking Day designated as a
"Settlement Date" by the Agent in its discretion upon not less than one (1)
Banking Day's notice to each Bank.
"Special Account" means a specified cash collateral account maintained
by the Agent in connection with Letters of Credit, as contemplated by
Section 2.14.
"Subordinated Debt" as to any Person, means Debt of that Person which
is subordinated in right of payment to all indebtedness of that Person to
the Banks, on terms that have been approved in writing by the Banks and
that have been noted by appropriate legend on all instruments evidencing
such Debt. For the avoidance of doubt, "Subordinated Debt" does not include
preferred stock.
"Subsidiary" means (i) any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of
such corporation, irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of
the happening of any contingency, is at the time directly or indirectly
owned by the Borrower, by the Borrower and one or more other Subsidiaries,
or by one or more other Subsidiaries, (ii) any partnership of which 50% or
more of the partnership interests therein are directly or indirectly owned
by the Borrower, by the Borrower and one or more other Subsidiaries, or by
one or more other Subsidiaries, and (iii) any limited liability company or
other form of business organization the effective control of which is held
by the Borrower, the Borrower and one or more other Subsidiaries, or by one
or more other Subsidiaries.
"Tangible Net Worth" as to any Person, means the difference between
(i) the tangible assets of that Person, which, in accordance with GAAP are
tangible assets, after deducting adequate reserves in each case where, in
accordance with GAAP, a reserve is proper and (ii) all Debt of that Person;
provided, however, that notwithstanding the foregoing in no event shall
-------- -------
there be included as such tangible assets patents, trademarks, trade names,
copyrights, licenses, goodwill, receivables from Affiliates, directors,
officers or employees, deferred charges or treasury stock or any securities
or Debt of that
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Person or any other securities unless the same are readily marketable in
the United States of America or entitled to be used as a credit against
federal income tax liabilities and non-compete agreements.
"Term Advance" has the meaning specified in Section 2.2.
"Term Facility" means the credit facility described in Section 2.2.
"Term Facility Amount" means, with respect to each Bank, the amount
designated as such opposite that Bank's name on the signature page hereof.
"Term Facility Availability" means the Borrowing Base less the L/C
----
Amount and the outstanding principal balance of the Revolving Notes.
"Term Facility Percentage" means, with respect to each Bank, the
percentage designated as such opposite that Bank's name on the signature
page hereof.
"Term Notes" means the Borrower's promissory notes, payable to the
order of each Bank, in substantially the form attached hereto as Exhibit B,
dated as of the Funding Date.
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date the
Agent demands payment of the Obligations.
"UCC" means the Uniform Commercial Code as in effect from time to time
in Minnesota or in any state whose laws are held to govern the creation,
perfection or foreclosure of any security interest granted pursuant to the
Security Agreement.
"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of
ERISA.
Section 1.2 Cross References. All references in this Agreement to
----------------
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
Section 2.1 Revolving Advances. Each Bank agrees, severally and not
------------------
jointly, to make advances to the Borrower from time to time during the period
from the date all of the conditions set forth in Section 3.1 have been satisfied
(the "Funding Date") to the Termination Date, on the terms and subject to the
conditions herein set forth (the "Revolving Advances"). Each Bank's obligation
to make Revolving Advances to the Borrower shall be limited to such Bank's
Revolving Facility Percentage of the Revolving Advance requested by the
Borrower, provided, however, that (i) the outstanding principal balance of
-------- -------
Revolving Advances made by a Bank shall not exceed that Bank's Revolving
Facility Amount less that Bank's Revolving
----
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<PAGE>
Facility Percentage of the L/C Amount, (ii) the outstanding principal balance of
Revolving Advances made by a Bank shall not exceed that Bank's Revolving
Facility Percentage of Revolving Facility Availability, and (iii) the sum of (A)
the outstanding principal balance of all Revolving Advances made by all Banks,
(B) the L/C Amount and (C) the outstanding principal balance of all Term
Advances made by all Banks shall not exceed the Borrowing Base. The Borrower's
obligation to pay each Bank's Revolving Facility Percentage of the Revolving
Advances shall be evidenced by a Revolving Note payable to the order of such
Bank. Within the limits set forth in this Section 2.1, the Borrower may obtain
Revolving Advances hereunder, repay Revolving Advances pursuant to Section 2.20
and reborrow under this Section 2.1.
Section 2.2 Term Facility. Each Bank agrees severally, but not
-------------
jointly, to make advances from time to time to the Borrower (each a "Term
Advance"), from the Funding Date to the second anniversary of the Funding Date,
on the terms and subject to the conditions herein set forth. Each Bank's
obligation to make Term Advances to the Borrower shall be limited to such Bank's
Term Facility Percentage of the Term Advance requested by the Borrower,
provided, however, that (i) the sum of all Term Advances made by a Bank shall
- -------- -------
not exceed that Bank's Term Facility Amount, (ii) the sum of all Term Advances
made by a Bank shall not exceed that Bank's Term Facility Percentage of Term
Facility Availability and (iii) the sum of (A) the outstanding principal balance
of all Revolving Advances, (B) the L/C Amount and (C) the outstanding principal
balance of all Term Advances shall not exceed the Borrowing Base. The Borrower's
obligation to repay the Term Advances made by each Bank shall be evidenced by a
Term Note payable to the order of such Bank.
Section 2.3 Redemption of Preferred Stock. The terms of the Series A
-----------------------------
Preferred Stock as set forth in the Certificate of Designation, Preferences and
Rights of Series A Nonvoting Convertible Preferred Stock dated May 31, 1998,
require the Borrower to begin redeeming such stock on March 31, 1999 and to
redeem all such stock on or before August 1, 1999, or face conversion of the
Preferred Stock into common stock of the Borrower. The Borrower may redeem
Series A Preferred Stock at any time from Net Equity Proceeds. The Borrower may
use Revolving Advances to redeem the Series A Preferred Stock ("Redemption
Revolving Advances") provided the following conditions are satisfied:
(a) BORROWING BASE RESERVE. A reserve (the "Reserve") shall be
incorporated in the Borrowing Base in the amount of (i) $2,000,000 from
January 1, 1999 through March 30, 1999, (ii) $4,000,000 from March 31, 1999
to May 30, 1999 and (iii) $6,000,000 from May 31, 1999 and thereafter,
reduced in each case by the amount paid by the Borrower to the holder of
the Series A Preferred Stock to redeem such stock.
(b) NOTICE TO AGENT. The Borrower shall provide the Agent with at
least fifteen (15) days prior written notice of its intent to obtain
Redemption Revolving Advances. Such notice shall specify the dollar amount
of the Redemption Revolving Advances, the number of shares of Series A
Preferred Stock to be redeemed and instructions for wiring the proceeds of
such Redemption Revolving Advances to the holder(s) of the stock being
redeemed.
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(c) REPAYMENT OR CONVERSION TO TERM ADVANCE. If the Borrower fails to
repay the Redemption Revolving Advances before October 31, 1999, on such
date, (i) the Borrower shall be deemed to have requested a Term Advance in
the amount of the outstanding principal balance of the Redemption Revolving
Advances; (ii) the proceeds of such Term Advance shall be used to repay the
Redemption Revolving Advance; (iii) the Borrower shall pay a fee to the
Agent as described in the letter agreement between the Borrower and the
Agent of even date herewith.
Section 2.4 Increase in Facility Amounts. As set forth below and
----------------------------
pursuant to other procedures that the Agent and the Required Banks may
establish, the Borrower may request that the Aggregate Revolving Facility Amount
and/or Aggregate Term Facility Amount be increased.
(a) INCREASE REQUESTS. So long as no Default Period exists, the
Borrower may request, at any time and from time to time after the Agent
receives and approves the Borrower's unqualified audit for its fiscal year
ended March 31, 1999, by written notice to the Agent (each an "Increase
Request"), that the Aggregate Revolving Facility Amount, the Aggregate Term
Facility Amount, or both, be increased (the amount of such requested
increase, if any, in the Aggregate Revolving Facility Amount shall be the
"Revolving Increase Amount"; and the amount of such requested increase, if
any, in the Aggregate Term Facility Amount shall be the "Term Increase
Amount"). Such Increase Requests shall be irrevocable and binding on the
Borrower.
(b) APPROVAL OF INCREASE REQUESTS. The Agent shall promptly notify
each Bank of the receipt of an Increase Request. Provided (i) the Agent
shall have received and accepted an unqualified audit for the Borrower's
fiscal year ended March 31, 1999, (ii) the sum of the Aggregate Revolving
Facility Amount and the Aggregate Term Facility Amount, after giving effect
to the Revolving Increase Amount and/or the Term Increase Amount, does not
exceed $50,000,000, and (iii) the Revolving Increase Amount, if any, and
the Term Increase Amount, if any, are each equal to $5,000,000 or an
integral multiple thereof, the Agent may approve or deny the Increase
Request; otherwise, the Increase Request shall be denied unless all the
Banks approve it.
(c) APPORTIONMENT OF INCREASE REQUESTS. Upon receipt and approval of
an Increase Request, the Agent shall offer to each Bank the opportunity to
increase its Revolving Facility Amount, if applicable, by an amount up to
such Bank's Revolving Facility Percentage times the Revolving Increase
Amount, and its Term Facility Amount, if applicable, by an amount up to
such Bank's Term Facility Percentage times the Term Facility Increase. If a
Bank agrees, in its individual and sole discretion, to so increase its
Revolving Facility Amount or Term Facility Amount (an "Accepting Bank"), it
shall deliver to the Agent, no later than 14 days from the date on which
the Agent notified the Banks of such request, a written notice of such
agreement specifying the amount by which its Revolving Facility Amount
and/or Term Facility Amount shall be increased; provided, however, that in
-------- -------
no event shall a Bank's Revolving Facility Percentage be different from its
Term Facility Percentage after giving effect to any such
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increase. No Bank's Revolving Facility Amount or Term Facility Amount shall
be increased unless such Bank so accepts. If a Bank fails to accept or
respond to the Agent's request for an increase in its Revolving Facility
Amount or Term Facility Amount (a "Declining Bank"), such Declining Bank's
share of the increase may be allocated by the Agent to one or more
Accepting Banks which, in such Bank's sole and absolute discretion, accepts
in writing any such allocation by the Agent.
(d) SHORTFALL AMOUNTS; ADDITIONAL BANKS. If, after following the
procedure set forth in Subsection (c), less than all of the Revolving
Increase Amount and/or the Term Increase Amount, as the case may be, has
been apportioned among the Banks (such unapportioned amount, a "Shortfall
Amount"), the Agent may extend offers to other financial institutions in
accordance with Section 8.14, to become Banks under this Agreement (each a
"New Bank") with respect to such Shortfall Amount. If no new Banks accept
such offers, the Increase Request shall be deemed rejected, or at the
Borrower's option, modified to reflect the actual increases approved by the
Accepting Banks.
(e) FEE. The Borrower shall pay the Agent the arrangement fee in
connection with each accepted Increase Request in accordance with the
letter agreement between the Borrower and the Agent of even date herewith.
(f) DOCUMENTATION. The increase in the Revolving Facility Amounts
and/or Term Facility Amounts of Accepting Banks and the assignment to any
New Banks shall occur on such date as determined by the Agent, with prior
notice thereof to the Borrower, the Banks and the New Banks. Before such
increase, the Borrower shall execute new Notes reflecting the increased
Facility Amounts of all Accepting Banks and New Banks and deliver same to
the Agent, which shall deliver each Bank's new Notes upon surrender of its
old Notes.
Section 2.5 Procedures for Borrowing.
------------------------
(a) Each Advance that the Banks may make shall be funded as either a
Floating Rate Advance or a Eurodollar Rate Advance, as the Borrower shall
specify in the related notice of borrowing or notice of conversion pursuant
to this Section 2.5 or Section 2.6, provided that during Default Periods,
no Eurodollar Rate Advances shall be made. Floating Rate Advances and
Eurodollar Rate Advances may be outstanding at the same time. Each request
for a Floating Rate Advance shall be in the amount of $50,000 or a higher
integral multiple of $50,000. Each request for a Eurodollar Rate Advance
shall be in the amount of $500,000 or a higher integral multiple of
$100,000.
(b) The Borrower shall request each Advance not later than 11:00 a.m.,
Minneapolis, Minnesota time, on a Banking Day which, in the case of a
Floating Rate Advance, is the Advance date, or, in the case of a Eurodollar
Rate Advance, is at least three (3) Banking Days before the date the
Advance is to be made. Requests for a Floating Rate Advance may be made by
telephone; requests for Eurodollar Rate Advances shall be made in writing.
Each request for an Advance shall specify the date
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of the requested Advance, the amount thereof, whether the Advance is a
Revolving Advance or a Term Advance, and whether the Advance is to bear
interest initially at a Floating Rate or a Eurodollar Rate, and in the case
of an Advance that is to bear interest initially at a Eurodollar Rate, the
applicable Interest Period. Each request for an Advance shall be made by
(i) any officer of the Borrower; or (ii) any person designated as the
Borrower's agent by any officer of the Borrower in a writing delivered to
the Agent; or (iii) any person reasonably believed by the Agent to be an
officer of the Borrower or such a designated agent.
(c) Unless the Agent elects to follow the procedure set forth in
Section 8.2(d), promptly upon receipt of each request for an Advance, the
Agent shall notify each Bank by telephone or telecopy of the request and
subject to fulfillment of the applicable conditions set forth in Article
III, each Bank shall make its Percentage of the requested Revolving Advance
available to the Agent in immediately available funds at the Agent's
address specified in Section 9.3, not later than 2:00 p.m. (Minneapolis,
Minnesota time) on the date of such Revolving Advance; provided that each
Bank shall have received funding notice not later than 12:00 noon
(Minneapolis, Minnesota time) on such day.
(d) Upon fulfillment of the applicable conditions set forth in Article
III, the Agent shall make the proceeds of each Bank's share of the Advance
available to the Borrower by crediting the same to the Borrower's demand
deposit account maintained with the Agent unless the Agent and the Borrower
shall agree to another manner of disbursement. Upon the Agent's request,
the Borrower shall promptly confirm each telephonic request for an Advance
by executing and delivering an appropriate confirmation certificate to the
Agent. The Borrower shall be obligated to repay all Advances
notwithstanding the Agent's failure to receive such confirmation and
notwithstanding the fact that the person requesting the same was not in
fact authorized to do so. Any request for an Advance, whether written or
telephonic, shall be deemed to be a representation by the Borrower that the
conditions set forth in Section 3.3 have been satisfied as of the time of
the request.
Section 2.6 Converting Floating Rate Advances to Eurodollar Rate
----------------------------------------------------
Advances; Procedures. So long as no Default Period exists, the Borrower may
- --------------------
convert all or any part of any outstanding Floating Rate Advance into a
Eurodollar Rate Advance by giving notice to the Agent of such conversion not
later than 3:00 p.m., Minneapolis, Minnesota time, on a Banking Day which is at
least three (3) Banking Days before the date of the requested conversion. Each
such notice shall be irrevocable, shall be effective upon receipt by the Agent,
shall be in writing or by telephone or telecopy transmission, to be confirmed in
writing by the Borrower if so requested by the Agent (in the form of Exhibit F),
and shall specify the date and amount of such conversion, the total amount of
the Advance to be so converted and the Interest Period therefor. Each conversion
of an Advance shall be on a Banking Day, and the aggregate amount of each such
conversion of a Floating Rate Advance to a Eurodollar Rate Advance shall be in
an amount equal to $500,000 or a higher integral multiple of $100,000.
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Section 2.7 Procedures at End of a Interest Period. Unless the
--------------------------------------
Borrower requests a new Eurodollar Rate Advance in accordance with the
procedures set forth below, or prepays the principal of an outstanding
Eurodollar Rate Advance, at the expiration of an Interest Period, the Agent
shall automatically and without request of the Borrower convert each Eurodollar
Rate Advance to a Floating Rate Advance on the last day of the relevant Interest
Period. So long as no Default Period shall exist, the Borrower may cause all or
any part of any outstanding Eurodollar Rate Advance to continue to bear interest
at a Eurodollar Rate after the end of the then applicable Interest Period by
notifying the Agent not later than 10:30 a.m., Minneapolis, Minnesota time, on a
Banking Day which is at least three (3) Banking Days before the first day of the
new Interest Period. Each such notice shall be irrevocable, shall be in writing
or by telephone or telecopy transmission, to be confirmed in writing by the
Borrower if so requested by the Agent (in the form of Exhibit G), shall be
effective when received by the Agent, and shall specify the first day of the
applicable Interest Period, the amount of the expiring Eurodollar Rate Advance
to be continued and the Interest Period therefor. Each new Interest Period shall
begin on a Banking Day and the amount of each Advance bearing a new Eurodollar
Rate shall be in an amount equal to $500,000 or a higher integral multiple of
$100,000.
Section 2.8 Setting and Notice of Rates. The Agent shall determine the
---------------------------
applicable Eurodollar Rate for each Interest Period between the opening of
business and 12:00 Noon, Minneapolis, Minnesota time, on the second Banking Day
before the beginning of such Interest Period, and shall give notice thereof
(which may be by telephone) to the Borrower. Each such determination of the
applicable Eurodollar Rate shall be conclusive and binding upon the parties
hereto, in the absence of demonstrable error. The Agent, upon written request of
the Borrower, shall deliver to the Borrower a statement showing the computations
used by the Agent in determining the applicable Eurodollar Rate.
Section 2.9 Funding Losses. The Borrower shall, upon demand by a Bank
--------------
(which demand shall be accompanied by a statement setting forth the basis for
the calculations of the amount being claimed), indemnify that Bank against any
loss or expense which that Bank may have sustained or incurred (including,
without limitation, any net loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by that Bank to
fund or maintain Eurodollar Rate Advances) or which that Bank may be deemed to
have sustained or incurred, as reasonably determined by that Bank, (a) as a
consequence of any failure by the Borrower to make any payment when due of any
amount due in connection with any Eurodollar Rate Advances, (b) due to any
failure of the Borrower to borrow or convert any Eurodollar Rate Advances on a
date specified therefor in a notice thereof or (c) due to any payment or
prepayment of any Eurodollar Rate Advance on a date other than the last day of
the applicable Interest Period for such Eurodollar Rate Advance. For this
purpose, all notices under Sections 2.5, 2.6, or 2.7 shall be deemed to be
irrevocable.
Section 2.10 Right of Banks to Fund through Other Offices. Each Bank
--------------------------------------------
may fulfill its agreements hereunder with respect to any Eurodollar Rate Advance
by causing a foreign branch or affiliate to make such Eurodollar Rate Advance;
provided, that in such event the obligation of the Borrower to repay such
- --------
Eurodollar Rate Advance shall nevertheless be to
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that Bank and such Eurodollar Rate Advance shall be deemed held by that Bank for
the account of such branch or affiliate.
Section 2.11 Discretion of Banks as to Manner of Funding.
-------------------------------------------
Notwithstanding any provision of this Agreement to the contrary, each Bank shall
be entitled to fund and maintain all or any part of its Eurodollar Rate Advances
in any manner it deems fit, it being understood, however, that for the purposes
of this Agreement (specifically including, without limitation, Section 2.9) all
determinations hereunder shall be made as if each Bank had actually funded and
maintained each Eurodollar Rate Advance during each Interest Period for such
Eurodollar Rate Advance through the purchase of deposits having a maturity
corresponding to such Interest Period and bearing an interest rate equal to the
appropriate Eurodollar Rate for such Interest Period.
Section 2.12 Letters of Credit.
-----------------
(a) Norwest agrees, on the terms and subject to the conditions herein
set forth, to issue, from the Funding Date to the Termination Date, one or
more irrevocable standby or documentary letters of credit (each, a "Letter
of Credit") for the account of any Company. Norwest shall have no
obligation to issue any Letter of Credit if the face amount of the Letter
of Credit to be issued, would exceed the lesser of:
(i) $3,000,000 less the L/C Amount, or
(ii) Revolving Facility Availability.
Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
Application entered into between the Borrower and Norwest, completed in a
manner satisfactory to the Norwest at least three (3) Banking Days before
the Letter of Credit is issued. The terms and conditions set forth in each
such L/C Application shall supplement the terms and conditions hereof, but
if the terms of any such L/C Application and the terms of this Agreement
are inconsistent, the terms hereof shall control. Upon receipt thereof, the
Agent shall notify each Bank by telephone or telecopy of the request and of
the amount of such Bank's Revolving Facility Percentage of risk therein.
(b) No Letter of Credit shall be issued with an expiry date later than
the earlier of twenty-four (24) months or the Termination Date in effect as
of the date of issuance.
(c) Any request to issue a Letter of Credit under this Section 2.12
shall be deemed to be a representation by the Borrower that the conditions
set forth in Section 3.1 have been satisfied as of the date of the request.
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<PAGE>
Section 2.13 Payment of Amounts Drawn Under Letters of Credit;
-------------------------------------------------
Obligation of Reimbursement. The Borrower shall reimburse Norwest for all draws
- ---------------------------
under any Letter of Credit in accordance with the applicable L/C Application and
as follows:
(a) OBLIGATION OF REIMBURSEMENT. The Borrower shall pay Norwest on the
day a draft is honored under any Letter of Credit a sum equal to all
amounts drawn under such Letter of Credit plus any and all reasonable
charges and expenses that Norwest may pay or incur relative to such draw
and the applicable L/C Application, plus interest on all such amounts,
charges and expenses as set forth below (the Borrower's obligation to pay
all such amounts is herein referred to as the "Obligation of
Reimbursement").
(b) REVOLVING ADVANCE TO PAY OBLIGATION OF REIMBURSEMENT. Whenever a
draft is submitted under a Letter of Credit, the Agent shall cause a
Revolving Advance to be made in the amount of the Obligation of
Reimbursement and shall apply the proceeds of such Revolving Advance
thereto. Such Revolving Advance shall be repayable in accordance with and
be treated in all other respects as a Revolving Advance hereunder.
(c) BORROWER'S OBLIGATION IF NO REVOLVING ADVANCE MADE. If a draft is
submitted under a Letter of Credit when the Borrower is unable, because a
Default Period then exists or for any other reason, to obtain a Revolving
Advance to pay the Obligation of Reimbursement, the Borrower shall pay to
Norwest on demand and in immediately available funds, the amount of the
Obligation of Reimbursement together with interest, accrued from the date
of the draft until payment in full at the Default Rate. Notwithstanding the
Borrower's inability to obtain a Revolving Advance for any reason, the
Agent is irrevocably authorized, in its sole discretion, to cause a
Revolving Advance to be made in an amount sufficient to discharge the
Obligation of Reimbursement and all accrued but unpaid interest thereon.
(d) ADVANCE EVIDENCED BY REVOLVING NOTES. The Borrower's obligation to
pay any Revolving Advance made under this Section 2.13, shall be evidenced
by Revolving Notes and shall bear interest as provided in Section 2.16.
(e) BANKS' PARTICIPATIONS IN OBLIGATION OF REIMBURSEMENT. Each Bank
shall be deemed to hold an undivided participating interest in the
Obligation of Reimbursement equal to that Bank's Revolving Facility
Percentage thereof. If Norwest makes any payment pursuant to the terms of a
Letter of Credit and is not promptly reimbursed by a Revolving Advance
under Section 2.1 or otherwise, the Agent may request that each Bank pay to
the Agent such Bank's Revolving Facility Percentage of the Obligation of
Reimbursement.
(i) Upon receipt of any such request before 11:00 a.m. (Minneapolis,
Minnesota time) on a Banking Day, each Bank shall be
unconditionally and irrevocably obligated to pay its Revolving
Facility Percentage of the Obligation of Reimbursement to the
Agent in immediately available
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<PAGE>
funds before 3:00 p.m. (Minneapolis, Minnesota time) on such
date. Notices received after 11:00 a.m. (Minneapolis, Minnesota
time) shall be deemed to have been received on the following
Banking Day.
(ii) If payment is not made by a Bank when due hereunder, such Bank
shall pay interest on the unpaid amount from the date of the
Agent's request through the date of payment at the Federal Funds
Rate.
(iii) After making any payment to the Agent under this subsection in
connection with a particular Obligation of Reimbursement, a Bank
shall be entitled to participate to the extent of its Revolving
Facility Percentage in the related reimbursements received by
the Agent, whether in the form of payments by the Borrower,
payments from third parties or proceeds of collateral. Upon
receiving any such reimbursement, the Agent will distribute to
each Bank its Revolving Facility Percentage of such
reimbursement. At the Agent's option, any payment by a Bank
hereunder may be deemed a Revolving Advance in accordance with
Section 2.1.
Section 2.14 Special Account. If the Revolving Facility is terminated
---------------
for any reason whatsoever while any Letter of Credit is outstanding the Borrower
shall thereupon pay the Agent in immediately available funds for deposit in the
Special Account an amount equal to the L/C Amount. The Special Account shall be
maintained by the Agent in its own name as a special pledged collateral account.
Any interest earned on amounts deposited in the Special Account shall be
credited to the Special Account. Amounts on deposit in the Special Account may
be applied by the Agent at any time or from time to time to the Obligations in
the Agent's sole discretion, and, except to the extent that the amount on
deposit in the Special Account exceeds the sum of the L/C Amount and any
anticipated fees, shall not be subject to withdrawal by the Borrower so long as
the Agent maintains a security interest therein. The Agent agrees to transfer
any balance in the Special Account to the Borrower at such time as the Agent is
required to release its security interest in the Special Account under
applicable law.
Section 2.15 Obligations Absolute. The Borrower's Obligation of
--------------------
Reimbursement arising under this Agreement shall be absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including (without limitation)
the following circumstances:
(a) any lack of validity or enforceability of any Letter of Credit or
any other agreement or instrument relating to any Letter of Credit
(collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure from all or
any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any
such beneficiary or any such
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<PAGE>
transferee may be acting), or other person or entity, whether in connection
with this Agreement, the transactions contemplated herein or in the Related
Documents or any unrelated transactions;
(d) any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) payment by or on behalf of Norwest under any Letter of Credit
against presentation of a draft or certificate which does not strictly
comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
Section 2.16 Interest; Participations; Usury.
-------------------------------
(a) FLOATING RATE ADVANCES. Except as set forth in Sections 2.16(c)
and 2.16(d), the outstanding principal balance of Floating Rate Advances
shall bear interest at the Floating Rate.
(b) EURODOLLAR RATE ADVANCES. Except as set forth in Sections 2.16(c)
and 2.16(d), the outstanding principal balance of Eurodollar Rate Advances
shall bear interest during each relevant Interest Period at the Eurodollar
Rate applicable to such Interest Period, provided that reductions and
increases in the Margin shall be determined within five calendar days
following receipt of the Borrower's financial statements and quarterly
Compliance Certificates required under Section 5.1 and shall be effective
as of the first day of the second month of the quarter; provided, further,
that if the Borrower fails to deliver any financial statements or
Compliance Certificates when required under Section 5.1, the Agent may, by
notice to the Borrower, increase the Margin to the highest amount until
such time as the Agent has received all such financial statements and
Compliance Certificates.
(c) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Agent's sole discretion and without waiving any of the Banks' other
rights and remedies, the principal of the Advances outstanding from time to
time shall bear interest at the Default Rate, effective for any periods
designated by the Agent from time to time during that Default Period.
(d) USURY. In any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
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<PAGE>
Section 2.17 Payment of Term Advances. The principal of each Term
------------------------
Advance shall be due and payable:
(a) beginning on the last day of the calendar quarter that falls at
least six (6) months after the date on which the Term Advance is made and
continuing on the last day of each calendar quarter thereafter, in
substantially equal quarterly installments sufficient to fully amortize
each Term Advance in equal quarterly installments over an assumed term of
five years; and
(b) on the Termination Date, all Term Advances and all interest
accrued thereon shall be due and payable in full.
Section 2.18 Collateral. Payment of the Obligations shall be secured
----------
by the Liens granted under the Loan Documents, and may also now or hereafter be
secured by one or more other Liens. Each such Lien shall be prior to all other
Liens of any kind whatsoever, subject only to such exceptions as the Bank may
expressly approve in writing.
Section 2.19 Fees.
----
(a) ARRANGEMENT FEE. The Borrower shall pay the Agent on the Funding
Date the arrangement fee described in the letter agreement of even date
herewith by and between the Borrower and the Agent.
(b) UNUSED FEE. The Borrower shall pay the Agent for the benefit of
each Bank an annual fee equal to the Margin times the average daily Unused
Revolving Facility Amount and the Unused Term Facility Amount from the date
of this Agreement to and including the Termination Date, due and payable
quarterly in arrears on the last day of each calendar quarter and on the
Termination Date. For the purposes of this Subsection (b), "Unused
Revolving Facility Amount" means, for each Bank, such Bank's Revolving
Facility Amount reduced by the sum of (i) outstanding Revolving Advances
made by such Bank and (ii) such Bank's Revolving Facility Percentage of the
L/C Amount; and "Unused Term Facility Amount means, for each Bank, such
Bank's Term Facility Amount reduced by the sum of all Term Advances made by
such Bank.
(c) AGENT FEE. The Borrower shall pay the Agent on the date of this
Agreement and on each anniversary thereof until the Termination Date the
administrative agent fee described in the letter agreement of even date
herewith by and between the Borrower and the Agent.
(d) LETTER OF CREDIT FEES. The Borrower shall pay Norwest an issuance
fee for each Letter of Credit equal to twelve and one half (12.5) basis
points of the face amount of each Letter of Credit. The Borrower shall also
pay [Norwest][the Agent for the ratable benefit of the Banks] a fee with
respect to each outstanding Letter of Credit, if any, accruing on a daily
basis and computed at the annual rate equal to the Margin applicable to
Eurodollar Advances times the L/C Amount from and including the date of
issuance of such Letter of Credit until such date as such Letter of Credit
shall terminate
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<PAGE>
by its terms, due and payable quarterly in arrears on the last day of each
calendar quarter and on the Termination Date.
(e) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower shall pay the
Agent, on written demand, the administrative fees charged by the Agent in
connection with the honoring of drawings under any Letter of Credit,
amendments thereto, transfers thereof and all other activity with respect
to the Letters of Credit at the then-current rates published by the Agent
for such services rendered on behalf of customers of the Agent generally.
(f) AUDIT FEES. The Borrower shall pay the Agent, on demand, audit
fees in connection with any audits or inspections conducted by the Agent of
any Collateral or the operations or business of the Borrower at the
standard rate or rates established from time to time by the Agent as its
audit fees (which fees are currently $62.50 per hour per auditor), together
with all actual out-of-pocket costs and expenses incurred in conducting any
such audit or inspection.
Section 2.20 Voluntary Prepayments. The Borrower may prepay the Notes
---------------------
in whole or in part, reduce the Revolving Facility Amount or terminate the
Credit Facilities without penalty or premium, at any time and from time to time;
provided that
(a) the Borrower gives the Agent at least 10 days' prior written
notice of any prepayment of the Term Notes;
(b) any prepayment of the Revolving Advances or the Term Advances
shall be pro rata among the Banks in accordance with their respective
Revolving Facility Percentages and Term Facility Percentages;
(c) any prepayment of the full amount of any Notes shall include
accrued interest thereon;
(d) any reduction in the Revolving Facility Amounts must be in an
amount not less than $1,000,000 or an integral multiple thereof;
(e) the Revolving Facility Amount shall not be reduced to an amount
less than the sum of the L/C Amount and the aggregate outstanding principal
balance of the Revolving Advances owed to all Banks at the time of any such
reduction and no such reduction shall reduce any Bank's Revolving Facility
Amount to an amount less than the then-aggregate outstanding balance of the
Revolving Advances due and owing to such Bank plus such Bank's Revolving
Facility Percentage of the L/C Amount.
(f) no Letter of Credit has been issued and is outstanding with an
expiration date after the date of any such early termination.
(g) any prepayment of the Term Advances must be in an amount not less
than $250,000;
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<PAGE>
(h) any partial prepayments of the Term Advances shall be applied to
principal payments due and owing in inverse order of their maturities; and
(i) no prepayment may be applied to any portion of the principal
balance of any Note which, at the time of such prepayment, bears interest
at a Eurodollar Rate.
Section 2.21 Mandatory Prepayment. If the sum of the outstanding
--------------------
principal balance of the Revolving Advances plus the L/C Amount shall at any
time exceed the difference of the Borrowing Base and the outstanding principal
balance of the Term Advances, the Borrower shall (i) first, immediately prepay
the Revolving Advances to the extent necessary to eliminate such excess; and
(ii) if prepayment in full of the Revolving Advances is insufficient to
eliminate such excess, pay to the Agent in immediately available funds for
deposit in the Special Account an amount equal to the remaining excess. Any
payment received by the Agent under this Section 2.21 may be applied to the
Obligations in such order as the Agent, in its discretion, may from time to time
determine.
Section 2.22 Computation of Interest and Fees; When Interest Due and
-------------------------------------------------------
Payable. Interest accruing on the outstanding principal balance of the Advances
- -------
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest on Floating
Rate Advances shall be payable in arrears on the first day of each month and on
the Termination Date. Accrued interest on each Eurodollar Rate Advance shall be
due and payable on the last day of the Interest Period relating to such
Eurodollar Rate Advance; provided, however, that if any Interest Period is
-------- -------
longer than three (3) months, interest shall be due and payable monthly in
arrears on the last day of the third month occurring after commencement of such
Interest Period, on the last day of each three month period thereafter (if any)
and on the last day of such Interest Period.
Section 2.23 Payment. All payments of principal and interest under the
-------
Notes and of the fees hereunder shall be made to the Agent in immediately
available funds. The Borrower agrees that the amounts shown on the books and
records of the Agent as being the principal balances of the Notes shall be prima
facie evidence of such principal amounts. The Borrower hereby authorizes the
Agent to charge against the Borrower's account with the Agent an amount equal to
the accrued interest and fees from time to time due and payable under the Notes
or hereunder, or (at the option of the Agent) to make a Revolving Advance in
such amount, all without receipt of any request for such charge or Revolving
Advance.
Section 2.24 Payment on Nonbusiness Days. Whenever any payment to be
---------------------------
made hereunder or under any Note shall be stated to be due on a day other than a
Bank Business Day, such payment may be made on the next succeeding Bank Business
Day, and such extension of time shall in each case be included in the
computation of interest on such Note or the fees hereunder, as the case may be.
Section 2.25 Use of Proceeds. The Borrower shall use proceeds of the
---------------
Revolving Facility exclusively to provide working capital, finance accounts
receivable, inventory and cash which may be acquired in connection with a
Permitted Acquisition, for general corporate purposes, to make loans and
advances to its Subsidiaries and to make equity investments in its
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<PAGE>
Subsidiaries. The Borrower shall use proceeds of the Term Facility exclusively
to finance Permitted Acquisitions.
Section 2.26 Permitted Acquisitions. Notwithstanding Sections 6.6 and
----------------------
6.8, the Borrower or any Subsidiary may issue stock, Subordinated Debt, cash, or
any combination thereof, in exchange for or otherwise acquire, all of the
ownership interests of, or all or substantially all of the assets of, or merge
or consolidate with, any Limited Liability Entity in the electrical contracting
business (each a "Permitted Acquisition"), provided the conditions set forth on
Schedule 2.26 shall have been satisfied.
Section 2.27 Capital Adequacy; Increased Costs and Reduced Return. If
----------------------------------------------------
any Related Bank determines at any time that its Return has been reduced as a
result of any Rule Change, such Related Bank may require the Borrower to pay it
the amount necessary to restore its Return to what it would have been had there
been no Rule Change. For purposes of this Section 2.27:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Bank. Such rules
include rules requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) "Eurodollar Rule" means Regulation D of the Board of Governors of
the Federal Reserve System, any applicable law, rule or regulation, with
respect to (i) taxes, duties or other charges, exemptions with respect to
Eurodollar Rate Advances or a Bank's obligation to make Eurodollar Rate
Advances, and (ii) reserves imposed by the Board of Governors of the
Federal Reserve System (but excluding any reserve included in the
determination of interest rates pursuant to Section 2.8), special deposits
or similar requirements against assets of, deposits with or for the account
of, or credit extended by, any Related Bank, and any other condition
affecting a Bank's making, maintaining or funding of Eurodollar Rate
Advances or its obligation to make Eurodollar Rate Advances.
(c) "Related Bank" includes (but is not limited to) a Bank, any parent
corporation of a Bank and any assignee of any interest of a Bank hereunder
and any participant in the Advances or Obligation of Reimbursement.
(d) "Return", for any period, means the return as determined by a
Related Bank on the Advances based upon its total capital requirements and
a reasonable attribution formula that takes account of the Capital Adequacy
Rules and the Eurodollar Rules then in effect, costs of issuing or
maintaining any Eurodollar Rate Advance and amounts received or receivable
under this Agreement or the Note with respect to any Eurodollar Advance.
Return may be calculated for each calendar quarter and for the
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<PAGE>
shorter period between the end of a calendar quarter and the date of
termination in whole of this Agreement.
(e) "Rule Change" means any change in any Capital Adequacy Rule or
Eurodollar Rule occurring after the date of this Agreement, but the term
does not include any changes in applicable requirements that at the Closing
Date are scheduled to take place under the existing Capital Adequacy Rules
or Eurodollar Rules or any increases in the capital that any Related Bank
is required to maintain to the extent that the increases are required due
to a regulatory authority's assessment of the financial condition of such
Related Bank or its determination of any failure of such Related Bank to
comply with applicable laws, rules, regulations or guidelines administered
by such regulatory authority.
Each Bank will promptly notify the Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle that Bank to
compensation pursuant to this Section 2.27. Certificates of any Related Bank
sent to the Borrower from time to time claiming compensation under this Section
2.27, stating the reason therefor and setting forth in reasonable detail the
calculation of the additional amount or amounts to be paid to the Related Bank
hereunder to restore its Return shall be conclusive absent manifest error. In
determining such amounts, the Related Bank may use any reasonable averaging and
attribution methods.
Section 2.28 Funding Exceptions.
------------------
(a) BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If with
respect to any Interest Period:
(i) the Agent determines that deposits in U.S. dollars (in the
applicable amounts) are not being offered in the London
interbank eurodollar market for such Interest Period; or
(ii) the Agent otherwise determines that by reason of circumstances
affecting the London interbank eurodollar market adequate and
reasonable means do not exist for ascertaining the applicable
Eurodollar Rate; or
(iii) the Agent determines that the Eurodollar Rate as determined by
the Agent will not adequately and fairly reflect the cost to the
Banks of maintaining or funding a Eurodollar Rate Advance for
such Interest Period, or that the funding of Eurodollar Rate
Advances has become impracticable as a result of an event
occurring after the date of this Agreement which in the opinion
of the Agent materially affects such Eurodollar Rate Advances;
then the Agent shall promptly notify the Borrower and (A) upon the
occurrence of any event described in the foregoing clause (i) the Borrower
shall enter into good faith negotiations with the Agent in order to
determine an alternate method to determine the Eurodollar Rate for the
Banks, and during the pendency of such negotiations with the Agent, the
Banks shall be under no obligation to make any new Eurodollar Rate
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<PAGE>
Advances, and (B) upon the occurrence of any event described in the
foregoing clauses (ii) or (iii), for so long as such circumstances shall
continue, the Banks shall be under no obligation to make any new Eurodollar
Rate Advances.
(b) ILLEGALITY. If any change in (including the adoption of any new)
applicable laws or regulations, or any change in the interpretation of
applicable laws or regulations by any governmental authority, central bank,
comparable agency or any other regulatory body charged with the
interpretation, implementation or administration thereof, or compliance by
the Banks with any request or directive (whether or not having the force of
law) of any such authority, central bank, comparable agency or other
regulatory body, should make it or, in the good faith judgment of the
Agent, shall raise a substantial question as to whether it is unlawful for
the Banks to maintain or fund Eurodollar Rate Advances, then (i) the Agent
shall promptly notify the Borrower, (ii) the obligation of the Agent to
maintain or convert into Eurodollar Rate Advances shall, upon the
effectiveness of such event, be suspended for the duration of such
unlawfulness, and (iii) for the duration of such unlawfulness, any notice
by the Borrower requesting the Agent to convert into Eurodollar Rate
Advances shall be construed as a request to continue making Floating Rate
Advances.
Section 2.29 Liability Records. The Agent may maintain from time to
-----------------
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Agent's demand, the Borrower will admit and certify in
writing the exact balance of the Obligations that the Borrower then asserts to
be outstanding. Any billing statement or accounting rendered by the Agent shall
be conclusive and fully binding on the Borrower unless the Borrower gives the
Agent specific written notice of exception within 30 days after receipt.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Initial Conditions Precedent. The Banks' obligation to
----------------------------
make any Advance and Norwest's obligation to issue any Letter of Credit is
subject to the condition precedent that the Agent shall have received on or
before the day the first Advance is made or Letter of Credit is issued all of
the following, each dated (unless otherwise indicated) as of the date hereof, in
form and substance satisfactory to the Agent:
(a) The Notes, properly executed on behalf of the Borrower.
(b) The Security Agreement, properly executed on behalf of the
Borrower.
(c) The Borrower Pledge Agreement, properly executed on behalf of the
Borrower, together with the original certificates evidencing the stock
covered thereby, blank assignments of that stock duly executed by the
Borrower.
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(d) A financing statement or statements sufficient when filed to
perfect the security interests in personal property other than fixtures
granted under the Security Agreement to the extent such security interests
are capable of being perfected by filing.
(e) Current searches of appropriate filing offices showing that (i) no
state or federal tax liens have been filed and remain in effect against the
Borrower, and (ii) no financing statements have been filed and remain in
effect against the Borrower except financing statements perfecting only
Permitted Liens.
(f) Guarantor Pledge Agreements, duly executed by each Guarantor
holding any stock of any Subsidiary or any option to purchase such stock,
together with the original certificates evidencing the stock covered
thereby, blank assignments of that stock duly executed by such Guarantor,
and, where applicable, the original option agreements giving such Guarantor
a right to purchase common stock of any Subsidiary.
(g) A Guaranty, duly executed by each Guarantor.
(h) A Guarantor Security Agreement, duly executed by each Guarantor.
(i) A certificate of the secretary of each Company (i) certifying that
the execution, delivery and performance of the Loan Documents or Guarantor
Documents, as applicable, and other documents contemplated hereunder have
been duly approved by all necessary action of the Board of Directors of
that Company and attaching true and correct copies of the applicable
resolutions granting such approval, (ii) certifying that attached to such
certificate are true and correct copies of the articles of incorporation
and bylaws of that Company together with such copies, and (iii) certifying
the names of the officers of that Company that are authorized to sign the
Loan Documents or Guarantor Documents, as applicable, and other documents
contemplated hereunder, including requests for Advances and issuance of
Letters of Credit, together with the true signatures of such officers. The
Agent and the Banks may conclusively rely on such certificates until they
shall receive a further certificate of the Secretary or Assistant Secretary
of the applicable Company canceling or amending the prior certificate and
submitting the signatures of the officers named in such further
certificate.
(j) A certificate of good standing of each Company, dated not more
than 30 days before such date.
(k) A signed copy of an opinion of counsel for the Borrower and the
Guarantors, addressed to the Banks.
(l) Such subordination agreements as the Banks may require to evidence
that all of each Company's Debt, other than the Obligations and the
Guaranties, has been subordinated to payment of the Obligations and the
Guaranties on terms satisfactory to the Banks, together with all original
promissory notes or other documents evidencing such Debt.
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<PAGE>
(m) Certificates of the insurance required under the Security
Agreement, naming the Agent as lender loss payee.
(n) A Borrowing Base Certificate as of a date not more than 30 days
before that date.
(o) The arrangement fee and Agent's fee described in Sections 2.19(a)
and (c).
Section 3.2 Conditions Precedent to Advances Used for Permitted
---------------------------------------------------
Acquisitions. The obligation of the Banks to make any Advance (including the
- ------------
initial Advance) and Norwest's obligation to issue any Letters of Credit
(including the initial Letter of Credit) in connection with a Permitted
Acquisition shall be subject to the further conditions precedent that on the
date of such Advance or Letter of Credit:
(a) All of the conditions set forth in Schedule 2.26 shall have been
satisfied.
Section 3.3 Conditions Precedent to All Advances. The obligation of
------------------------------------
the Banks to make any Advance (including the initial Advance) and Norwest's
obligation to issue any Letters of Credit (including the initial Letter of
Credit) shall be subject to the further conditions precedent that on the date of
such Advance or Letter of Credit:
(a) the representations and warranties contained in Article IV are
correct on and as of the date of such Advance or Letter of Credit as though
made on and as of such date, except to the extent that such representations
and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance or Letter of Credit, which constitutes a Default or an Event of
Default.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement, the Borrower
represents and warrants to the Banks and the Agent as follows:
Section 4.1 Corporate Existence and Power. Each Company is a
-----------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary except where the failure to be so licensed or qualified
would not have a Material Adverse Effect. Each Company has all requisite power
and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents and the Guarantor Documents to which it is a party.
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Section 4.2 Authorization of Borrowing; No Conflict as to Law or
----------------------------------------------------
Agreements. The execution, delivery and performance by each Company of the Loan
- ----------
Documents and Guarantor Documents to which it is a party and the borrowings from
time to time hereunder have been duly authorized by all necessary corporate
action and do not and will not (i) require any consent or approval of the
stockholders of any Company, or any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, (ii) violate any provision of any law, rule or regulation
(including, without limitation, Regulation X of the Board of Governors of the
Federal Reserve System) or of any order, writ, injunction or decree presently in
effect having applicability to any Company or of the Certificate or Articles of
Incorporation or Bylaws of any Company, (iii) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which any Company is a party or by which
it or its properties may be bound or affected, or (iv) result in, or require,
the creation or imposition of any Lien or other charge or encumbrance of any
nature (other than those in favor of the Agent) upon or with respect to any of
the properties now owned or hereafter acquired by any Company.
Section 4.3 Legal Agreements. Assuming that this Agreement constitutes
----------------
the valid and binding agreements of the Banks, the Loan Documents and Guarantor
Documents constitute, the legal, valid and binding obligations of the Companies
a party thereto, enforceable against such Companies in accordance with their
respective terms, except to the extent that the enforcement of any of the Loan
Documents or the Guarantor Documents may be limited by (i) bankruptcy,
insolvency, fraudulent conveyance, 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.
Section 4.4 Corporate Structure. Attached hereto as Schedule 4.4 is a
-------------------
correct and complete organizational chart showing the Borrower and all
Subsidiaries.
Section 4.5 Financial Condition. The Borrower has heretofore furnished
-------------------
to the Agent audited financial statements of the Borrower as of December 31,
1997, and unaudited preliminary financial statements of each Company as of
September 30, 1998. Those financial statements fairly present the financial
condition of the Companies on the dates thereof and the results of their
operations and cash flows for the periods then ended, and were prepared in
accordance with GAAP.
Section 4.6 Adverse Change. There has been no change in the business,
--------------
properties or condition (financial or otherwise) of any Company since the date
of the latest financial statement referred to in Section 4.5 or delivered
pursuant to Section 5.1 that would have a Material Adverse Effect.
Section 4.7 Litigation. There are no actions, suits or proceedings
----------
pending or, to the knowledge of the Borrower, threatened against or affecting
any Company or the properties of any Company before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which, if determined adversely to that Company, would have a Material
Adverse Effect.
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<PAGE>
Section 4.8 Hazardous Substances. To the best of the Borrower's
--------------------
knowledge after reasonable inquiry, (i) no Company nor any other Person has ever
caused or permitted any Hazardous Substance to be disposed of in any manner
which might result in a Material Adverse Effect on, under or at any real
property which is operated by that Company or in which a Company has any
interest; (ii) no such real property has ever been used (either by a Company or
by any other Person) as a dump site or permanent storage site for any Hazardous
Substance; and (iii) no such real property has ever been used as a temporary
storage site for any Hazardous Substance except for (a) supplies for cleaning
and maintenance in commercially reasonable amounts, and (b) supplies and
equipment required for the Companies' ordinary business operations, used, stored
and disposed of, in accordance with all Environmental Laws.
Section 4.9 Investment Company Act. No Company is an "investment
----------------------
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
Section 4.10 Public Utility Holding Company Act. No Company is a
----------------------------------
"holding company" or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
Section 4.11 Default. Each Company is in compliance with all
-------
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a Material Adverse Effect.
Section 4.12 Regulation U. No Company is engaged in the business of
------------
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section 4.13 Taxes. Each Company has paid or caused to be paid to the
-----
proper authorities when due all federal, state and local taxes required to be
withheld by it. Each Company has filed all federal, state and local tax returns
which to the knowledge of the officers of that Company are required to be filed,
and each Company has paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
it to the extent such taxes have become due, other than taxes whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which that Company has provided adequate reserves in
accordance with GAAP.
Section 4.14 Titles and Liens. Each Company has good title to each of
----------------
the properties and assets reflected in the latest balance sheet referred to in
Section 4.5 (other than any sold, as permitted by Section 6.7), free and clear
of all Liens and encumbrances, except for Permitted Liens and covenants,
restrictions, rights, easements and minor irregularities in title which do not
materially interfere with the business or operations of that Company as
presently conducted. No financing statement naming any Company as debtor is on
file in any office except to perfect only Permitted Liens.
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Section 4.15 Solvency. Both before and after giving effect to the
--------
transactions contemplated by the Loan Documents, no Company:
(a) was or will be insolvent, as that term is used and defined in
Section 101(32) of the United States Bankruptcy Code and Section 2 of the
Uniform Fraudulent Transfer Act;
(b) has or will have an unreasonably small capital or is engaged or
about to engage in a business or a transaction for which any remaining
assets of that Company are unreasonably small;
(c) by executing, delivering or performing its obligations under the
Loan Documents, Guarantor Documents or other documents to which it is a
party or by taking any action with respect thereto, intends to, or believes
that it will, incur debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its obligations under the
Loan Documents, Guarantor Documents or other documents to which it is a
party or by taking any action with respect thereto, intends to hinder,
delay or defraud either its present or future creditors; and
(e) contemplates filing a petition in bankruptcy or for an arrangement
or reorganization or similar proceeding under any law any jurisdiction,
nor, to the best knowledge of the Borrower, is the subject of any actual,
pending or threatened bankruptcy, insolvency or similar proceedings under
any law of any jurisdiction.
Section 4.16 ERISA. To the knowledge of the Borrower after reasonable
-----
inquiry, no Plan established or maintained by any Company or any ERISA Affiliate
that is subject to Part 3 of Subtitle B of Title I of ERISA had an accumulated
funding deficiency (as such term is defined in Section 302 of ERISA) in an
amount which could have a Material Adverse Effect, and no liability to the
Pension Benefit Guaranty Corporation or the Internal Revenue Service in excess
of such amount has been, or is expected by any Company or any ERISA Affiliate to
be, incurred with respect to any Plan of any Company or any ERISA Affiliate. No
Company has any contingent liability with respect to any post-retirement benefit
under a Welfare Plan, other than liability for continuation coverage described
in Part 6 of Subtitle B of Title I of ERISA.
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ARTICLE V
AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or any Bank's
Commitment or any Letter of Credit shall be outstanding, the Borrower will
comply with the following requirements, unless the Banks shall otherwise consent
in writing:
Section 5.1 Financial Statements. The Borrower will deliver to the
--------------------
Agent:
(a) As soon as available, and in any event within 90 days after the
end of each fiscal year of each Company, copies of the annual audit reports
of each Company with the unqualified opinions of independent certified
public accountants selected by the Borrower and acceptable to the Agent,
which annual report shall include the balance sheets of the Companies as at
the end of such fiscal year and the related statements of income,
shareholders' equity and cash flows of the Companies for the fiscal year
then ended, all in reasonable detail and all prepared in accordance with
GAAP, on a consolidated and consolidating basis; together with (A) a report
signed by such accountants stating that in making the investigations
necessary for said opinion they obtained no knowledge, except as
specifically stated, of any Default or Event of Default hereunder and all
relevant facts in reasonable detail to evidence, and the computations as
to, whether or not the Borrower is in compliance with the Financial
Covenants; and (B) copies of such accountants' management letters issued to
the Companies for such year.
(b) As soon as available and in any event within 45 days after the end
of each fiscal quarter, balance sheets of the Companies as at the end of
such fiscal quarter and related statements of earnings and cash flows of
the Companies for such fiscal quarter and for the fiscal year to date, in
reasonable detail and stating in comparative form the figures for the
corresponding date and period in the previous year, all prepared in
accordance with GAAP on a consolidated and consolidating basis, and
certified by the chief financial officer of the Borrower or a designee
approved by the Agent as fairly presenting the financial condition and
results of operations of the Companies subject to year-end audit
adjustments.
(c) As soon as available and in any event within 45 days after the end
of each fiscal quarter of the Borrower, a Compliance Certificate, duly
executed by the chief financial officer of the Borrower or a designee
approved by the Agent.
(d) Within 30 days after the end of each calendar month, (i) a
Borrowing Base Certificate as at the end of such calendar month, properly
executed by the chief financial officer of the Borrower or a designee
approved by the Agent, (ii) a summary of agings of accounts payable and
supporting documentation as the Agent may reasonably require, and (iii) a
list of all Persons holding five percent (5%) or more, or the right to
acquire five percent (5%) or more, of the ownership interests of any
Company, showing
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<PAGE>
each such Person's name, and the number, percentage and class of shares
held or that may be acquired by such Person.
(e) By the end of each fiscal year of the Borrower, projections for
each Company's financial performance during the following fiscal year,
including projections of income, cash flows and balance sheets, all
presented on a quarter-by-quarter basis in such detail as the Banks may
reasonably request and certified by the chief financial officer of the
Borrower or a designee approved by the Agent as being identical to the
projections used by the Borrower for internal planning purposes as of the
date of such certification.
(f) Promptly upon their distribution, copies of all financial
statements, reports and proxy statements which any Company shall have sent
to its stockholders.
(g) Promptly after the sending or filing thereof, copies of all
regular and periodic financial reports which any Company shall file with
the Securities and Exchange Commission or any national securities exchange.
(h) Immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting any Company of the type described in Section 4.7 or which
seek a monetary recovery against any Company in excess of $100,000.
(i) As promptly as practicable (but in any event not later than five
business days) after an officer of any Company obtains knowledge of the
occurrence of any Default or Event of Default, notice of such occurrence,
together with a detailed statement by a responsible officer of the Borrower
of the steps being taken to cure the effect of such event.
(j) Promptly upon becoming aware of any Reportable Event or any
prohibited transaction (as defined in Section 4975 of the Internal Revenue
Code or Section 406 of ERISA) in connection with any Plan or any trust
created thereunder, a written notice specifying the nature thereof, what
action the applicable Company has taken, is taking or proposes to take with
respect thereto, and, when known, any action taken or threatened by the
Internal Revenue Service, the Pension Benefit Guaranty Corporation or the
Department of Labor with respect thereto.
(k) Promptly upon their receipt or filing, copies of (i) all notices
received by any Company or any ERISA Affiliate of the Pension Benefit
Guaranty Corporation's intent to terminate any Plan or to have a trustee
appointed to administer any Plan, and (ii) all notices received by any
Company or any ERISA Affiliate from a Multiemployer Plan concerning the
imposition or amount of withdrawal liability pursuant to Section 4202 of
ERISA.
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<PAGE>
(l) Upon request of the Bank, copies of the most recent annual report
(Form 5500 Series), including any supporting schedules, filed by any
Company or any ERISA Affiliate with the Internal Revenue Service with
respect to any Plan.
(m) Such other information respecting the financial condition and
results of operations of the Companies as the Agent may from time to time
reasonably request.
Section 5.2 Books and Records; Inspection and Examination. The
---------------------------------------------
Borrower will, and will cause each Company to, keep accurate books of record and
account for itself in which true and complete entries will be made in accordance
with GAAP and, upon request of any Bank, will give any representative of any
Bank access to, and permit such representative to examine, copy or make extracts
from, any and all books, records and documents in its possession, to inspect any
of its properties and to discuss its affairs, finances and accounts with any of
its principal officers, all at such times during normal business hours and as
often as a Bank may reasonably request.
Section 5.3 Compliance with Laws. The Borrower will, and will cause
--------------------
each Company to, comply with the requirements of applicable laws and
regulations, the noncompliance with which would have a Material Adverse Effect.
Section 5.4 Payment of Taxes and Other Claims. The Borrower will, and
---------------------------------
will cause each Company to, pay or discharge, when due, (a) all taxes,
assessments and governmental charges levied or imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, (b) all federal, state and local taxes required
to be withheld by it, and (c) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a Lien or charge upon any
properties of a Company; provided, that no Company shall be required to pay any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which that
Company has provided adequate reserves in accordance with GAAP.
Section 5.5 Maintenance of Properties. The Borrower will, and will
-------------------------
cause each Company to, keep and maintain all of its properties necessary or
useful in its business in good condition, repair and working order; provided,
however, that nothing in this Section shall prevent a Company from discontinuing
the operation and maintenance of any of its properties if such discontinuance
is, in the judgment of that Company, desirable in the conduct of its business
and not disadvantageous in any material respect to the Banks as holder of the
Notes.
Section 5.6 Insurance. The Borrower will, and will cause each Company
---------
to, obtain and maintain insurance with insurers believed by the Borrower to be
responsible and reputable, in such amounts and against such risks as is usually
carried by companies engaged in similar business and owning similar properties
in the same general areas in which that Company operates. All casualty insurance
policies required hereunder shall include a standard Bank's loss payable clause
in favor of the Agent to the extent of the Banks' interests. All liability
policies required hereunder shall name the Agent and the Banks as an additional
insured.
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<PAGE>
Section 5.7 Preservation of Corporate Existence. The Borrower will,
-----------------------------------
and will cause each Company to, preserve and maintain its corporate existence
and all of its rights, privileges and franchises; provided, however, that (i) no
Company shall be required to preserve any of its rights, privileges and
franchises if its Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of that Company
and that the loss thereof is not disadvantageous in any material respect to the
Banks as holders of the Notes and (ii) any Subsidiary may be merged with any
other Subsidiary or into the Borrower.
Section 5.8 Year 2000. The Borrower will, and will cause each Company
---------
to, proceed with reasonable diligence to evaluate all of the data processing
systems necessary to the conduct of its business (including computer hardware,
software and firmware, and including data processing systems embedded within
equipment) and will implement such hardware and software modifications and
upgrades as may be necessary for such systems to be Year 2000 Compliant, and all
such systems shall be Year 2000 Compliant, by no later than March 31, 1999. For
purposes hereof, "Year 2000 Compliant" means with respect to any data processing
system, (i) that such system accurately records, stores, processes and presents
date data with respect to dates on and after January 1, 2000 in the same manner,
and with substantially the same functionality, as the such system records,
stores, processes and presents date data with respect to dates on and before
December 31, 1999; and (ii) that such system accurately records, stores,
processes and presents date ranges beginning on or before December 31, 1999 and
ending on or after January 1, 2000, or occurring entirely on or after January 1,
2000, in the same manner, and with substantially the same functionality, as such
system records, stores, processes and presents date ranges occurring entirely on
or before December 31, 1999.
Section 5.9 Maximum Consolidated Cash Flow Leverage Ratio. The
---------------------------------------------
Borrower shall maintain its Consolidated Cash Flow Leverage Ratio, determined as
of the end of each fiscal quarter of the Borrower, at not more than 2.50 to
1.00.
Section 5.10 Minimum Consolidated Fixed Charge Coverage Ratio. The
------------------------------------------------
Borrower shall maintain its Consolidated Fixed Charge Coverage Ratio, determined
as of the end of each fiscal quarter of the Borrower, at not less than 1.30 to
1.00.
Section 5.11 Minimum Consolidated Tangible Net Worth. The Borrower
---------------------------------------
shall maintain its Consolidated Tangible Net Worth, determined as of the end of
each fiscal quarter of the Borrower, at not less than the sum of (i) 10,000,000,
(ii) 50% of positive Net Income for fiscal quarters ending after December 1,
1998, and (iii) all Net Equity Proceeds.
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<PAGE>
ARTICLE VI
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or any Bank's
Commitment or any Letter of Credit shall be outstanding, the Borrower agrees
that, without the prior written consent of the Banks:
Section 6.1 Liens. The Borrower will not, and will not permit any
-----
Company to, create, incur, assume or suffer to exist any Lien or other charge or
encumbrance of any nature on any of its assets, now owned or hereafter acquired,
or assign or otherwise convey any right to receive income or give its consent to
the subordination of any right or claim of any Company to any right or claim of
any other Person; excluding, however, from the operation of the foregoing the
following (collectively, "Permitted Liens"):
(a) Liens for taxes or assessments or other governmental charges to
the extent not required to be paid by Section 5.4.
(b) Materialmen's, merchants', mechanic's, carriers' worker's,
repairer's, or other like liens arising in the ordinary course of business
to the extent not required to be paid by Section 5.4.
(c) Bonds, pledges or deposits to secure obligations under contracts,
worker's compensation laws, unemployment insurance and social security
laws, or to secure the performance of bids, tenders, contracts (other than
for the repayment of borrowed money) or leases or to secure statutory
obligations or surety or appeal bonds, or to secure indemnity, performance
or other similar bonds in the ordinary course of business.
(d) Zoning restrictions, easements, licenses, rights-of-way,
restrictions on the use of real property or minor irregularities in title
thereto, which do not materially impair the use of such property in the
operation of the business of any Company or the value of such property for
the purpose of such business.
(e) Purchase money Liens (which term for purposes of this subsection
shall include conditional sale agreements or other title retention
agreements and leases in the nature of title retention agreements) upon or
in property acquired after the date hereof, or Liens existing in such
property at the time of acquisition thereof, provided that:
(i) no such Lien extends or shall extend to or cover any property of
any Company other than the property then being acquired and fixed
improvements then or thereafter erected thereon; and
(ii) the aggregate principal amount of all Debt of any Company secured
by all Liens described in this subsection shall not exceed
$1,000,000 at any one time outstanding.
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<PAGE>
(f) Liens on any property of any Company (other than those described
in subsection (e)) securing any indebtedness for borrowed money in
existence on the date hereof and listed in Schedule 6.1 hereto, any
extension, renewal or replacement (or successive extension, renewals or
replacements) in whole or in part, of any such indebtedness provided (i)
that the amount of such indebtedness does not increase, and no funds are
readvanced to any Company after payment, and (ii) the Lien shall be limited
to all or part of the property securing the Lien extended, renewed or
replaced plus improvements thereon.
(g) Liens in favor of the Agent.
(h) Liens arising out of a judgment against any Company for the
payment of money not exceeding $250,000 with respect to which an appeal is
being prosecuted and a stay of execution pending such appeal has been
secured, but only so long as all such Liens are subordinate in all respect
to all Liens in favor of the Agent.
Section 6.2 Indebtedness. The Borrower will not, and will not permit
------------
any Company to, incur, create, assume or permit to exist any Debt or liability
on account of deposits or advances or any indebtedness for borrowed money, or
any other indebtedness or liability evidenced by notes, bonds, debentures or
similar obligations, except:
(a) Indebtedness to the Banks.
(b) Indebtedness of the Companies in existence on the date hereof and
listed in Schedule 6.2 hereto, and any extension, renewal or replacement
(or successive extensions, renewals or replacements), in whole or in part,
of any such indebtedness, provided that the amount of such indebtedness is
not increased and no funds are readvanced to any Company after payment.
(c) Subordinated Debt to the extent less than or equal to $5,000,000,
or renewals, extensions or replacements thereof.
(d) Purchase money indebtedness of the Companies secured by Liens
permitted by subsection 6.1(e).
(e) Indebtedness of the Borrower to any Subsidiary or of any
Subsidiary to the Borrower or another Subsidiary so long as no Material
Adverse Effect occurs.
(f) Indebtedness of a Company assumed in connection with a Permitted
Acquisition and approved by the Required Banks if such approval is required
pursuant to Schedule 2.26.
(g) Liens in favor of the United States in connection with progress
payments made on contracts with any branch of the United States government.
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<PAGE>
Section 6.3 Guaranties. The Borrower will not, and will not permit any
----------
Company to, assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person,
except:
(a) The endorsement of negotiable instruments by a Company for deposit
or collection or similar transactions in the ordinary course of business.
(b) Guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Schedule 6.3 hereto.
(c) Guaranties, subordinated to the Obligations, of any indebtedness
permitted by Sections 6.1 or 6.2.
Section 6.4 Investments. The Borrower will not, and will not permit
-----------
any Company to, purchase or hold beneficially any stock or other securities or
evidence of indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
except:
(a) Investments in direct obligations of the United States of America
or any agency or instrumentality thereof whose obligations constitute full
faith and credit obligations of the United States of America having a
maturity of one year or less, commercial paper issued by U.S. corporations
rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or "P-2" by
Moody's Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of $100,000,000.
(b) Travel advances to officers and employees of the Companies in the
ordinary course of business.
(c) Advances in the form of progress payments, prepaid rent or
security deposits.
(d) Permitted Acquisitions.
(e) Loans and advances by the Borrower to its Subsidiaries or by any
Subsidiary to another Subsidiary or the Borrower provided such loans and
advances do not cause a Material Adverse Effect
(f) Investments by the Borrower in the stock of any Subsidiary.
Section 6.5 Dividends; Redemptions. Except as set forth in Section 2.3
----------------------
and this Section 6.5, the Borrower will not declare or pay any dividend (other
than dividends payable solely in stock of the Borrower) on any class of its
stock or make any payment on account of the purchase, redemption or other
retirement of any shares of such stock or make any distribution in
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<PAGE>
respect thereof, either directly or indirectly. Provided no Default Period
exists and none would exist immediately thereafter, the Borrower may pay
Permitted Preferred Stock Dividends.
Section 6.6 Issuance of Stock. The Borrower will not permit any
-----------------
Company other than the Borrower to issue any shares of its capital stock
(including shares issued as stock dividends or stock splits), options or
warrants to purchase such stock, or other securities convertible to such stock
unless all original certificates and agreements evidencing the same shall be
immediately delivered and pledged to the Agent, under agreements in form and
substance acceptable to the Agent, as collateral for the payment of the
Obligations.
Section 6.7 Sale of Assets. The Borrower will not, and will not permit
--------------
any Company to, sell, lease, assign, transfer or otherwise dispose of all or a
substantial part of its assets (whether in one transaction or in a series of
transactions) to any other Person other than in the ordinary course of business;
except that, provided it does not cause a Material Adverse Effect, (i) any
Subsidiary may sell, lease, assign or otherwise transfer its assets to the
Borrower, and (ii) any Subsidiary may sell, lease, assign or otherwise transfer
its assets to another Subsidiary.
Section 6.8 Consolidation and Merger; Change of Control. The Borrower
-------------------------------------------
will not consolidate with or merge into any Person, or permit any Person to
merge into it, or transfer or sell, (in any transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all of its assets to
any other Person if, as a result thereof the Borrower shall not be the
continuing or surviving corporation. In addition, whether or not occurring as
the result of any such merger or consolidation, the Borrower shall not suffer to
occur or exist a material change in the ownership or control of any Company
except as otherwise permitted in Section 5.7. For purposes hereof, a "material
change" shall mean, before the receipt of net proceeds of at least $30,000,000
from the initial public offering of the Borrower's common stock, (a) any
shareholder who as of the date of this Agreement owns twenty percent (20%) or
more of the Borrower's outstanding common stock (without giving effect to the
exercise of any conversion rights) (a "20% Shareholder") shall dispose of the
beneficial interest of 50% or more of the number of shares of the Borrower's
stock, owned by such 20% Shareholder as of the date of this Agreement or (b)
more than half of the Borrower's Directors shall resign during any six month
period. If a material change occurs, the Borrower shall promptly so notify the
Agent in writing describing the material change. Within 30 days of receipt of
such notice, the Agent may notify the Borrower in writing that, due to the
material change the Required Banks have determined, (i) that the Banks do not
wish to remain parties to the Credit Agreement, (ii) that the Banks' Commitments
shall automatically terminate on the 90th day from the date of such notice by
the Agent and (iii) that the Borrower must retire all Obligations by not later
than the 90th day following receipt of such notice from the Agent; whereupon (A)
each Bank's Commitment shall automatically terminate on the sooner of the 90th
day following delivery of such notice to the Borrower or satisfaction of all
Obligations and (B) all Obligations shall be due and payable in full on the 90th
day following delivery of such notice to the Borrower. Nothing in this Section
6.8 shall limit any other rights of the Agent and the Banks elsewhere in this
Agreement.
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<PAGE>
Section 6.9 Sale and Leaseback. The Borrower will not, and will not
------------------
permit any Company to, enter into any arrangement, directly or indirectly, with
any other Person whereby any Company shall sell or transfer any real or personal
property, whether now owned or hereafter acquired, and then or thereafter rent
or lease as lessee such property or any part thereof or any other property which
any Company intends to use for substantially the same purpose or purposes as the
property being sold or transferred.
Section 6.10 Subordinated Debt. The Borrower will not, and will not
-----------------
permit any Company to, (i) make any payment of, or acquire, any Subordinated
Debt except as expressly permitted by the subordination provision thereof; (ii)
give security for all or any part of such Subordinated Debt; (iii) amend or
cancel the subordination provisions of such Subordinated Debt; (iv) take or omit
to take any action whereby the subordination of such Subordinated Debt or any
part thereof to the Obligations might be terminated, impaired or adversely
affected; or (v) omit to give the Agent prompt written notice of any default
under any agreement or instrument relating to such Subordinated Debt by reason
whereof such Subordinated Debt might become or be declared to be immediately due
and payable.
Section 6.11 Capital Expenditures. The Borrower will not, and will not
--------------------
permit any Company to, make any Capital Expenditure (including payments under
capitalized leases) if, after giving effect to such expenditure, the aggregate
amount of Capital Expenditures made by the Companies in any period of 12
consecutive months will exceed one hundred and fifty percent (150%) of the
amount shown as depreciation on the Borrower's audited financial statements for
the previous fiscal year. The restriction contained in this Section is subject
to the further limitations imposed by Section 6.1(e) if any asset is acquired
under a purchase money Lien referred to in that Section.
Section 6.12 Accounts Payable. The Borrower will not, and will not
----------------
permit any Company to, have (i) more than ten (10%) of its accounts payable
outstanding for more than 60 days or (ii) any accounts payable outstanding for
more than 120 days except for accounts payable which are being disputed in good
faith by appropriate proceedings and for which that Company has provided
adequate reserves in accordance with GAAP.
Section 6.13 Hazardous Substances. The Borrower will not, and will not
--------------------
permit any Company to, cause or permit any Hazardous Substance to be disposed
of, in any manner which might result in any material liability to the Borrower,
on, under or at any real property which is operated by the Borrower or in which
the Borrower has any interest.
Section 6.14 Restrictions on Nature of Business. The Borrower will
----------------------------------
not, and will not permit any Company to, engage in any line of business
materially different from that presently engaged in by that Company.
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ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 7.1 Events of Default. "Event of Default", wherever used
-----------------
herein, means any one of the following events:
(a) Default in the payment of any interest when it becomes due and
payable and the continuation of such default for two (2) days; or
(b) Default in the payment of principal of any Note when it becomes
due and payable; or
(c) Failure to pay when due any amount specified in Section 2.13
relating to the Borrower's Obligation of Reimbursement, or failure to pay
immediately when due or upon termination of the Commitment any amounts
required to be paid for deposit in the Special Account under Section 2.14
or 2.21; or
(d) Default in the payment of any fees required under Section 2.19(b)
when the same become due and payable and the continuance of such default
for a period of five (5) days.
(e) Default in the performance, or breach, of any covenant or
agreement on the part of the Borrower contained in Section 2.21 or 5.1 or
in any Financial Covenant.
(f) Default in the performance, or breach, of any covenant or
agreement of the Borrower in this Agreement (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and the continuance of such default
or breach for a period of 30 days after the Bank has given notice to the
Borrower specifying such default or breach and requiring it to be remedied.
(g) Any representation or warranty made by the Borrower in this
Agreement or by any Company (or any of its officers) in any certificate,
instrument, or statement contemplated by or made or delivered pursuant to
or in connection with this Agreement or any Guarantor Document, delivered
to the Agent or the Banks, shall prove to have been incorrect or misleading
in any material respect when made.
(h) Any Guarantor shall repudiate, purport to revoke or fail to
perform any such Guarantor's obligations under its Guarantor Documents or
any Guarantor shall cease to exist (except in accordance with Section 5.7);
(i) A default under any bond, debenture, note or other evidence of
indebtedness of any Company (other than to the Banks) or under any
indenture or other instrument under which any such evidence of indebtedness
has been issued or by which it is governed and the expiration of the
applicable period of grace, if any, specified in
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such evidence of indebtedness, indenture or other instrument; provided,
however, that if such default shall be cured by the applicable Company, or
waived by the holders of such indebtedness, in each case prior to the
commencement of any action under Section 7.2 and as may be permitted by
such evidence of indebtedness, indenture or other instrument, then the
Event of Default hereunder by reason of such default shall be deemed
likewise to have been thereupon cured or waived.
(j) An event of default shall occur under the Security Agreement, any
Guarantor Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement directly or indirectly
securing any Obligations or any guaranty of the Obligations.
(k) Default in the payment of any amount owed by any Company to any
Bank other than hereunder or under a Note.
(l) Any Company shall be adjudicated a bankrupt or insolvent, or admit
in writing its inability to pay its debts as they mature, or make an
assignment for the benefit of creditors; or any Company shall apply for or
consent to the appointment of any receiver, trustee, or similar officer for
it or for all or any substantial part of its property; or such receiver,
trustee or similar officer shall be appointed without the application or
consent of that Company and such appointment shall continue undischarged
for a period of 30 days; or any Company shall institute (by petition,
application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, liquidation
or similar proceeding relating to it under the laws of any jurisdiction; or
any such proceeding shall be instituted (by petition, application or
otherwise) against any Company; or any judgment, writ, warrant of
attachment or execution or similar process shall be issued or levied
against a substantial part of the property of any Company and such
judgment, writ, or similar process shall not be released, vacated or fully
bonded within 30 days after its issue or levy.
(m) The rendering against a Company of a final judgment, decree or
order for the payment of money in excess of $250,000 and the continuance of
such judgment, decree or order unsatisfied and in effect for any period of
30 consecutive days without being vacated or a stay of execution or being
bonded pending appeal.
(n) A writ of attachment, garnishment, levy or similar process shall
be issued against or served upon the Agent or any Bank with respect to (i)
any property of any Company in the possession of the Agent or a Bank, or
(ii) any indebtedness of the Agent or a Bank to any Company.
(o) Any Plan shall have been terminated and the Borrower's liability
in connection therewith shall exceed $250,000, or a trustee shall have been
appointed by an appropriate United States District Court to administer any
Plan, or the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan, or withdrawal liability exceeding $250,000 shall have been asserted
against any Company or any ERISA Affiliate by a
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Multiemployer Plan; or any Company shall fail to make any contribution with
respect to a Plan or Multiemployer Plan in an amount or at a time which
would permit a Lien to be filed with respect to such Plan; or any
Reportable Event that the Agent may determine in good faith might
constitute grounds for the termination of any Plan, for the appointment by
the appropriate United States District Court of a trustee to administer any
Plan or for the imposition of withdrawal liability exceeding $250,000 with
respect to a Multiemployer Plan, shall have occurred and be continuing 30
days after written notice to such effect shall have been given to the
Borrower by the Agent.
Section 7.2 Rights and Remedies. During any Default Period, the Agent,
-------------------
on behalf of the Banks, may exercise any or all of the following rights and
remedies:
(a) The Agent may, by notice to the Borrower, declare all Obligations
to be forthwith due and payable, whereupon all Obligations shall become and
be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower.
(b) Each Bank may, without notice to the Borrower and without further
action, apply any and all money owing by it to the Borrower to the payment
of the Obligations then outstanding.
(c) The Agent may exercise and enforce its rights and remedies under
the Security Agreement.
(d) The Agent may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 7.1(n) hereof, all Obligations shall be immediately due and
payable without presentment, demand, protest or notice of any kind.
ARTICLE VIII
AGENCY
------
Section 8.1 Authorization; Powers; Agent for Collateral Purposes. Each
----------------------------------------------------
Bank irrevocably appoints the Agent as collateral agent for purposes of
perfecting the security interests granted under the Security Documents and the
Guarantor Security Agreements and otherwise appoints and authorizes the Agent to
act on behalf of such Bank to the extent provided herein or in any document or
instrument delivered hereunder or in connection herewith, and to take such other
actions as may be reasonably incidental thereto. The Agent agrees to act as
administrative agent for each Bank upon the express conditions contained in this
Article VIII, but in no event shall the Agent constitute a fiduciary of any
Bank, nor shall it have any fiduciary responsibilities in respect of any Bank.
In furtherance of the foregoing, and not in limitation thereof, each Bank
irrevocably authorizes the Agent to execute and deliver and perform its
obligations under this Agreement and each of the Loan Documents to which the
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Agent is a party, and to exercise all rights, powers, and remedies that the
Agent may have hereunder, including without limitation, the appointment of the
Agent as nominal beneficiary or nominal secured party, as the case may be, under
certain of the Loan Documents and all related financing statements, and
authorization of the Agent to act as agent in the holding and disposition of
Collateral under the Loan Documents. As to any matters not expressly provided
for by this Agreement or the Loan Documents, the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Banks or, if so required
pursuant to Section 9.4, upon the instructions of all Banks; provided, however,
-------- -------
that except for actions expressly required of the Agent hereunder, the Agent
shall in all cases be fully justified in failing or refusing to act hereunder
unless it shall be indemnified to its satisfaction by all Banks in accordance
with their respective Percentages against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take such
action.
Section 8.2 Distribution of Collections; Norwest Advances; Banks'
-----------------------------------------------------
Right to Refuse to Fund Advances During Default Periods; Bank Refuses to Fund.
- -----------------------------------------------------------------------------
(a) DISTRIBUTION OF COLLECTIONS. Each Bank's Percentage of the
Obligations shall be payable solely from Collections received by the Agent;
and the Agent's only liability to the Banks hereunder shall be to account
for each Bank's Percentage of the Collections in accordance with this
Agreement. The Agent shall collect and receive any and all Collections and
shall apply them to the Obligations as follows:
(i) FIRST, to reimburse the Agent for any and all unreimbursed costs
of collection and expenses incurred by the Agent for which it is
entitled to reimbursement pursuant to Section 8.3, and to the
extent a Bank previously paid a portion of any such costs and
expenses, that Bank shall be ratably reimbursed for its portion;
(ii) SECOND, to pay the remaining Obligations, with each Bank
receiving its pro rata share thereof.
(b) OBLIGATION OF REIMBURSEMENT. To the extent that this Agreement
requires the application of any Collections to the reduction of the
Obligation of Reimbursement, such Collections shall be applied to Revolving
Advances before any portion thereof is "applied", as cash collateral, to
the Obligation of Reimbursement, and the Banks authorize the Agent to act
as their collateral agent for purposes of holding any such cash collateral.
(c) PAYMENTS BY AGENT. If the Agent fails to pay the Banks any amount
required to be paid under this Section 8.2 in a timely manner, the Agent
shall pay such amount on demand, together with interest at the Federal
Funds Rate from the date such payment was required to be made under this
Section 8.2 through the date of such payment. If the Agent is ever required
for any reason to refund any Collections, each Bank will refund to the
Agent, upon demand, its Percentage of such Collections,
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together with its Percentage of interest or penalties, if any, payable by
the Agent in connection with such refund. The Agent may, in its sole
discretion, make payment to the Banks in anticipation of receipt of
Collections. If the Agent fails to receive any such anticipated
Collections, each Bank shall promptly refund to the Agent, upon demand, any
such payment made to it in anticipation of payment Collections, together
with interest for each day on such amount until so refunded at a rate equal
to the Federal Funds Rate for each such date.
(d) NORWEST ADVANCES; SETTLEMENT. The Agent may, in its sole
discretion, elect to apply Collections, and to fund Revolving Advances
requested by the Borrower, for Norwest's account only, and the other Banks
shall not participate therein, provided that on each Settlement Date:
(i) The Agent shall first apply any Collections received before the
close of business on the preceding Banking Day and not previously
applied to reduction of the Obligations in accordance with
subsection (a).
(ii) The Agent shall then determine the amount owed by or to each Bank
in order to reconcile each Bank's actual outstanding Advances
with its Percentage of the outstanding principal balance of the
Advances as of such preceding Banking Day and shall send notice
thereof to each Bank by not later than 10:00 a.m. (Minneapolis,
Minnesota time). If the amount owed by a Bank is greater than
$25,000, that Bank, shall send to the Agent by wire transfer the
amount it owes by not later than 1:00 p.m. (Minneapolis,
Minnesota time) on the Settlement Date. If the amount owed to a
Bank is greater than $25,000, the Agent shall send to that Bank
the amount owed by not later than 2:00 p.m. (Minneapolis,
Minnesota time) on the Settlement Date provided the Agent has
received the funds required to be paid to it by the other Banks.
(e) BANK REFUSES TO FUND. Notwithstanding the foregoing, if any Bank
has wrongfully refused to fund its Percentage of Advances or purchase its
Revolving Facility Percentage of the Obligation or Reimbursement as
required hereunder, or if the principal balance of any Bank's Notes is for
any reason less than its Percentage of the aggregate principal balances of
the Notes, the Agent may remit all payments received by it to the other
Banks until such payments have reduced the aggregate amounts owed by the
Borrower to the extent that the aggregate amount owing to such Bank
hereunder is equal to its Percentage of the aggregate amount owing to the
Banks hereunder. The provisions of this subsection (e) are intended only to
set forth certain rules for the application of Collections if a Bank has
breached its obligations hereunder and shall not be deemed to excuse any
Bank from such obligations.
Section 8.3 Expenses. All Collections received or effected by the
--------
Agent may be applied, first, to pay or reimburse the Agent for all costs,
expenses, damages and liabilities at any time incurred by or imposed upon the
Agent in connection with this Agreement or any
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other Loan Document (including but not limited to all reasonable attorney's
fees, foreclosure expenses and advances made to protect the security of any
collateral, but excluding costs, expenses, damages and liabilities to the extent
such costs, expenses, damages and liabilities arise from the Agent's gross
negligence or willful misconduct). If the Agent does not receive Collections
sufficient to cover any such costs, expenses, damages or liabilities within 30
days after their incurrence or imposition, each Bank shall, upon demand, remit
to the Agent its Percentage of the difference between (i) such costs, expenses,
damages and liabilities, and (ii) such Collections.
Section 8.4 Use of the Term "Agent". The term "Agent" is used
-----------------------
herein in reference to the Agent merely as a matter of custom. It is intended to
reflect only an administrative relationship between the Agent and the Banks, as
independent contracting parties. However, the obligations of the Agent shall be
limited to those expressly set forth herein and in no event shall the use of
such term create or imply any fiduciary relationship or any other obligation
arising under the general law of agency.
Section 8.5 Collections Received Directly by Banks. If any Bank shall
--------------------------------------
obtain any Collections other than through distributions made in accordance with
Section 8.2, such Bank shall promptly give notice of such fact to the Agent and
shall purchase from the other Banks such participations in the Notes and the
Obligation of Reimbursement as shall be necessary to cause the purchasing Bank
to share such Collections ratably with each of them; provided, however, that if
all or any portion of such Collections is thereafter recovered from such
purchasing Bank, the purchase shall be rescinded and the purchasing Bank
restored to the extent of such recovery (but without interest thereon).
Section 8.6 Indemnification. Each Bank severally (but not jointly)
---------------
hereby agrees to indemnify and hold harmless the Agent, as well as the Agent's
agents, employees, officers and directors, ratably according to its Percentage
from and against any and all losses, liabilities (including liabilities for
penalties), actions, suits, judgment, demands, damages, costs, disbursements, or
expenses (including attorneys' fees and expenses) of any kind or nature
whatsoever, which are imposed on, incurred by, or asserted against the Agent or
its agents, employees, officers or directors in any way relating to or arising
out of the Loan Documents, or as a result of any action taken or omitted to be
taken by the Agent; provided, however, that no Bank shall be liable for any
-------- -------
portion of any such losses, liabilities (including liabilities for penalties),
actions, suits, judgments, demands, damages, costs disbursements, or expenses
resulting from the gross negligence or willful misconduct of the Agent. The
Agent shall not be required to take any action in connection with any Loan
Document or Guarantor Document unless indemnified to its satisfaction by the
Banks in accordance with their respective Percentages against loss, cost,
liability and expense. If any indemnity furnished to the Agent for any purpose
shall, in the opinion of the Agent, be insufficient or become impaired, the
Agent may call for additional indemnity and not commence or cease to do the acts
indemnified against until such additional indemnity is furnished.
Section 8.7 Priority in Collateral. To the extent the security
----------------------
interests granted to the Agent on behalf of the Banks secure Obligations which
do not arise out of, or are not
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evidenced by, the Loan Documents, such Obligations shall be subordinate to the
prior payment of all Obligations which do arise out of, or are evidenced by, the
Loan Documents. To the extent all Banks have any such subordinate Obligations,
payment of those subordinate Obligations shall be shared by the Banks on a pro
rata basis determined in accordance with the outstanding principal balance of
such subordinate Obligations held by each Bank.
Section 8.8 Exculpation. The Agent shall be entitled to rely upon
-----------
advice of counsel concerning legal matters, and upon any writing which it
believes to be genuine or to have been presented by a proper person. Neither the
Agent nor any of its directors, officers, employees or agents shall (i) be
responsible for any recitals, representations or warranties contained in, or for
the execution, validity, genuineness, effectiveness or enforceability of any
Loan Document, Guarantor Document or any other instrument or document delivered
hereunder or in connection herewith, (ii) be responsible for the validity,
genuineness, perfection, effectiveness, enforceability, existence, value or
enforcement of any collateral security, (iii) be under any duty to inquire into
or pass upon any of the foregoing matters, or to make any inquiry concerning the
performance by the Borrower or any other obligor of its obligations, or (iv) in
any event, be liable as such for any action taken or omitted by it or them,
except for its or their own gross negligence or willful misconduct. The agency
hereby created shall in no way impair or affect any of the rights and powers of,
or impose any duties or obligations upon, the Agent in its individual capacity.
Section 8.9 Agent and Affiliates. The Agent shall have the same
--------------------
rights, powers and obligations hereunder in its individual capacity as any other
Bank, and may exercise or refrain from exercising the same as though it were not
the Agent, and the Agent and its affiliates may accept deposits from and
generally engage in any kind of business with the Borrower as fully as if the
Agent were not the Agent hereunder.
Section 8.10 Credit Investigation. Each Bank acknowledges that it has
--------------------
made such inquiries and taken such care on its own behalf as would have been the
case had its Commitment been granted and the Advances made or Letters of Credit
issued directly by such Bank to or for the benefit of the Borrower without the
intervention of the Agent or any other Bank. Each Bank agrees and acknowledges
that the Agent makes no representations or warranties about the creditworthiness
of the Borrower or any other party to this Agreement or with respect to the
legality, validity, sufficiency or enforceability of this Agreement, any Loan
Document, Guarantor Document or any other instrument or document delivered
hereunder or in connection herewith.
Section 8.11 Defaults. The Agent shall have no duty to inquire into
--------
any performance or failure to perform by the Borrower and shall not be deemed to
have knowledge of the occurrence of a Default or an Event of Default (other than
under Section 7.1(a) or (c) unless the Agent has received notice from a Bank or
the Borrower specifying the occurrence of such Default or Event of Default. If
the Agent receives such a notice of the occurrence of a Default or an Event of
Default, the Agent shall give prompt notice thereof to the Banks. Upon learning
of the occurrence of a Default, the Agent shall (subject to Section 8.6) (a) in
the case of an Event of Default, not take any the actions referred to in Section
7.2(a) unless so directed by
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the Required Banks, and (b) in the case of any Default, take such actions with
respect to such Default as shall be directed by the Required Banks; provided
--------
that, unless and until the Agent shall have received such directions, the Agent
may take any action, or refrain from taking any action, with respect to such
Default as it shall deem advisable in the best interest of the Banks.
Section 8.12 Resignation. The Agent may resign as such at any time
-----------
upon at least 30 days' prior notice to the Borrower and the Banks. If the Agent
resigns, the Required Banks shall as promptly as practicable appoint a successor
Agent. If no such successor Agent shall have been so appointed by the Required
Banks and shall have accepted such appointment within 30 days after the
resigning Agent's giving of notice of resignation, then the resigning Agent may,
on behalf of the Banks, appoint a successor Agent, which shall be a commercial
bank organized under the laws of the United States of America or of any State
thereof. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon be entitled to receive
from the prior Agent such documents of transfer and assignment as such successor
Agent may reasonably request and the resigning Agent shall be discharged from
its duties and obligations under this Agreement. After any resignation pursuant
to this Section 8.12, the provisions of this Section 8.12 shall inure to the
benefit of the retiring Agent as to any actions taken or omitted to be taken by
it while it was an Agent hereunder.
Section 8.13 Obligations Several. The obligations of each Bank
-------------------
hereunder are the several obligations of such Bank, and no Bank or the Agent
shall be responsible for the obligations of any other Bank hereunder, nor will
the failure by the Agent or any Bank to perform any of its obligations hereunder
relieve the Agent or any other Bank from the performance of its respective
obligations hereunder. Nothing contained in this Agreement, and no action taken
by any Bank or the Agent pursuant hereto or in connection herewith or pursuant
to or in connection with the Loan Documents, shall be deemed to constitute the
Banks, together or with or without the Agent, a partnership, association, joint
venture or other entity.
Section 8.14 Sale or Assignment; Addition of Banks. Except as
-------------------------------------
permitted under the terms and conditions of this Section 8.14 or, with respect
to participations, under Section 8.15, no Bank may sell, assign or transfer its
rights or obligations under this Agreement or its interest in any Note. Any
Bank, at any time upon at least ten (10) Business Days' prior written notice to
the Agent and the Borrower (unless the Agent and the Borrower consent to a
shorter period of time), may assign all of such Bank's Notes, Advances and
Facility Amounts, or a portion thereof (so long as any such portion is not less
then $5,000,000 and is in equal percentages of such assigning Bank's Facility
Amounts), to a domestic or foreign bank or other financial institution having
deposits in excess of $500,000,000 (an "Applicant") on any date (the "Adjustment
Date") selected by such Bank, but only so long as the Borrower and the Agent
shall have provided its prior written approval of such proposed Applicant, which
prior written approval will not be unreasonably withheld. Notwithstanding the
foregoing, (i) assignments may be made by a Bank to another Bank already a party
to this Agreement in an amount not less than $1,000,000 and (ii) no consent of
the Borrower shall be required for the sale of an interest to an affiliate of a
Bank or, in any event, if a Default Period shall exist. Upon receipt of such
approval and to confirm the status of each additional Bank as a party to this
Agreement and to evidence the assignment in accordance herewith:
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(a) the Agent, the Borrower, the assigning Bank and such Applicant
shall, on or before the Adjustment Date, execute and deliver to the Agent
an Assignment Certificate in substantially the form of Exhibit K (an
"Assignment Certificate");
(b) the Borrower will execute and deliver to the Agent, for delivery
by the Agent in accordance with the terms of the Assignment Certificate,
(i) new Notes payable to the order of the Applicant in amounts
corresponding to the applicable Percentages of the Facilities acquired by
such Applicant and (ii), if necessary, new Notes payable to the order of
the assigning Bank in amounts corresponding to the retained Percentages, if
any. Such new Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of the Notes to be replaced by such new Notes,
shall be dated the effective date of such assignment and shall otherwise be
in the form of the Notes to be replaced thereby. Such new Notes shall be
issued in substitution for, but not in satisfaction or payment of, the
Notes being replaced thereby and such new Notes shall be treated as Notes
for purposes of this Agreement; and
(c) the assigning Bank shall pay to the Agent an administrative fee of
$2,500.
Upon the execution and delivery of such Assignment Certificate and such new
Notes, and effective as of the effective date thereof (i) this Agreement shall
be deemed to be amended to the extent, and only to the extent, necessary to
reflect the addition of such additional Bank and the resulting adjustment of the
Percentages arising therefrom, (ii) the assigning Bank shall be relieved of all
obligations hereunder to the extent of the reduction of the assigning Bank's
Percentage, and (iii) the Applicant shall become a party hereto and shall be
entitled to all rights, benefits and privileges accorded to a Bank herein and in
each other Loan Document or other document or instrument executed pursuant
hereto and subject to all obligations of a Bank hereunder, including, without
limitation, the right to approve or disapprove actions which, in accordance with
the terms hereof, require the approval of the Required Banks or all Banks.
Promptly after the execution of any Assignment Certificate, a copy thereof shall
be delivered by the Agent to each Bank and to the Borrower. In order to
facilitate the addition of additional Banks hereto, the Borrower and the Banks
shall cooperate fully with the Agent in connection therewith and shall provide
all reasonable assistance requested by the Agent relating thereto, including,
without limitation, the furnishing of such written materials and financial
information regarding the Borrower as the Agent may reasonably request, the
execution of such documents as the Agent may reasonably request with respect
thereto, and the participation by officers of the Borrower, and the Banks in a
meeting or teleconference call with any Applicant upon the request of the Agent.
Section 8.15 Participation. In addition to the rights granted in
-------------
Section 8.14, provided the Agent and, if no Default Period exists the Borrower,
have consented thereto, each Bank may grant participations in all or a portion
of its Notes, Advances, and Facility Amounts to any domestic bank, insurance
company, financial institution or an affiliate of such Bank. No holder of any
such participation, however, shall be entitled to require any Bank to take or
omit to take any action hereunder except those actions described in Section 9.4
requiring consent of all Banks. The Banks shall not, as among the Borrower, the
Agent and the Banks, be relieved of
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any of their respective obligations hereunder as a result of any such granting
of a participation. The Borrower hereby acknowledges and agrees that any
participation described in this Section 8.15 may rely upon, and possess all
rights under, any opinions, certificates, or other instruments or documents
delivered under or in connection with any Loan Document. Except as set forth in
this Section 8.15, no Bank may grant any participation in the Notes, Advances,
Acceptances or Commitments.
Section 8.16 Borrower not a Beneficiary or Party. Except with respect
-----------------------------------
to the limitation of liability applicable to the Banks under Section 8.13 and
the Borrower's right to approve additional Banks in accordance with Section
8.14, the provisions and agreements in this Article VIII are solely among the
Banks and the Agent and the Borrower shall not be considered a party thereto or
a beneficiary thereof.
ARTICLE IX
Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay on the
------------------------------
part of the Bank in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall the Bank's acceptance of
payments while any Default Period exists operate as a waiver of such Default or
Event of Default, or any right, power or remedy under the Loan Documents; nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy under the Loan Documents. The remedies provided in the Loan Documents
are cumulative and not exclusive of any remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification, termination
---------------
or waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom shall be effective unless the same shall be in writing
and signed by the Bank and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given. No notice
to or demand on the Borrower in any case shall entitle the Borrower to any other
or further notice or demand in similar or other circumstances.
Section 9.3 Notices. Except as otherwise expressly provided herein,
-------
all notices and other communications hereunder shall be in writing and shall be
(i) personally delivered, (ii) transmitted by registered mail, postage prepaid,
(iii) sent by Federal Express or similar expedited delivery service, or (iv)
transmitted by telecopy, in each case addressed to the party to whom notice is
being given at its address as set forth by its signature below, or, if
telecopied, transmitted to that party at its telecopier number set forth by its
signature below; or, as to each party, at such other address or telecopier
number as may hereafter be designated in a notice by that party to the other
party complying with the terms of this Section. All such notices or other
communications shall be deemed to have been given on (i) the date received if
delivered personally or by mail, (ii) the date of receipt, if delivered by
Federal Express or similar expedited delivery service, or (iii) the date of
transmission if delivered by telecopy, except that
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<PAGE>
notices or requests to the Bank pursuant to any of the provisions of Article II
shall not be effective until received.
Section 9.4 Consent of Required Banks; Amendments, Requested Waivers,
---------------------------------------------------------
Etc.
- ----
(a) Except as provided in Subsection (b), the Banks' consent as
required by any provision of this Agreement shall be deemed given by the
consent of the Required Banks.
(b) No amendment, modification, termination or waiver of any provision
of any Loan Document or consent to any departure by the Borrower therefrom
or any release of a security interest in collateral securing the
Obligations or the Guaranties shall be effective unless the same shall be
in writing and signed by the Required Banks and, if the rights or duties of
the Agent are affected thereby, by the Agent; provided, however, that
-------- -------
unless in writing and signed by each Bank affected thereby, no amendment,
modification, termination, waiver or consent shall, do any of the
following: (i) increase the amount of any Bank's Facility Amount; (ii)
reduce the amount of any payment of principal of or interest on a Bank's
Advances or the fees payable to such Bank hereunder; (iii) except as
otherwise provided in Section 8.5, postpone any date fixed for any payment
of principal of or interest on such Banks' Advances or the fees payable to
such Bank hereunder; (iv) change the definitions of "Borrowing Base" or
"Required Banks," or any other definitions referred to therein or necessary
to the understanding thereof; (v) release of Collateral in an amount
exceeding $500,000 in the aggregate during any fiscal year; or (vi) amend
this Section 9.4 or any other provision of this Agreement requiring the
consent or other action of all of the Banks. Any waiver or consent given
hereunder shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in
any case shall entitle the Borrower to any other or further notice or
demand in similar or other circumstances; provided, further, that the Agent
-------- -------
may release up to $500,000 in the aggregate of Collateral in any fiscal
year without further consent by any Bank.
Section 9.5 Disclosure of Information. The Borrower authorizes the
-------------------------
Agent to disclose to any participant or assignee (each, a "Transferee") and any
prospective Transferee any and all financial and other information in the
Agent's possession concerning the Borrower which has been delivered to the Agent
by the Borrower pursuant to this Agreement or which has been delivered to the
Agent by the Borrower in connection with the Agent's credit evaluation of the
Borrower before entering into this Agreement.
Section 9.6 Costs and Expenses. The Borrower shall pay on demand all
------------------
costs and expenses incurred by the Agent in connection with the negotiation,
preparation, execution, administration, amendment or enforcement of the Loan
Documents, Guarantor Documents and the other instruments and documents to be
delivered hereunder and thereunder, including the reasonable fees and out-of-
pocket expenses of counsel for the Agent with respect thereto, whether paid to
outside counsel or allocated to the Agent by in-house counsel. The Borrower
shall also pay and reimburse the Agent for all of its out-of-pocket and
allocated costs incurred in
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<PAGE>
connection with each audit or examination conducted by the Agent, its employees
or agents, which audits and examinations shall be for the sole benefit of the
Agent. The Borrower shall also pay on demand all costs and expenses incurred by
any Bank in connection with the enforcement of the Loan Documents, Guarantor
Documents and the other instruments and documents to be delivered hereunder and
thereunder, including the reasonable fees and out-of-pocket expenses of counsel
for each Bank with respect thereto, whether paid to outside counsel or allocated
to a Bank by in-house counsel.
Section 9.7 Indemnification by Borrower. The Borrower shall indemnify
---------------------------
each Bank and each officer, director, employee and agent of each Bank (herein
individually each called an "Indemnitee" and collectively called the
"Indemnitees") from and against any and all losses, claims, damages, reasonable
expenses (including, without limitation, reasonable attorneys' fees) and
liabilities (all of the foregoing being herein called the "Indemnified
Liabilities") incurred by an Indemnitee in connection with or arising out of the
execution or delivery of this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the use of the proceeds of any Advance (including but
not limited to any such loss, claim, damage, expense or liability arising out of
any claim in which it is alleged that any Environmental Law has been breached
with respect to any activity or property of the Borrower), except for any
portion of such losses, claims, damages, expenses or liabilities incurred solely
as a result of the gross negligence or willful misconduct of the applicable
Indemnitee. If and to the extent that the foregoing indemnity may be
unenforceable for any reason, the Borrower shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. All obligations provided for in this Section
shall survive any termination of this Agreement.
Section 9.8 Execution in Counterparts. This Agreement and the other
-------------------------
Loan Documents may be executed in any number of counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which
counterparts of this Agreement or such other Loan Document, as the case may be,
taken together, shall constitute but one and the same instrument.
Section 9.9 Binding Effect, Assignment. The Loan Documents shall be
--------------------------
binding upon and inure to the benefit of the Borrower, the Agent and the Banks
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights thereunder or any interest therein without
the prior written consent of the Agent and all the Banks.
Section 9.10 Governing Law. The Loan Documents shall be governed by,
-------------
and construed in accordance with, the laws of the State of Minnesota.
Section 9.11 Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
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<PAGE>
Section 9.12 Prior Agreements. This Agreement and the other Loan
----------------
Documents and related documents described herein restate and supersede in their
entirety any and all prior agreements and understandings, oral or written, among
the Agent, the Banks and the Borrower.
Section 9.13 Headings. Article and Section headings in this Agreement
--------
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.14 Consent to Jurisdiction. The Borrower irrevocably (i)
-----------------------
agrees that any suit, action or other legal proceeding arising out of or
relating to this Agreement or any other Loan Document may be brought in a court
of record in Hennepin County in the State of Minnesota or in the Courts of the
United States located in such State, (ii) consents to the jurisdiction of each
such court in any suit, action or proceeding, (iii) waives any objection which
it may have to the laying of venue of any such suit, action or proceeding in any
such courts and any claim that any such suit, action or proceeding has been
brought in an inconvenient forum, and (iv) agrees that a final judgment in any
such suit, action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
SECTION 9.15 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND THE
--------------------
BANKS HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN
ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT AND THE
NOTE OR THE RELATIONSHIPS ESTABLISHED HEREUNDER.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
Address: NATIONWIDE ELECTRIC, INC.
2800 Metropolitan Center
333 South Seventh Street
Minneapolis, Minnesota 55402 By /s/ Fredrick C. Green, IV
---------------------------
Attention: Frederick C. Green, IV Frederick C. Green, IV
Telecopier: 612-371-8036 Its President
Tax ID No.: 43-1807205
With a copy of all notices to:
1201 Walnut, 13th Floor
Kansas City, Missouri 64106
Attention: Mr. Frank R. Clark
Telecopier: 816-556-2337
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<PAGE>
Address: NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
Sixth Street and Marquette Avenue as Agent
Minneapolis, Minnesota 55479-0091
Attention: Ms. Laura Schmaltz Oberst
Telecopier: 612-667-4144
By /s/ Laura Schmaltz Oberst
------------------------------
Laura Schmaltz Oberst
Its Vice President
Address: NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
Sixth Street and Marquette Avenue as Bank
Minneapolis, Minnesota 55479-0091
Attention: Ms. Laura Schmaltz Oberst
Telecopier: 612-667-4144
By /s/ Laura Schmaltz Oberst
------------------------------
Revolving Facility Amount: $7,500,000 Laura Schmaltz Oberst
Revolving Facility Percentage: 50% Its Vice President
Term Facility Amount: $7,500,000
Term Facility Percentage: 50%
416 West Jefferson BANK ONE KENTUCKY, N.A.
Louisville, KY 40203
Attention: Earl A. Dorsey, Jr.
Telecopier: 502/566-2367
By /s/ Earl A. Dorsey
------------------------------
Revolving Facility Amount: $7,500,000 Its Senior Vice President
Revolving Facility Percentage: 50% ---------------------------
Term Facility Amount: $7,500,000
Term Facility Percentage: 50%
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<PAGE>
EXHIBIT 10.12
SECURITY AGREEMENT
(NATIONWIDE ELECTRIC, INC.)
This Agreement is made as of the 22nd day of December, 1998, among
Nationwide Electric, Inc., a Delaware corporation (the "Debtor"), and Norwest
Bank Minnesota, National Association, a national banking association, as agent
(in such capacity, the "Secured Party") for the Banks, as defined in the Credit
Agreement described below.
Pursuant to a Credit Agreement (together with all amendments,
modifications and restatements of such Agreement, the "Credit Agreement") of
even date herewith the Banks have agreed to make advances and grant certain
other financial accommodations to the Debtor.
As a condition to making any loan or advance under the Credit
Agreement, the Banks have required the execution and delivery of this Agreement
by the Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the Credit Agreement that are
-----------
not otherwise defined herein shall have the meanings given them in the Credit
Agreement. In addition, the following terms have the meanings set forth below:
"Accounts" means each and every account and other right of the Debtor
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale, lease
or other disposition of goods or other property by the Debtor, out of a
rendering of services by the Debtor, out of a loan by the Debtor, out of
the overpayment of taxes or other liabilities of the Debtor, or otherwise
arises under any contract or agreement, whether such right to payment is or
is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including
all liens and security interests) which the Debtor may at any time have by
law or agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property of such account debtor
or other obligor, all including but not limited to all present and future
debt instruments, chattel papers, accounts, loans and obligations
receivable and tax refunds.
"Collateral" means the Accounts, Inventory, Equipment, General
Intangibles , Investment Property and Stock, together with all
substitutions and replacements for, products and proceeds of, any of the
foregoing property, all accessions, all accessories, attachments, parts,
equipment and repairs now or hereafter attached or affixed to or used in
connection with any of the foregoing, and all warehouse receipts, bills of
lading and other documents of title now or hereafter covering any of the
foregoing.
<PAGE>
"Equipment" means all equipment of the Debtor, whether now owned or
hereafter acquired and wherever located, including but not limited to all
present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment, office and
recordkeeping equipment, parts and tools.
"Event of Default" has the meaning specified in Section 5.
"General Intangibles" means all general intangibles of the Debtor,
whether now owned or hereafter acquired, including but not limited to
applications for patents, patents, copyrights, trademarks, trade secrets,
good will, trade names, customer lists, permits and franchises, and the
right to use the Debtor's name.
"Inventory" means all inventory of the Debtor, whether now owned or
hereafter acquired and wherever located.
"Investment Property" means all investment property of the Debtor,
whether now owned or hereafter acquired, including but not limited to all
securities, security entitlements, securities accounts, commodity
contracts, commodity accounts, stocks, bonds, mutual fund shares, money
market shares and U.S. Government securities.
"Security Interest" has the meaning specified in Section 2.
"Specified Shares" means the shares of stock identified in Exhibit B
hereto, said shares being presently evidenced by the certificates listed
therein.
"Stock" means any share of the capital stock of any corporation now or
hereafter owned by the Debtor, including but not limited to the Specified
Shares.
2. Security Interest. The Debtor hereby grants the Secured Party a
-----------------
security interest (the "Security Interest") in the Collateral to secure payment
of the Obligations.
3. Representations, Warranties and Agreements. The Debtor hereby
------------------------------------------
represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each item of
Collateral in existence on the date hereof, including but not limited to
the Specified Shares, described in Exhibit D hereto, free and clear of all
security interests, liens and encumbrances, except the Security Interest,
other Permitted Liens, and, in the case of the Specified Shares, any
restrictive legend appearing on the face of the certificates evidencing
such shares, (ii) will have, at the time the Debtor acquires any rights in
Collateral hereafter arising, absolute title to each such item of
Collateral free and clear of all security interests, liens and
encumbrances, except the Security Interest, other Permitted Liens, and, in
the case of Stock, any restrictive legend appearing on the face of the
certificates evidencing such Stock, (iii) will keep all Collateral free and
clear of all security interests, liens and encumbrances except the Security
Interest and
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<PAGE>
Permitted Liens, and (iv) will defend the Collateral against all claims or
demands (other than claims and demands based on Permitted Liens) of all
persons other than the Secured Party. The Debtor will not sell or otherwise
dispose of the Collateral or any interest therein without the prior written
consent of the Secured Party, except that, until the occurrence of an Event
of Default and the revocation by the Secured Party of the Debtor's right to
do so, the Debtor may sell any inventory constituting Collateral to buyers
in the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The Debtor's chief
executive office is located at the address set forth by its signature
below. The Debtor's federal employer identification number is correctly set
forth by its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the tangible
Collateral is located only in the state of Minnesota. The Debtor will not
permit any tangible Collateral to be located in any state (and, if county
filing is required, in any county) in which a financing statement covering
such Collateral is required to be, but has not in fact been, filed in order
to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not change its name
or the location of its place of business, without prior written notice to
the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible Collateral to
become part of or to be affixed to any real property without first assuring
to the reasonable satisfaction of the Secured Party that the Security
Interest will be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or the owner or
purchaser of any interest therein. If any part or all of the tangible
Collateral is now or will become so related to particular real estate as to
be a fixture, the real estate concerned and the name of the record owner
are accurately set forth in Exhibit A hereto.
(f) STOCK. Exhibit C is a correct and complete list of the number of
authorized and issued shares of each class of capital stock of each
corporation whose shares are included in the Specified Shares. The
Specified Shares are fully paid for and nonassessable. The Debtor will upon
receipt deliver to the Secured Party in pledge as additional Collateral all
securities distributed on account of the Stock or any other Collateral,
including stock dividends and securities resulting from stock splits,
reorganizations and recapitalizations, and all other shares of any class of
stock of any corporation now owned or hereafter acquired by the Debtor for
any reason whatsoever, together in each case with blank stock powers
executed by the Debtor.
(g) RIGHTS TO PAYMENT. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or will be when arising or issued) the valid, genuine and
legally enforceable obligation, subject to no defense, setoff or
counterclaim (other than those arising in
-3-
<PAGE>
the ordinary course of business), of the account debtor or other obligor
named therein or in the Debtor's records pertaining thereto as being
obligated to pay such obligation. The Debtor will not agree to any material
modification or amendment of, or agree to any forbearance, release or
cancellation of, any such obligation without the Secured Party's prior
written consent, and will not subordinate any such right to payment to
claims of other creditors of such account debtor or other obligor.
(h) MISCELLANEOUS COVENANTS. The Debtor will:
(i) Keep all tangible Collateral in good repair, working order and
condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof.
(ii) Promptly pay all taxes and other governmental charges levied or
assessed upon or against any Collateral or upon or against the
creation, perfection or continuance of the Security Interest.
(iii) At all reasonable times, permit the Secured Party or any Bank,
or the representatives of the Secured Party or any Bank, to
examine or inspect any Collateral, wherever located, and to
examine, inspect and copy the Debtor's books and records
pertaining to the Collateral and its business and financial
condition and to send and discuss with account debtors and other
obligors requests for verifications of amounts owed to the
Debtor.
(iv) Keep accurate and complete records pertaining to the Collateral
and pertaining to the Debtor's business and financial condition
and submit to the Secured Party and the Banks such periodic
reports concerning the Collateral and the Debtor's business and
financial condition as the Secured Party or any Bank may from
time to time reasonably request.
(v) Promptly notify the Secured Party of any loss of or material
damage to any Collateral or of any adverse change, known to the
Debtor, in the prospect of payment of any sums due on or under
any instrument, chattel paper, or account constituting
Collateral.
(vi) If the Secured Party at any time so requests (whether the
request is made before or after the occurrence of an Event of
Default), promptly deliver to the Secured Party any instrument,
document or chattel paper constituting Collateral, duly endorsed
or assigned by the Debtor.
(vii) At all times keep all tangible Collateral insured against risks
of fire (including so-called extended coverage), theft,
collision (in case of Collateral consisting of motor vehicles)
and such other risks and in such amounts as the Secured Party
may reasonably request, with any loss payable to the Secured
Party to the extent of its interest.
-4-
<PAGE>
(viii) From time to time execute such financing statements as the
Secured Party may reasonably require in order to perfect the
Security Interest and, if any Collateral consists of a motor
vehicle, execute such documents as may be required to have the
Security Interest properly noted on a certificate of title,
and, if Collateral consists of investment property, execute any
control or transfer agreement which Secured Party may
reasonably require to obtain control over such investment
property.
(ix) Pay when due or reimburse the Secured Party on demand for all
costs of collection of any of the Obligations and all other
out-of-pocket expenses (including in each case all reasonable
attorneys' fees) incurred by the Secured Party in connection
with the creation, perfection, satisfaction, protection,
defense or enforcement of the Security Interest or the
creation, continuance, protection, defense or enforcement of
this Agreement or any or all of the Obligations, including
expenses incurred in any litigation or bankruptcy or insolvency
proceedings.
(x) Execute, deliver or endorse any and all instruments, documents,
assignments, security agreements and other agreements and
writings which the Secured Party may at any time reasonably
request in order to secure, protect, perfect or enforce the
Security Interest and the Secured Party's rights under this
Agreement.
(xi) Not use or keep any Collateral, or permit it to be used or
kept, for any unlawful purpose or in violation of any federal,
state or local law, statute or ordinance.
(i) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor at any time
fails to perform or observe any agreement contained in Section 3(h), and if
such failure continues for a period of ten calendar days after the Secured
Party gives the Debtor written notice thereof (or, in the case of the
agreements contained in clauses (vii) and (viii) of Section 3(h),
immediately upon the occurrence of such failure, without notice or lapse of
time), the Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of the Debtor (or, at
the Secured Party's option, in the Secured Party's own name) and may (but
need not) take any and all other actions which the Secured Party may
reasonably deem necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of security
interests, liens, or encumbrances, the performance of obligations under
contracts or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of financing
statements, the endorsement of instruments, and the procurement of repairs,
transportation or insurance); and, except to the extent that the effect of
such payment would be to render any loan or forbearance of money usurious
or otherwise illegal under any
-5-
<PAGE>
applicable law, the Debtor shall thereupon pay the Secured Party on demand
the amount of all moneys expended and all costs and expenses (including
reasonable attorneys' fees) incurred by the Secured Party in connection
with or as a result of the Secured Party's performing or observing such
agreements or taking such actions, together with interest thereon from the
date expended or incurred by the Secured Party at the highest rate then
applicable to any of the Obligations. To facilitate the performance or
observance by the Secured Party of such agreements of the Debtor, the
Debtor hereby irrevocably appoints (which appointment is coupled with an
interest) the Secured Party, or its delegate, as the attorney-in-fact of
the Debtor with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file, in the name and on
behalf of the Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by the Debtor
under this Section 3 and Section 6.
4. Assignment of Insurance. The Debtor hereby assigns to the Secured
-----------------------
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of insurance covering the
Collateral, and the Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to the Secured Party. Both before and after the
occurrence of an Event of Default, the Secured Party may (but need not), in its
own name or in the name of the Debtor, execute and deliver proofs of claim,
receive all such moneys, endorse checks and other instruments representing
payment of such moneys, and adjust, litigate, compromise or release any claim
against the issuer of any such policy.
5. Events of Default. Each of the following occurrences shall
-----------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (a) an Event of Default shall occur under the Credit Agreement; (b)
the Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand; or (c) the Debtor shall fail to observe or perform
any covenant or agreement herein binding on it.
6. Remedies upon Event of Default. Upon the occurrence of an Event
------------------------------
of Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights and remedies:
(a) ACCELERATION. The Secured Party may declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon
be immediately due and payable, without presentment or other notice or
demand;
(b) ACCOUNT VERIFICATION. The Secured Party may verify any accounts
in the name of the Debtor or in its own name; and the Debtor, whenever
requested, shall furnish the Secured Party with duplicate statements of the
accounts, which statements may be mailed or delivered by the Secured Party
for that purpose.
-6-
<PAGE>
(c) COLLATERAL ACCOUNT. The Secured Party may establish a collateral
account for the deposit of checks, drafts and cash payments made by the
Debtor's account debtors. If a collateral account is so established, the
Debtor shall promptly deliver to the Secured Party, for deposit into said
collateral account, all payments on accounts and chattel paper received by
it. All such payments shall be delivered to the Secured Party in the form
received (except for the Debtor's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by the
Debtor shall be held in trust by the Debtor for and as the property of the
Secured Party and shall not be commingled with any funds or property of the
Debtor. All deposits in said collateral account shall constitute proceeds
of Collateral and shall not constitute payment of any Obligation. At its
option, the Secured Party may, at any time, apply finally collected funds
on deposit in said collateral account to the payment of the Obligations in
such order of application as the Secured Party may determine, or permit the
Debtor to withdraw all or any part of the balance on deposit in said
collateral account.
(d) LOCK BOX. The Secured Party may, by notice to the Debtor, require
the Debtor to direct each of its account debtors to make payments due under
the relevant account or chattel paper directly to a special lock box to be
under the control of the Secured Party. The Debtor hereby authorizes and
directs the Secured Party to deposit all checks, drafts and cash payments
received in said lock box into the collateral account established as set
forth above.
(e) DIRECT COLLECTION. The Secured Party may notify any account
debtor, or any other person obligated to pay any amount due, that such
chattel paper, account, or other right to payment has been assigned or
transferred to the Secured Party for security and shall be paid directly to
the Secured Party. If the Secured Party so requests at any time, the Debtor
will so notify such account debtors and other obligors in writing and will
indicate on all invoices to such account debtors or other obligors that the
amount due is payable directly to the Secured Party. At any time after the
Secured Party or the Debtor gives such notice to an account debtor or other
obligor, the Secured Party may (but need not), in its own name or in the
name of the Debtor, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of, or securing, any
such chattel paper, account, or other right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor.
(f) ADDITIONAL RIGHTS REGARDING PLEDGED STOCK INTERESTS. The Secured
Party may (i) exercise all voting and other rights as a holder of the
Stock; (ii) notify the issuer of any Stock to make payments and other
distributions thereon directly to the Secured Party, (iii) receive all
proceeds of the Pledged Stock, and (iv) hold any increase or profits
received from the Stock as additional security for the Obligations, except
that any money received from the Collateral may, at the Secured Party's
option, be applied in reduction of the Obligations in such order of
application as the
-7-
<PAGE>
Secured Party may determine or be remitted to the Debtor. The Debtor hereby
irrevocably authorizes and directs each corporation whose stock is included
in the Stock pledged hereunder to remit any and all money, distributions
and other property described in this paragraph directly to the Secured
Party in the Secured Party's name alone. Such remittances shall continue to
be made to the Secured Party until the Secured Party otherwise notifies the
applicable corporation, in writing. To the extent that such remittances are
made directly to the Secured Party, the remitting entity shall have no
further liability to the Debtor for the same.
(g) RIGHTS UNDER UCC. The Secured Party may exercise and enforce any
or all rights and remedies available upon default to a secured party under
the Uniform Commercial Code, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which the
Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral available to
the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties, and if notice to the Debtor of any
intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8) at least 10
calendar days prior to the date of intended disposition or other action;
(h) OTHER RIGHTS. The Secured Party may exercise or enforce any or
all other rights or remedies available to the Secured Party by law or
agreement against the Collateral, against the Debtor or against any other
person or property.
The rights granted under this Section shall include the right to offer and sell
any Stock or similar Collateral privately to purchasers who will agree to take
the Collateral for investment and not with a view to distribution and who will
agree to the imposition of restrictive legends on the certificates representing
the Collateral, and the right to arrange for a sale which would otherwise
qualify as exempt from registration under the Securities Act of 1933. The
Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
7. Other Personal Property. Unless at the time the Secured Party
-----------------------
takes possession of any tangible Collateral, or within seven days thereafter,
the Debtor gives written notice to the Secured Party of the existence of any
goods, papers or other property of the Debtor, not affixed to or constituting a
part of such Collateral, but which are located or found upon or within such
Collateral, describing such property, the Secured Party shall not be responsible
or liable to the Debtor for any action taken or omitted by or on behalf of the
Secured Party with respect to such property without actual knowledge of the
existence of any
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<PAGE>
such property or without actual knowledge that it was located or to be found
upon or within such Collateral.
8. Notice. All notices and other communications hereunder shall be in
------
writing and shall be delivered, and deemed delivered, in accordance with the
Credit Agreement.
9. Miscellaneous. This Agreement has been duly and validly authorized
-------------
by all necessary corporate action. This Agreement does not contemplate a sale of
accounts, or chattel paper. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by the Secured Party. A waiver signed by the
Secured Party shall be effective only in the specific instance and for the
specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of the Secured Party's rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to exercise at all or in any particular manner any voting
rights which may be available with respect to any Collateral, to realize on the
Collateral at all or in any particular manner or order, or to apply any cash
proceeds of Collateral in any particular order of application. This Agreement
shall be binding upon and inure to the benefit of the Debtor and the Secured
Party and their respective successors and assigns and shall take effect when
signed by the Debtor and delivered to the Secured Party, and the Debtor waives
notice of the Secured Party's acceptance hereof. The Secured Party may execute
this Agreement if appropriate for the purpose of filing, but the failure of the
Secured Party to execute this Agreement shall not affect or impair the validity
or effectiveness of this Agreement. A carbon, photographic or other reproduction
of this Agreement or of any financing statement signed by the Debtor shall have
the same force and effect as the original for all purposes of a financing
statement. This Agreement shall be governed by the internal law of Minnesota. If
any provision or application of this Agreement is held unlawful or unenforceable
in any respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect and this Agreement shall be
construed as if the unlawful or unenforceable provision or application had never
been contained herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
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<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
Address: NATIONWIDE ELECTRIC, INC.
2800 Metropolitan Centre
By /s/ Frederick C. Green IV
333 South Seventh Street --------------------------------
Minneapolis, MN 55402 Frederick C. Green, IV
Its President
Employer identification number:
43-1807205
Address: NORWEST BANK MINNESOTA, as agent
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0091 By /s/ Laura Schmaltz Oberst
--------------------------------
Employer identification number: Laura Schmaltz Oberst
41-1592157 Its Vice President
-10-
<PAGE>
EXHIBIT 10.13
SECURITY AGREEMENT
(THE ALLISON COMPANY)
This Agreement, dated as of December 22, 1998, is made by The Allison
Company, a Georgia corporation (the "Debtor"), for the benefit of NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as agent (in
such capacity, the "Secured Party") for the Banks, as defined in the Credit
Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to making such advances and extending such financial
accommodations, the Secured Party has required the execution and delivery of the
Debtor's Guaranty of even date herewith, guaranteeing the payment and
performance of all obligations of the Borrower arising under or pursuant to the
Credit Agreement (the "Guaranty") and a Collateral Pledge Agreement of even date
herewith.
As a further condition to making such advances and extending such
other financial accommodations under the Credit Agreement, the Secured Party and
the Banks have required the execution and delivery of this Agreement by the
Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the recitals hereto and the
------------
Credit Agreement that are not otherwise defined herein shall have the meanings
given them in the recitals and the Credit Agreement. In addition, the following
terms have the meanings set forth below:
"Accounts" means each and every account and other right of the Debtor
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale, lease
or other disposition of goods or other property by the Debtor, out of a
rendering of services by the Debtor, out of a loan by the Debtor, out of
the overpayment of taxes or other liabilities of the Debtor, or otherwise
arises under any contract or agreement, whether such right to payment is or
is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including
all liens and security interests) which the Debtor may at any time have by
law or agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property of such account debtor
or other obligor, all including but not limited to all present and future
debt instruments, chattel papers, accounts, loans and obligations
receivable and tax refunds.
<PAGE>
"Collateral" means the Accounts, Inventory, Equipment, General
Intangibles and Investment Property, together with all substitutions and
replacements for, products and proceeds of, any of the foregoing property,
all accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any of
the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Equipment" means all equipment of the Debtor, whether now owned or
hereafter acquired and wherever located, including but not limited to all
present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment, office and
recordkeeping equipment, parts and tools.
"Event of Default" has the meaning specified in Section 5.
"General Intangibles" means all general intangibles of the Debtor,
whether now owned or hereafter acquired, including but not limited to
applications for patents, patents, copyrights, trademarks, trade secrets,
good will, trade names, customer lists, permits and franchises, and the
right to use the Debtor's name.
"Inventory" means all inventory of the Debtor, whether now owned or
hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Obligations" means (i) the Obligations (as defined in the Credit
Agreement) and (ii) each and every debt, liability and obligation of every
type and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now exists
or is hereafter created or incurred and whether it is or may be direct or
indirect, due or to become due, or absolute or contingent, including
without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
"UCC" means the Uniform Commercial Code, as in enacted in the state of
Minnesota.
2. Security Interest. The Debtor hereby grants the Secured Party a
------------------
security interest (the "Security Interest") in the Collateral to secure payment
of the Obligations.
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<PAGE>
3. Representations, Warranties and Agreements. The Debtor hereby
-------------------------------------------
represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each item of
Collateral in existence on the date hereof, free and clear of all security
interests, liens and encumbrances, except the Security Interest, (ii) will
have, at the time the Debtor acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free and clear of
all security interests, liens and encumbrances, except the Security
Interest, (iii) will keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest, and (iv)
will defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise dispose
of the Collateral or any interest therein without the prior written consent
of the Secured Party, except that, until the occurrence of an Event of
Default and the revocation by the Secured Party of the Debtor's right to do
so, the Debtor may sell any inventory constituting Collateral to buyers in
the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The Debtor's chief
executive office is located at the address set forth on Exhibit A hereto.
The Debtor's federal employer identification number is correctly set forth
under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the tangible
Collateral is located only in the state of Georgia. The Debtor will not
permit any tangible Collateral to be located in any state (and, if county
filing is required, in any county) in which a financing statement covering
such Collateral is required to be, but has not in fact been, filed in order
to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not change its
business name, without prior written notice to the Secured Party. The
Debtor will not change its business address, without prior written notice
to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible Collateral to
become part of or to be affixed to any real property without first assuring
to the reasonable satisfaction of the Secured Party that the Security
Interest will be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or the owner or
purchaser of any interest therein. If any part or all of the tangible
Collateral is now or will become so related to particular real estate as to
be a fixture, the real estate concerned and the name of the record owner
are accurately set forth in Exhibit A hereto.
(f) RIGHTS TO PAYMENT. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or will be when arising, issued or assigned to the Secured
Party) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim (other
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<PAGE>
than those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records pertaining
thereto as being obligated to pay such obligation. The Debtor will neither
agree to any material modification or amendment nor agree to any
forbearance, release or cancellation of any such obligation without the
Secured Party's prior written consent, and will not subordinate any such
right to payment to claims of other creditors of such account debtor or
other obligor, unless the Debtor in good faith believes it is appropriate
to do so in order to maximize recovery from such account debtor or other
obligor or such account debtor or other obligor has a legitimate basis for
requesting any of the foregoing based on the Debtor's performance.
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair, working order
and condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured Party, the
Banks or their representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy the Debtor's books
and records pertaining to the Collateral and its business and
financial condition and to send and discuss with account debtors and
other obligors requests for verifications of amounts owed to the
Debtor;
(iv) keep accurate and complete records pertaining to the
Collateral and pertaining to the Debtor's business and financial
condition and submit to the Secured Party such periodic reports
concerning the Collateral and the Debtor's business and financial
condition as the Secured Party may from time to time reasonably
request;
(v) promptly notify the Secured Party of any loss of or
material damage to any Collateral or of any adverse change, known to
the Debtor, in the prospect of payment of any sums due on or under any
instrument, chattel paper, or account constituting Collateral;
(vi) if the Secured Party at any time so requests (whether the
request is made before or after the occurrence of an Event of
Default), promptly deliver to the Secured Party any instrument,
document or chattel paper constituting Collateral, duly endorsed or
assigned by the Debtor;
-4-
<PAGE>
(vii) at all times keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft,
collision (in case of Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Secured Party may
reasonably request, with any loss payable to the Secured Party to the
extent of its interest;
(viii) from time to time execute such financing statements as
the Secured Party may reasonably require in order to perfect the
Security Interest and, if any Collateral consists of a motor vehicle,
execute such documents as may be required to have the Security
Interest properly noted on a certificate of title;
(ix) pay when due or reimburse the Secured Party on demand for
all costs of collection of any of the Obligations and all other out-
of-pocket expenses (including in each case all reasonable attorneys'
fees) incurred by the Secured Party in connection with the creation,
perfection, satisfaction, protection, defense or enforcement of the
Security Interest or the creation, continuance, protection, defense or
enforcement of this Agreement or any or all of the Obligations,
including expenses incurred in any litigation or bankruptcy or
insolvency proceedings;
(x) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which the Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be used or
kept, for any unlawful purpose or in violation of any federal, state
or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor at any time
fails to perform or observe any agreement contained in Section 3(g), and if
such failure continues for a period of ten calendar days after the Secured
Party gives the Debtor written notice thereof (or, in the case of the
agreements contained in clauses (vii) and (viii) of Section 3(g),
immediately upon the occurrence of such failure, without notice or lapse of
time), the Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of the Debtor (or, at
the Secured Party's option, in the Secured Party's own name) and may (but
need not) take any and all other actions which the Secured Party may
reasonably deem necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of security
interests, liens, or encumbrances, the performance of obligations under
contracts or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of financing
statements, the
-5-
<PAGE>
endorsement of instruments, and the procurement of repairs, transportation
or insurance); and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or otherwise
illegal under any applicable law, the Debtor shall thereupon pay the
Secured Party on demand the amount of all moneys expended and all costs and
expenses (including reasonable attorneys' fees) incurred by the Secured
Party in connection with or as a result of the Secured Party's performing
or observing such agreements or taking such actions, together with interest
thereon from the date expended or incurred by the Secured Party at the
highest rate then applicable to any of the Obligations. To facilitate the
performance or observance by the Secured Party of such agreements of the
Debtor, the Debtor hereby irrevocably appoints (which appointment is
coupled with an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with the right (but not the duty) from time
to time to create, prepare, complete, execute, deliver, endorse or file, in
the name and on behalf of the Debtor, any and all instruments, documents,
financing statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by the
Debtor under this Section 3 and Section 6.
4. Assignment of Insurance. The Debtor hereby assigns to the Secured
------------------------
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of insurance covering the
Collateral, and the Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to the Secured Party. Both before and after the
occurrence of an Event of Default, the Secured Party may (but need not), in its
own name or in the Debtor's name, execute and deliver proofs of claim, receive
all such moneys, endorse checks and other instruments representing payment of
such moneys, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.
5. Events of Default. Each of the following occurrences shall
------------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) an Event of Default shall occur under the Credit Agreement; or
(ii) the Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand; or (iii) the Debtor shall fail to observe or
perform any covenant or agreement herein binding on it.
6. Remedies upon Event of Default. Upon the occurrence of an Event of
------------------------------
Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights and remedies:
(a) ACCELERATION. The Secured Party may declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon
be immediately due and payable, without presentment or other notice or
demand;
-6-
<PAGE>
(b) ACCOUNT VERIFICATION. The Secured Party may verify any accounts in
the name of the Debtor or in its own name; and the Debtor, whenever
requested, shall furnish the Secured Party with duplicate statements of the
accounts, which statements may be mailed or delivered by the Secured Party
for that purpose.
(c) COLLATERAL ACCOUNT. The Secured Party may establish a collateral
account for the deposit of checks, drafts and cash payments made by the
Debtor's account debtors. If a collateral account is so established, the
Debtor shall promptly deliver to the Secured Party, for deposit into said
collateral account, all payments on accounts and chattel paper received by
it. All such payments shall be delivered to the Secured Party in the form
received (except for the Debtor's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by the
Debtor shall be held in trust by the Debtor for and as the property of the
Secured Party and shall not be commingled with any funds or property of the
Debtor. All deposits in said collateral account shall constitute proceeds
of Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the Secured
Party shall permit the Debtor to withdraw all or any part of the balance on
deposit in said collateral account. Following the occurrence and during the
continuance of a Default or Event of Default, the Secured Party may, at its
option at any time, apply finally collected funds on deposit in said
collateral account to the payment of the Obligations in such order of
application as the Secured Party may determine, or permit the Debtor to
withdraw all or any part of the balance on deposit in said collateral
account.
(d) LOCKBOX. The Secured Party may, by notice to the Debtor, require
the Debtor to direct each of its account debtors to make payments due under
the relevant account or chattel paper directly to a special lockbox to be
under the control of the Secured Party. The Debtor hereby authorizes and
directs the Secured Party to deposit all checks, drafts and cash payments
received in said lockbox into the collateral account established as set
forth above.
(e) DIRECT COLLECTION. The Secured Party may, after the occurrence and
during the continuance of an Event of Default, notify any account debtor,
or any other person obligated to pay any amount due, that such chattel
paper, account, or other right to payment has been assigned or transferred
to the Secured Party for security and shall be paid directly to the Secured
Party. If the Secured Party so requests at any time, the Debtor will so
notify such account debtors and other obligors in writing and will indicate
on all invoices to such account debtors or other obligors that the amount
due is payable directly to the Secured Party. At any time after the Secured
Party or the Debtor gives such notice to an account debtor or other
obligor, the Secured Party may (but need not), in its own name or in the
Debtor's name, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to, make
any compromise or settlement with or otherwise agree to waive,
-7-
<PAGE>
modify, amend or change the obligations (including collateral obligations)
of any such account debtor or other obligor.
(f) RIGHTS UNDER UCC. The Secured Party may exercise and enforce any
or all rights and remedies available upon default to a secured party under
the Uniform Commercial Code, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which the
Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral available to
the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties, and if notice to the Debtor of any
intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8) at least 10
calendar days prior to the date of intended disposition or other action;
(i) exercise or enforce any or all other rights or remedies available to
the Secured Party by law or agreement against the Collateral, against the
Debtor or against any other person or property.
(g) OTHER RIGHTS. The Secured Party may exercise or enforce any or all
other rights or remedies available to the Secured Party by law or agreement
against the Collateral, against the Debtor or against any other person or
property.
The Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
7. Other Personal Property. Unless at the time the Secured Party
------------------------
takes possession of any tangible Collateral, or within seven days thereafter,
the Debtor gives written notice to the Secured Party of the existence of any
goods, papers or other property of the Debtor, not affixed to or constituting a
part of such Collateral, but which are located or found upon or within such
Collateral, describing such property, the Secured Party shall not be responsible
or liable to the Debtor for any action taken or omitted by or on behalf of the
Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that it was located
or to be found upon or within such Collateral.
8. Notice. All notices and other communications hereunder shall be in
-------
writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below its signature or, as to each party, at such other address or telecopier
number as may hereafter be designated by such party in a written notice to the
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<PAGE>
other party complying as to delivery with the terms of this Section. All such
notices, requests, demands and other communications shall be deemed to have been
given on (i) the date received if personally delivered, (ii) when deposited in
the mail if delivered by mail, (iii) the date sent if sent by overnight courier,
or (iv) the date of transmission if delivered by telecopy.
9. Miscellaneous. This Agreement has been duly and validly authorized
--------------
by all necessary corporate action. This Agreement does not contemplate a sale of
accounts, or chattel paper. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by the Secured Party. A waiver signed by the
Secured Party shall be effective only in the specific instance and for the
specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of the Secured Party's rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. This Agreement
shall be governed by the law of Minnesota. If any provision or application of
this Agreement is held unlawful or unenforceable in any respect, such illegality
or unenforceability shall not affect other provisions or applications which can
be given effect and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
-9-
<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
NORWEST BANK MINNESOTA, THE ALLISON COMPANY
NATIONAL ASSOCIATION, as Agent
By /s/ Laura Schmaltz Oberst By /s/ Frank R. Clark
--------------------------- ------------------------------
Laura Schmaltz Oberst Frank R. Clark
Its Vice President Its Assistant Secretary
Address: Address:
Norwest Center c/o Nationwide Electric, Inc.
Sixth Street and Marquette Avenue 2800 Metropolitan Centre
Minneapolis, Minnesota 55479-0091 333 South Seventh Street
Minneapolis, Minnesota 55402
Employer identification number: 41-1592157 Attn: Frank R. Clark
Employer identification number:
58-1898258
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<PAGE>
EXHIBIT 10.14
SECURITY AGREEMENT
(ALLISON-SMITH COMPANY)
This Agreement, dated as of December 22, 1998, is made by Allison-
Smith Company, a Georgia corporation (the "Debtor"), for the benefit of NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as agent
(in such capacity, the "Secured Party") for the Banks, as defined in the Credit
Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to making such advances and extending such financial
accommodations, the Secured Party has required the execution and delivery of the
Debtor's Guaranty of even date herewith, guaranteeing the payment and
performance of all obligations of the Borrower arising under or pursuant to the
Credit Agreement (the "Guaranty").
As a further condition to making such advances and extending such
other financial accommodations under the Credit Agreement, the Secured Party and
the Banks have required the execution and delivery of this Agreement by the
Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the recitals hereto and the
------------
Credit Agreement that are not otherwise defined herein shall have the meanings
given them in the recitals and the Credit Agreement. In addition, the following
terms have the meanings set forth below:
"Accounts" means each and every account and other right of the Debtor
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale, lease
or other disposition of goods or other property by the Debtor, out of a
rendering of services by the Debtor, out of a loan by the Debtor, out of
the overpayment of taxes or other liabilities of the Debtor, or otherwise
arises under any contract or agreement, whether such right to payment is or
is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including
all liens and security interests) which the Debtor may at any time have by
law or agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property of such account debtor
or other obligor, all including but not limited to all present and future
debt instruments, chattel papers, accounts, loans and obligations
receivable and tax refunds.
<PAGE>
"Collateral" means the Accounts, Inventory, Equipment, General
Intangibles and Investment Property, together with all substitutions and
replacements for, products and proceeds of, any of the foregoing property,
all accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any of
the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Equipment" means all equipment of the Debtor, whether now owned or
hereafter acquired and wherever located, including but not limited to all
present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment, office and
recordkeeping equipment, parts and tools.
"Event of Default" has the meaning specified in Section 5.
"General Intangibles" means all general intangibles of the Debtor,
whether now owned or hereafter acquired, including but not limited to
applications for patents, patents, copyrights, trademarks, trade secrets,
good will, trade names, customer lists, permits and franchises, and the
right to use the Debtor's name.
"Inventory" means all inventory of the Debtor, whether now owned or
hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Obligations" means (i) the Obligations (as defined in the Credit
Agreement) and (ii) each and every debt, liability and obligation of every
type and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now exists
or is hereafter created or incurred and whether it is or may be direct or
indirect, due or to become due, or absolute or contingent, including
without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
"UCC" means the Uniform Commercial Code, as in enacted in the state of
Minnesota.
2. Security Interest. The Debtor hereby grants the Secured Party a
------------------
security interest (the "Security Interest") in the Collateral to secure payment
of the Obligations.
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<PAGE>
3. Representations, Warranties and Agreements. The Debtor hereby
-------------------------------------------
represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each item of
Collateral in existence on the date hereof, free and clear of all security
interests, liens and encumbrances, except the Security Interest, (ii) will
have, at the time the Debtor acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free and clear of
all security interests, liens and encumbrances, except the Security
Interest, (iii) will keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest, and (iv)
will defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise dispose
of the Collateral or any interest therein without the prior written consent
of the Secured Party, except that, until the occurrence of an Event of
Default and the revocation by the Secured Party of the Debtor's right to do
so, the Debtor may sell any inventory constituting Collateral to buyers in
the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The Debtor's chief
executive office is located at the address set forth on Exhibit A hereto.
The Debtor's federal employer identification number is correctly set forth
under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the tangible
Collateral is located only in the state of Georgia. The Debtor will not
permit any tangible Collateral to be located in any state (and, if county
filing is required, in any county) in which a financing statement covering
such Collateral is required to be, but has not in fact been, filed in order
to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not change its
business name, without prior written notice to the Secured Party. The
Debtor will not change its business address, without prior written notice
to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible Collateral to
become part of or to be affixed to any real property without first assuring
to the reasonable satisfaction of the Secured Party that the Security
Interest will be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or the owner or
purchaser of any interest therein. If any part or all of the tangible
Collateral is now or will become so related to particular real estate as to
be a fixture, the real estate concerned and the name of the record owner
are accurately set forth in Exhibit A hereto.
(f) RIGHTS TO PAYMENT. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or will be when arising, issued or assigned to the Secured
Party) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim (other
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<PAGE>
than those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records pertaining
thereto as being obligated to pay such obligation. The Debtor will neither
agree to any material modification or amendment nor agree to any
forbearance, release or cancellation of any such obligation without the
Secured Party's prior written consent, and will not subordinate any such
right to payment to claims of other creditors of such account debtor or
other obligor, unless the Debtor in good faith believes it is appropriate
to do so in order to maximize recovery from such account debtor or other
obligor or such account debtor or other obligor has a legitimate basis for
requesting any of the foregoing based on the Debtor's performance.
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair, working order
and condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured Party, the
Banks or their representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy the Debtor's books
and records pertaining to the Collateral and its business and
financial condition and to send and discuss with account debtors and
other obligors requests for verifications of amounts owed to the
Debtor;
(iv) keep accurate and complete records pertaining to the
Collateral and pertaining to the Debtor's business and financial
condition and submit to the Secured Party such periodic reports
concerning the Collateral and the Debtor's business and financial
condition as the Secured Party may from time to time reasonably
request;
(v) promptly notify the Secured Party of any loss of or
material damage to any Collateral or of any adverse change, known to
the Debtor, in the prospect of payment of any sums due on or under any
instrument, chattel paper, or account constituting Collateral;
(vi) if the Secured Party at any time so requests (whether the
request is made before or after the occurrence of an Event of
Default), promptly deliver to the Secured Party any instrument,
document or chattel paper constituting Collateral, duly endorsed or
assigned by the Debtor;
-4-
<PAGE>
(vii) at all times keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft,
collision (in case of Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Secured Party may
reasonably request, with any loss payable to the Secured Party to the
extent of its interest;
(viii) from time to time execute such financing statements as
the Secured Party may reasonably require in order to perfect the
Security Interest and, if any Collateral consists of a motor vehicle,
execute such documents as may be required to have the Security
Interest properly noted on a certificate of title;
(ix) pay when due or reimburse the Secured Party on demand for
all costs of collection of any of the Obligations and all other out-
of-pocket expenses (including in each case all reasonable attorneys'
fees) incurred by the Secured Party in connection with the creation,
perfection, satisfaction, protection, defense or enforcement of the
Security Interest or the creation, continuance, protection, defense or
enforcement of this Agreement or any or all of the Obligations,
including expenses incurred in any litigation or bankruptcy or
insolvency proceedings;
(x) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which the Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be used or
kept, for any unlawful purpose or in violation of any federal, state
or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor at any time
fails to perform or observe any agreement contained in Section 3(g), and if
such failure continues for a period of ten calendar days after the Secured
Party gives the Debtor written notice thereof (or, in the case of the
agreements contained in clauses (vii) and (viii) of Section 3(g),
immediately upon the occurrence of such failure, without notice or lapse of
time), the Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of the Debtor (or, at
the Secured Party's option, in the Secured Party's own name) and may (but
need not) take any and all other actions which the Secured Party may
reasonably deem necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of security
interests, liens, or encumbrances, the performance of obligations under
contracts or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of financing
statements, the
-5-
<PAGE>
endorsement of instruments, and the procurement of repairs, transportation
or insurance); and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or otherwise
illegal under any applicable law, the Debtor shall thereupon pay the
Secured Party on demand the amount of all moneys expended and all costs and
expenses (including reasonable attorneys' fees) incurred by the Secured
Party in connection with or as a result of the Secured Party's performing
or observing such agreements or taking such actions, together with interest
thereon from the date expended or incurred by the Secured Party at the
highest rate then applicable to any of the Obligations. To facilitate the
performance or observance by the Secured Party of such agreements of the
Debtor, the Debtor hereby irrevocably appoints (which appointment is
coupled with an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with the right (but not the duty) from time
to time to create, prepare, complete, execute, deliver, endorse or file, in
the name and on behalf of the Debtor, any and all instruments, documents,
financing statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by the
Debtor under this Section 3 and Section 6.
4. Assignment of Insurance. The Debtor hereby assigns to the Secured
------------------------
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of insurance covering the
Collateral, and the Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to the Secured Party. Both before and after the
occurrence of an Event of Default, the Secured Party may (but need not), in its
own name or in the Debtor's name, execute and deliver proofs of claim, receive
all such moneys, endorse checks and other instruments representing payment of
such moneys, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.
5. Events of Default. Each of the following occurrences shall
------------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) an Event of Default shall occur under the Credit Agreement; or
(ii) the Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand; or (iii) the Debtor shall fail to observe or
perform any covenant or agreement herein binding on it.
6. Remedies upon Event of Default. Upon the occurrence of an Event of
------------------------------
Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights and remedies:
(a) ACCELERATION. The Secured Party may declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon
be immediately due and payable, without presentment or other notice or
demand;
-6-
<PAGE>
(b) ACCOUNT VERIFICATION. The Secured Party may verify any accounts in
the name of the Debtor or in its own name; and the Debtor, whenever
requested, shall furnish the Secured Party with duplicate statements of the
accounts, which statements may be mailed or delivered by the Secured Party
for that purpose.
(c) COLLATERAL ACCOUNT. The Secured Party may establish a collateral
account for the deposit of checks, drafts and cash payments made by the
Debtor's account debtors. If a collateral account is so established, the
Debtor shall promptly deliver to the Secured Party, for deposit into said
collateral account, all payments on accounts and chattel paper received by
it. All such payments shall be delivered to the Secured Party in the form
received (except for the Debtor's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by the
Debtor shall be held in trust by the Debtor for and as the property of the
Secured Party and shall not be commingled with any funds or property of the
Debtor. All deposits in said collateral account shall constitute proceeds
of Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the Secured
Party shall permit the Debtor to withdraw all or any part of the balance on
deposit in said collateral account. Following the occurrence and during the
continuance of a Default or Event of Default, the Secured Party may, at its
option at any time, apply finally collected funds on deposit in said
collateral account to the payment of the Obligations in such order of
application as the Secured Party may determine, or permit the Debtor to
withdraw all or any part of the balance on deposit in said collateral
account.
(d) LOCKBOX. The Secured Party may, by notice to the Debtor, require
the Debtor to direct each of its account debtors to make payments due under
the relevant account or chattel paper directly to a special lockbox to be
under the control of the Secured Party. The Debtor hereby authorizes and
directs the Secured Party to deposit all checks, drafts and cash payments
received in said lockbox into the collateral account established as set
forth above.
(e) DIRECT COLLECTION. The Secured Party may, after the occurrence and
during the continuance of an Event of Default, notify any account debtor,
or any other person obligated to pay any amount due, that such chattel
paper, account, or other right to payment has been assigned or transferred
to the Secured Party for security and shall be paid directly to the Secured
Party. If the Secured Party so requests at any time, the Debtor will so
notify such account debtors and other obligors in writing and will indicate
on all invoices to such account debtors or other obligors that the amount
due is payable directly to the Secured Party. At any time after the Secured
Party or the Debtor gives such notice to an account debtor or other
obligor, the Secured Party may (but need not), in its own name or in the
Debtor's name, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to, make
any compromise or settlement with or otherwise agree to waive,
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<PAGE>
modify, amend or change the obligations (including collateral obligations)
of any such account debtor or other obligor.
(f) RIGHTS UNDER UCC. The Secured Party may exercise and enforce any
or all rights and remedies available upon default to a secured party under
the Uniform Commercial Code, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which the
Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral available to
the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties, and if notice to the Debtor of any
intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8) at least 10
calendar days prior to the date of intended disposition or other action;
(i) exercise or enforce any or all other rights or remedies available to
the Secured Party by law or agreement against the Collateral, against the
Debtor or against any other person or property.
(g) OTHER RIGHTS. The Secured Party may exercise or enforce any or all
other rights or remedies available to the Secured Party by law or agreement
against the Collateral, against the Debtor or against any other person or
property.
The Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
7. Other Personal Property. Unless at the time the Secured Party
------------------------
takes possession of any tangible Collateral, or within seven days thereafter,
the Debtor gives written notice to the Secured Party of the existence of any
goods, papers or other property of the Debtor, not affixed to or constituting a
part of such Collateral, but which are located or found upon or within such
Collateral, describing such property, the Secured Party shall not be responsible
or liable to the Debtor for any action taken or omitted by or on behalf of the
Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that it was located
or to be found upon or within such Collateral.
8. Notice. All notices and other communications hereunder shall be in
-------
writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below its signature or, as to each party, at such other address or telecopier
number as may hereafter be designated by such party in a written notice to the
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<PAGE>
other party complying as to delivery with the terms of this Section. All such
notices, requests, demands and other communications shall be deemed to have been
given on (i) the date received if personally delivered, (ii) when deposited in
the mail if delivered by mail, (iii) the date sent if sent by overnight courier,
or (iv) the date of transmission if delivered by telecopy.
9. Miscellaneous. This Agreement has been duly and validly authorized
--------------
by all necessary corporate action. This Agreement does not contemplate a sale of
accounts, or chattel paper. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by the Secured Party. A waiver signed by the
Secured Party shall be effective only in the specific instance and for the
specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of the Secured Party's rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. This Agreement
shall be governed by the law of Minnesota. If any provision or application of
this Agreement is held unlawful or unenforceable in any respect, such illegality
or unenforceability shall not affect other provisions or applications which can
be given effect and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
-9-
<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
NORWEST BANK MINNESOTA, ALLISON-SMITH COMPANY
NATIONAL ASSOCIATION, as Agent
By /s/ Laura Schmaltz Oberst By /s/ Frank R. Clark
---------------------------------- -------------------------------
Laura Schmaltz Oberst Frank R. Clark
Its Vice President Its Assistant Secretary
Address: Address:
Norwest Center c/o Nationwide Electric, Inc.
Sixth Street and Marquette Avenue 2800 Metropolitan Centre
Minneapolis, Minnesota 55479-0091 333 South Seventh Street
Minneapolis, Minnesota 55402
Employer identification number: Attn: Frank R. Clark
41-1592157
Employer identification number:
58-0546001
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<PAGE>
EXHIBIT 10.15
SECURITY AGREEMENT
(HENDERSON ELECTRIC CO., INC.)
This Agreement, dated as of December 22, 1998, is made by Henderson
Electric Co., Inc., a Delaware corporation (the "Debtor"), for the benefit of
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as
agent (in such capacity, the "Secured Party") for the Banks, as defined in the
Credit Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to making such advances and extending such financial
accommodations, the Secured Party has required the execution and delivery of the
Debtor's Guaranty of even date herewith, guaranteeing the payment and
performance of all obligations of the Borrower arising under or pursuant to the
Credit Agreement (the "Guaranty").
As a further condition to making such advances and extending such
other financial accommodations under the Credit Agreement, the Secured Party and
the Banks have required the execution and delivery of this Agreement by the
Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the recitals hereto and the
------------
Credit Agreement that are not otherwise defined herein shall have the meanings
given them in the recitals and the Credit Agreement. In addition, the following
terms have the meanings set forth below:
"Accounts" means each and every account and other right of the Debtor
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale, lease
or other disposition of goods or other property by the Debtor, out of a
rendering of services by the Debtor, out of a loan by the Debtor, out of
the overpayment of taxes or other liabilities of the Debtor, or otherwise
arises under any contract or agreement, whether such right to payment is or
is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including
all liens and security interests) which the Debtor may at any time have by
law or agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property of such account debtor
or other obligor, all including but not limited to all present and future
debt instruments, chattel papers, accounts, loans and obligations
receivable and tax refunds.
<PAGE>
"Collateral" means the Accounts, Inventory, Equipment, General
Intangibles and Investment Property, together with all substitutions and
replacements for, products and proceeds of, any of the foregoing property,
all accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any of
the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Equipment" means all equipment of the Debtor, whether now owned or
hereafter acquired and wherever located, including but not limited to all
present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment, office and
recordkeeping equipment, parts and tools.
"Event of Default" has the meaning specified in Section 5.
"General Intangibles" means all general intangibles of the Debtor,
whether now owned or hereafter acquired, including but not limited to
applications for patents, patents, copyrights, trademarks, trade secrets,
good will, trade names, customer lists, permits and franchises, and the
right to use the Debtor's name.
"Inventory" means all inventory of the Debtor, whether now owned or
hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Obligations" means (i) the Obligations (as defined in the Credit
Agreement) and (ii) each and every debt, liability and obligation of every
type and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now exists
or is hereafter created or incurred and whether it is or may be direct or
indirect, due or to become due, or absolute or contingent, including
without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
"UCC" means the Uniform Commercial Code, as in enacted in the state of
Minnesota.
2. Security Interest. The Debtor hereby grants the Secured Party a
------------------
security interest (the "Security Interest") in the Collateral to secure payment
of the Obligations.
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<PAGE>
3. Representations, Warranties and Agreements. The Debtor hereby
-------------------------------------------
represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each item of
Collateral in existence on the date hereof, free and clear of all security
interests, liens and encumbrances, except the Security Interest, (ii) will
have, at the time the Debtor acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free and clear of
all security interests, liens and encumbrances, except the Security
Interest, (iii) will keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest, and (iv)
will defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise dispose
of the Collateral or any interest therein without the prior written consent
of the Secured Party, except that, until the occurrence of an Event of
Default and the revocation by the Secured Party of the Debtor's right to do
so, the Debtor may sell any inventory constituting Collateral to buyers in
the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The Debtor's chief
executive office is located at the address set forth on Exhibit A hereto.
The Debtor's federal employer identification number is correctly set forth
under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the tangible
Collateral is located only in the state of Kentucky. The Debtor will not
permit any tangible Collateral to be located in any state (and, if county
filing is required, in any county) in which a financing statement covering
such Collateral is required to be, but has not in fact been, filed in order
to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not change its
business name, without prior written notice to the Secured Party. The
Debtor will not change its business address, without prior written notice
to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible Collateral to
become part of or to be affixed to any real property without first assuring
to the reasonable satisfaction of the Secured Party that the Security
Interest will be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or the owner or
purchaser of any interest therein. If any part or all of the tangible
Collateral is now or will become so related to particular real estate as to
be a fixture, the real estate concerned and the name of the record owner
are accurately set forth in Exhibit A hereto.
(f) RIGHTS TO PAYMENT. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or will be when arising, issued or assigned to the Secured
Party) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim (other
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<PAGE>
than those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records pertaining
thereto as being obligated to pay such obligation. The Debtor will neither
agree to any material modification or amendment nor agree to any
forbearance, release or cancellation of any such obligation without the
Secured Party's prior written consent, and will not subordinate any such
right to payment to claims of other creditors of such account debtor or
other obligor, unless the Debtor in good faith believes it is appropriate
to do so in order to maximize recovery from such account debtor or other
obligor or such account debtor or other obligor has a legitimate basis for
requesting any of the foregoing based on the Debtor's performance.
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair, working order
and condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured Party, the
Banks or their representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy the Debtor's books
and records pertaining to the Collateral and its business and
financial condition and to send and discuss with account debtors and
other obligors requests for verifications of amounts owed to the
Debtor;
(iv) keep accurate and complete records pertaining to the
Collateral and pertaining to the Debtor's business and financial
condition and submit to the Secured Party such periodic reports
concerning the Collateral and the Debtor's business and financial
condition as the Secured Party may from time to time reasonably
request;
(v) promptly notify the Secured Party of any loss of or
material damage to any Collateral or of any adverse change, known to
the Debtor, in the prospect of payment of any sums due on or under any
instrument, chattel paper, or account constituting Collateral;
(vi) if the Secured Party at any time so requests (whether the
request is made before or after the occurrence of an Event of
Default), promptly deliver to the Secured Party any instrument,
document or chattel paper constituting Collateral, duly endorsed or
assigned by the Debtor;
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<PAGE>
(vii) at all times keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft,
collision (in case of Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Secured Party may
reasonably request, with any loss payable to the Secured Party to the
extent of its interest;
(viii) from time to time execute such financing statements as
the Secured Party may reasonably require in order to perfect the
Security Interest and, if any Collateral consists of a motor vehicle,
execute such documents as may be required to have the Security
Interest properly noted on a certificate of title;
(ix) pay when due or reimburse the Secured Party on demand for
all costs of collection of any of the Obligations and all other out-
of-pocket expenses (including in each case all reasonable attorneys'
fees) incurred by the Secured Party in connection with the creation,
perfection, satisfaction, protection, defense or enforcement of the
Security Interest or the creation, continuance, protection, defense or
enforcement of this Agreement or any or all of the Obligations,
including expenses incurred in any litigation or bankruptcy or
insolvency proceedings;
(x) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which the Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be used or
kept, for any unlawful purpose or in violation of any federal, state
or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor at any time
fails to perform or observe any agreement contained in Section 3(g), and if
such failure continues for a period of ten calendar days after the Secured
Party gives the Debtor written notice thereof (or, in the case of the
agreements contained in clauses (vii) and (viii) of Section 3(g),
immediately upon the occurrence of such failure, without notice or lapse of
time), the Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of the Debtor (or, at
the Secured Party's option, in the Secured Party's own name) and may (but
need not) take any and all other actions which the Secured Party may
reasonably deem necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of security
interests, liens, or encumbrances, the performance of obligations under
contracts or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of financing
statements, the
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<PAGE>
endorsement of instruments, and the procurement of repairs, transportation
or insurance); and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or otherwise
illegal under any applicable law, the Debtor shall thereupon pay the
Secured Party on demand the amount of all moneys expended and all costs and
expenses (including reasonable attorneys' fees) incurred by the Secured
Party in connection with or as a result of the Secured Party's performing
or observing such agreements or taking such actions, together with interest
thereon from the date expended or incurred by the Secured Party at the
highest rate then applicable to any of the Obligations. To facilitate the
performance or observance by the Secured Party of such agreements of the
Debtor, the Debtor hereby irrevocably appoints (which appointment is
coupled with an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with the right (but not the duty) from time
to time to create, prepare, complete, execute, deliver, endorse or file, in
the name and on behalf of the Debtor, any and all instruments, documents,
financing statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by the
Debtor under this Section 3 and Section 6.
4. Assignment of Insurance. The Debtor hereby assigns to the Secured
------------------------
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of insurance covering the
Collateral, and the Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to the Secured Party. Both before and after the
occurrence of an Event of Default, the Secured Party may (but need not), in its
own name or in the Debtor's name, execute and deliver proofs of claim, receive
all such moneys, endorse checks and other instruments representing payment of
such moneys, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.
5. Events of Default. Each of the following occurrences shall
------------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) an Event of Default shall occur under the Credit Agreement; or
(ii) the Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand; or (iii) the Debtor shall fail to observe or
perform any covenant or agreement herein binding on it.
6. Remedies upon Event of Default. Upon the occurrence of an Event of
------------------------------
Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights and remedies:
(a) ACCELERATION. The Secured Party may declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon
be immediately due and payable, without presentment or other notice or
demand;
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<PAGE>
(b) ACCOUNT VERIFICATION. The Secured Party may verify any accounts in
the name of the Debtor or in its own name; and the Debtor, whenever
requested, shall furnish the Secured Party with duplicate statements of the
accounts, which statements may be mailed or delivered by the Secured Party
for that purpose.
(c) COLLATERAL ACCOUNT. The Secured Party may establish a collateral
account for the deposit of checks, drafts and cash payments made by the
Debtor's account debtors. If a collateral account is so established, the
Debtor shall promptly deliver to the Secured Party, for deposit into said
collateral account, all payments on accounts and chattel paper received by
it. All such payments shall be delivered to the Secured Party in the form
received (except for the Debtor's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by the
Debtor shall be held in trust by the Debtor for and as the property of the
Secured Party and shall not be commingled with any funds or property of the
Debtor. All deposits in said collateral account shall constitute proceeds
of Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the Secured
Party shall permit the Debtor to withdraw all or any part of the balance on
deposit in said collateral account. Following the occurrence and during the
continuance of a Default or Event of Default, the Secured Party may, at its
option at any time, apply finally collected funds on deposit in said
collateral account to the payment of the Obligations in such order of
application as the Secured Party may determine, or permit the Debtor to
withdraw all or any part of the balance on deposit in said collateral
account.
(d) LOCKBOX. The Secured Party may, by notice to the Debtor, require
the Debtor to direct each of its account debtors to make payments due under
the relevant account or chattel paper directly to a special lockbox to be
under the control of the Secured Party. The Debtor hereby authorizes and
directs the Secured Party to deposit all checks, drafts and cash payments
received in said lockbox into the collateral account established as set
forth above.
(e) DIRECT COLLECTION. The Secured Party may, after the occurrence and
during the continuance of an Event of Default, notify any account debtor,
or any other person obligated to pay any amount due, that such chattel
paper, account, or other right to payment has been assigned or transferred
to the Secured Party for security and shall be paid directly to the Secured
Party. If the Secured Party so requests at any time, the Debtor will so
notify such account debtors and other obligors in writing and will indicate
on all invoices to such account debtors or other obligors that the amount
due is payable directly to the Secured Party. At any time after the Secured
Party or the Debtor gives such notice to an account debtor or other
obligor, the Secured Party may (but need not), in its own name or in the
Debtor's name, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to, make
any compromise or settlement with or otherwise agree to waive,
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<PAGE>
modify, amend or change the obligations (including collateral obligations)
of any such account debtor or other obligor.
(f) RIGHTS UNDER UCC. The Secured Party may exercise and enforce any
or all rights and remedies available upon default to a secured party under
the Uniform Commercial Code, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which the
Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral available to
the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties, and if notice to the Debtor of any
intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8) at least 10
calendar days prior to the date of intended disposition or other action;
(i) exercise or enforce any or all other rights or remedies available to
the Secured Party by law or agreement against the Collateral, against the
Debtor or against any other person or property.
(g) OTHER RIGHTS. The Secured Party may exercise or enforce any or all
other rights or remedies available to the Secured Party by law or agreement
against the Collateral, against the Debtor or against any other person or
property.
The Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
7. Other Personal Property. Unless at the time the Secured Party
------------------------
takes possession of any tangible Collateral, or within seven days thereafter,
the Debtor gives written notice to the Secured Party of the existence of any
goods, papers or other property of the Debtor, not affixed to or constituting a
part of such Collateral, but which are located or found upon or within such
Collateral, describing such property, the Secured Party shall not be responsible
or liable to the Debtor for any action taken or omitted by or on behalf of the
Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that it was located
or to be found upon or within such Collateral.
8. Notice. All notices and other communications hereunder shall be in
-------
writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below its signature or, as to each party, at such other address or telecopier
number as may hereafter be designated by such party in a written notice to the
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<PAGE>
other party complying as to delivery with the terms of this Section. All such
notices, requests, demands and other communications shall be deemed to have been
given on (i) the date received if personally delivered, (ii) when deposited in
the mail if delivered by mail, (iii) the date sent if sent by overnight courier,
or (iv) the date of transmission if delivered by telecopy.
9. Miscellaneous. This Agreement has been duly and validly authorized
--------------
by all necessary corporate action. This Agreement does not contemplate a sale of
accounts, or chattel paper. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by the Secured Party. A waiver signed by the
Secured Party shall be effective only in the specific instance and for the
specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of the Secured Party's rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. This Agreement
shall be governed by the law of Minnesota. If any provision or application of
this Agreement is held unlawful or unenforceable in any respect, such illegality
or unenforceability shall not affect other provisions or applications which can
be given effect and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
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<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
NORWEST BANK MINNESOTA, HENDERSON ELECTRIC CO., INC.
NATIONAL ASSOCIATION, as Agent
By /s/ Laura Schmaltz Oberst By /s/ Frank R. Clark
-------------------------------- -----------------------------
Laura Schmaltz Oberst Frank R. Clark
Its Vice President Its Assistant Secretary
Address: Address:
Norwest Center c/o Nationwide Electric, Inc.
Sixth Street and Marquette Avenue 2800 Metropolitan Centre
Minneapolis, Minnesota 55479-0091 333 South Seventh Street
Minneapolis, Minnesota 55402
Employer identification number: Attn: Frank R. Clark
41-1592157
Employer identification number:
36-4262789
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<PAGE>
EXHIBIT 10.16
SECURITY AGREEMENT
EAGLE ELECTRIC HOLDINGS, INC.
This Agreement, dated as of December 22, 1998, is made by Eagle
Electric Holdings, Inc., a Delaware corporation (the "Debtor"), for the benefit
of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
as agent (in such capacity, the "Secured Party") for the Banks, as defined in
the Credit Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to making such advances and extending such financial
accommodations, the Secured Party has required the execution and delivery of the
Debtor's Guaranty of even date herewith, guaranteeing the payment and
performance of all obligations of the Borrower arising under or pursuant to the
Credit Agreement (the "Guaranty") and a Collateral Pledge Agreement of even date
herewith.
As a further condition to making such advances and extending such
other financial accommodations under the Credit Agreement, the Secured Party and
the Banks have required the execution and delivery of this Agreement by the
Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the recitals hereto and the
------------
Credit Agreement that are not otherwise defined herein shall have the meanings
given them in the recitals and the Credit Agreement. In addition, the following
terms have the meanings set forth below:
"Accounts" means each and every account and other right of the Debtor
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale, lease
or other disposition of goods or other property by the Debtor, out of a
rendering of services by the Debtor, out of a loan by the Debtor, out of
the overpayment of taxes or other liabilities of the Debtor, or otherwise
arises under any contract or agreement, whether such right to payment is or
is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including
all liens and security interests) which the Debtor may at any time have by
law or agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property of such account debtor
or other obligor, all including but not limited to all present and future
debt instruments, chattel papers, accounts, loans and obligations
receivable and tax refunds.
<PAGE>
"Collateral" means the Accounts, Inventory, Equipment, General
Intangibles and Investment Property, together with all substitutions and
replacements for, products and proceeds of, any of the foregoing property,
all accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any of
the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Equipment" means all equipment of the Debtor, whether now owned or
hereafter acquired and wherever located, including but not limited to all
present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment, office and
recordkeeping equipment, parts and tools.
"Event of Default" has the meaning specified in Section 5.
"General Intangibles" means all general intangibles of the Debtor,
whether now owned or hereafter acquired, including but not limited to
applications for patents, patents, copyrights, trademarks, trade secrets,
good will, trade names, customer lists, permits and franchises, and the
right to use the Debtor's name.
"Inventory" means all inventory of the Debtor, whether now owned or
hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Obligations" means (i) the Obligations (as defined in the Credit
Agreement) and (ii) each and every debt, liability and obligation of every
type and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now exists
or is hereafter created or incurred and whether it is or may be direct or
indirect, due or to become due, or absolute or contingent, including
without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
"UCC" means the Uniform Commercial Code, as in enacted in the state of
Minnesota.
2. Security Interest. The Debtor hereby grants the Secured Party a
------------------
security interest (the "Security Interest") in the Collateral to secure payment
of the Obligations.
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3. Representations, Warranties and Agreements. The Debtor hereby
-------------------------------------------
represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each item of
Collateral in existence on the date hereof, free and clear of all security
interests, liens and encumbrances, except the Security Interest, (ii) will
have, at the time the Debtor acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free and clear of
all security interests, liens and encumbrances, except the Security
Interest, (iii) will keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest, and (iv)
will defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise dispose
of the Collateral or any interest therein without the prior written consent
of the Secured Party, except that, until the occurrence of an Event of
Default and the revocation by the Secured Party of the Debtor's right to do
so, the Debtor may sell any inventory constituting Collateral to buyers in
the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The Debtor's chief
executive office is located at the address set forth under its signature
below. The Debtor's federal employer identification number is correctly set
forth under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the tangible
Collateral is located only in the state of _______. The Debtor will not
permit any tangible Collateral to be located in any state (and, if county
filing is required, in any county) in which a financing statement covering
such Collateral is required to be, but has not in fact been, filed in order
to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not change its
business name, without prior written notice to the Secured Party. The
Debtor will not change its business address, without prior written notice
to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible Collateral to
become part of or to be affixed to any real property without first assuring
to the reasonable satisfaction of the Secured Party that the Security
Interest will be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or the owner or
purchaser of any interest therein. If any part or all of the tangible
Collateral is now or will become so related to particular real estate as to
be a fixture, the real estate concerned and the name of the record owner
are accurately set forth in Exhibit A hereto.
(f) RIGHTS TO PAYMENT. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or will be when arising, issued or assigned to the Secured
Party) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim (other
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<PAGE>
than those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records pertaining
thereto as being obligated to pay such obligation. The Debtor will neither
agree to any material modification or amendment nor agree to any
forbearance, release or cancellation of any such obligation without the
Secured Party's prior written consent, and will not subordinate any such
right to payment to claims of other creditors of such account debtor or
other obligor, unless the Debtor in good faith believes it is appropriate
to do so in order to maximize recovery from such account debtor or other
obligor or such account debtor or other obligor has a legitimate basis for
requesting any of the foregoing based on the Debtor's performance.
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair, working order
and condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured Party, the
Banks or their representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy the Debtor's books
and records pertaining to the Collateral and its business and
financial condition and to send and discuss with account debtors and
other obligors requests for verifications of amounts owed to the
Debtor;
(iv) keep accurate and complete records pertaining to the
Collateral and pertaining to the Debtor's business and financial
condition and submit to the Secured Party such periodic reports
concerning the Collateral and the Debtor's business and financial
condition as the Secured Party may from time to time reasonably
request;
(v) promptly notify the Secured Party of any loss of or
material damage to any Collateral or of any adverse change, known to
the Debtor, in the prospect of payment of any sums due on or under any
instrument, chattel paper, or account constituting Collateral;
(vi) if the Secured Party at any time so requests (whether the
request is made before or after the occurrence of an Event of
Default), promptly deliver to the Secured Party any instrument,
document or chattel paper constituting Collateral, duly endorsed or
assigned by the Debtor;
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<PAGE>
(vii) at all times keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft,
collision (in case of Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Secured Party may
reasonably request, with any loss payable to the Secured Party to the
extent of its interest;
(viii) from time to time execute such financing statements as
the Secured Party may reasonably require in order to perfect the
Security Interest and, if any Collateral consists of a motor vehicle,
execute such documents as may be required to have the Security
Interest properly noted on a certificate of title;
(ix) pay when due or reimburse the Secured Party on demand for
all costs of collection of any of the Obligations and all other out-
of-pocket expenses (including in each case all reasonable attorneys'
fees) incurred by the Secured Party in connection with the creation,
perfection, satisfaction, protection, defense or enforcement of the
Security Interest or the creation, continuance, protection, defense or
enforcement of this Agreement or any or all of the Obligations,
including expenses incurred in any litigation or bankruptcy or
insolvency proceedings;
(x) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which the Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be used
or kept, for any unlawful purpose or in violation of any federal,
state or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor at any time
fails to perform or observe any agreement contained in Section 3(g), and if
such failure continues for a period of ten calendar days after the Secured
Party gives the Debtor written notice thereof (or, in the case of the
agreements contained in clauses (vii) and (viii) of Section 3(g),
immediately upon the occurrence of such failure, without notice or lapse of
time), the Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of the Debtor (or, at
the Secured Party's option, in the Secured Party's own name) and may (but
need not) take any and all other actions which the Secured Party may
reasonably deem necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of security
interests, liens, or encumbrances, the performance of obligations under
contracts or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of financing
statements, the
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<PAGE>
endorsement of instruments, and the procurement of repairs, transportation
or insurance); and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or otherwise
illegal under any applicable law, the Debtor shall thereupon pay the
Secured Party on demand the amount of all moneys expended and all costs and
expenses (including reasonable attorneys' fees) incurred by the Secured
Party in connection with or as a result of the Secured Party's performing
or observing such agreements or taking such actions, together with interest
thereon from the date expended or incurred by the Secured Party at the
highest rate then applicable to any of the Obligations. To facilitate the
performance or observance by the Secured Party of such agreements of the
Debtor, the Debtor hereby irrevocably appoints (which appointment is
coupled with an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with the right (but not the duty) from time
to time to create, prepare, complete, execute, deliver, endorse or file, in
the name and on behalf of the Debtor, any and all instruments, documents,
financing statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by the
Debtor under this Section 3 and Section 6.
4. Assignment of Insurance. The Debtor hereby assigns to the Secured
------------------------
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of insurance covering the
Collateral, and the Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to the Secured Party. Both before and after the
occurrence of an Event of Default, the Secured Party may (but need not), in its
own name or in the Debtor's name, execute and deliver proofs of claim, receive
all such moneys, endorse checks and other instruments representing payment of
such moneys, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.
5. Events of Default. Each of the following occurrences shall
------------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) an Event of Default shall occur under the Credit Agreement; or
(ii) the Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand; or (iii) the Debtor shall fail to observe or
perform any covenant or agreement herein binding on it.
6. Remedies upon Event of Default. Upon the occurrence of an Event of
------------------------------
Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights and remedies:
(a) ACCELERATION. The Secured Party may declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon
be immediately due and payable, without presentment or other notice or
demand;
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<PAGE>
(b) ACCOUNT VERIFICATION. The Secured Party may verify any accounts in
the name of the Debtor or in its own name; and the Debtor, whenever
requested, shall furnish the Secured Party with duplicate statements of the
accounts, which statements may be mailed or delivered by the Secured Party
for that purpose.
(c) COLLATERAL ACCOUNT. The Secured Party may establish a collateral
account for the deposit of checks, drafts and cash payments made by the
Debtor's account debtors. If a collateral account is so established, the
Debtor shall promptly deliver to the Secured Party, for deposit into said
collateral account, all payments on accounts and chattel paper received by
it. All such payments shall be delivered to the Secured Party in the form
received (except for the Debtor's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by the
Debtor shall be held in trust by the Debtor for and as the property of the
Secured Party and shall not be commingled with any funds or property of the
Debtor. All deposits in said collateral account shall constitute proceeds
of Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the Secured
Party shall permit the Debtor to withdraw all or any part of the balance on
deposit in said collateral account. Following the occurrence and during the
continuance of a Default or Event of Default, the Secured Party may, at its
option at any time, apply finally collected funds on deposit in said
collateral account to the payment of the Obligations in such order of
application as the Secured Party may determine, or permit the Debtor to
withdraw all or any part of the balance on deposit in said collateral
account.
(d) LOCKBOX. The Secured Party may, by notice to the Debtor, require
the Debtor to direct each of its account debtors to make payments due under
the relevant account or chattel paper directly to a special lockbox to be
under the control of the Secured Party. The Debtor hereby authorizes and
directs the Secured Party to deposit all checks, drafts and cash payments
received in said lockbox into the collateral account established as set
forth above.
(e) DIRECT COLLECTION. The Secured Party may, after the occurrence and
during the continuance of an Event of Default, notify any account debtor,
or any other person obligated to pay any amount due, that such chattel
paper, account, or other right to payment has been assigned or transferred
to the Secured Party for security and shall be paid directly to the Secured
Party. If the Secured Party so requests at any time, the Debtor will so
notify such account debtors and other obligors in writing and will indicate
on all invoices to such account debtors or other obligors that the amount
due is payable directly to the Secured Party. At any time after the Secured
Party or the Debtor gives such notice to an account debtor or other
obligor, the Secured Party may (but need not), in its own name or in the
Debtor's name, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to, make
any compromise or settlement with or otherwise agree to waive,
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<PAGE>
modify, amend or change the obligations (including collateral obligations)
of any such account debtor or other obligor.
(f) RIGHTS UNDER UCC. The Secured Party may exercise and enforce any
or all rights and remedies available upon default to a secured party under
the Uniform Commercial Code, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which the
Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral available to
the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties, and if notice to the Debtor of any
intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8) at least 10
calendar days prior to the date of intended disposition or other action;
(i) exercise or enforce any or all other rights or remedies available to
the Secured Party by law or agreement against the Collateral, against the
Debtor or against any other person or property.
(g) OTHER RIGHTS. The Secured Party may exercise or enforce any or all
other rights or remedies available to the Secured Party by law or agreement
against the Collateral, against the Debtor or against any other person or
property.
The Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
7. Other Personal Property. Unless at the time the Secured Party
------------------------
takes possession of any tangible Collateral, or within seven days thereafter,
the Debtor gives written notice to the Secured Party of the existence of any
goods, papers or other property of the Debtor, not affixed to or constituting a
part of such Collateral, but which are located or found upon or within such
Collateral, describing such property, the Secured Party shall not be responsible
or liable to the Debtor for any action taken or omitted by or on behalf of the
Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that it was located
or to be found upon or within such Collateral.
8. Notice. All notices and other communications hereunder shall be in
-------
writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below its signature or, as to each party, at such other address or telecopier
number as may hereafter be designated by such party in a written notice to the
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<PAGE>
other party complying as to delivery with the terms of this Section. All such
notices, requests, demands and other communications shall be deemed to have been
given on (i) the date received if personally delivered, (ii) when deposited in
the mail if delivered by mail, (iii) the date sent if sent by overnight courier,
or (iv) the date of transmission if delivered by telecopy.
9. Miscellaneous. This Agreement has been duly and validly authorized
--------------
by all necessary corporate action. This Agreement does not contemplate a sale of
accounts, or chattel paper. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by the Secured Party. A waiver signed by the
Secured Party shall be effective only in the specific instance and for the
specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of the Secured Party's rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. This Agreement
shall be governed by the law of Minnesota. If any provision or application of
this Agreement is held unlawful or unenforceable in any respect, such illegality
or unenforceability shall not affect other provisions or applications which can
be given effect and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
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<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, EAGLE ELECTRIC HOLDINGS, INC.
as Agent
<TABLE>
<S> <C>
By /s/ Laura Schmaltz Oberst By Frank R. Clark
----------------------------- ---------------------
Laura Schmaltz Oberst Frank R. Clark
Its Vice President Its Assistant Secretary
Address: Address:
Norwest Center c/o Nationwide Electric, Inc.
Sixth Street and Marquette Avenue 2800 Metropolitan Centre
Minneapolis, Minnesota 55479-0091 333 South Seventh Street
Minneapolis, Minnesota 55402
Employer identification number: 41-1592157 Attn: Frank R. Clark
Employer identification number: 41-1924688
</TABLE>
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<PAGE>
EXHIBIT 10.17
SECURITY AGREEMENT
(EAGLE ELECTRIC HOLDINGS, INC.)
This Agreement, dated as of December 22, 1998, is made by Eagle
Electric Holdings, Inc., a Minnesota corporation (the "Debtor"), for the benefit
of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association,
as agent (in such capacity, the "Secured Party") for the Banks, as defined in
the Credit Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to making such advances and extending such financial
accommodations, the Secured Party has required the execution and delivery of the
Debtor's Guaranty of even date herewith, guaranteeing the payment and
performance of all obligations of the Borrower arising under or pursuant to the
Credit Agreement (the "Guaranty").
As a further condition to making such advances and extending such
other financial accommodations under the Credit Agreement, the Secured Party and
the Banks have required the execution and delivery of this Agreement by the
Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the recitals hereto and the
------------
Credit Agreement that are not otherwise defined herein shall have the meanings
given them in the recitals and the Credit Agreement. In addition, the following
terms have the meanings set forth below:
"Accounts" means each and every account and other right of the Debtor
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale, lease
or other disposition of goods or other property by the Debtor, out of a
rendering of services by the Debtor, out of a loan by the Debtor, out of
the overpayment of taxes or other liabilities of the Debtor, or otherwise
arises under any contract or agreement, whether such right to payment is or
is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including
all liens and security interests) which the Debtor may at any time have by
law or agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property of such account debtor
or other obligor, all including but not limited to all present and future
debt instruments, chattel papers, accounts, loans and obligations
receivable and tax refunds.
<PAGE>
"Collateral" means the Accounts, Inventory, Equipment, General
Intangibles and Investment Property, together with all substitutions and
replacements for, products and proceeds of, any of the foregoing property,
all accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any of
the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Equipment" means all equipment of the Debtor, whether now owned or
hereafter acquired and wherever located, including but not limited to all
present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment, office and
recordkeeping equipment, parts and tools.
"Event of Default" has the meaning specified in Section 5.
"General Intangibles" means all general intangibles of the Debtor,
whether now owned or hereafter acquired, including but not limited to
applications for patents, patents, copyrights, trademarks, trade secrets,
good will, trade names, customer lists, permits and franchises, and the
right to use the Debtor's name.
"Inventory" means all inventory of the Debtor, whether now owned or
hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Obligations" means (i) the Obligations (as defined in the Credit
Agreement) and (ii) each and every debt, liability and obligation of every
type and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now exists
or is hereafter created or incurred and whether it is or may be direct or
indirect, due or to become due, or absolute or contingent, including
without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
"UCC" means the Uniform Commercial Code, as in enacted in the state of
Minnesota.
2. Security Interest. The Debtor hereby grants the Secured Party a
------------------
security interest (the "Security Interest") in the Collateral to secure payment
of the Obligations.
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<PAGE>
3. Representations, Warranties and Agreements. The Debtor hereby
-------------------------------------------
represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each item of
Collateral in existence on the date hereof, free and clear of all security
interests, liens and encumbrances, except the Security Interest, (ii) will
have, at the time the Debtor acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free and clear of
all security interests, liens and encumbrances, except the Security
Interest, (iii) will keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest, and (iv)
will defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise dispose
of the Collateral or any interest therein without the prior written consent
of the Secured Party, except that, until the occurrence of an Event of
Default and the revocation by the Secured Party of the Debtor's right to do
so, the Debtor may sell any inventory constituting Collateral to buyers in
the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The Debtor's chief
executive office is located at the address set forth on Exhibit A hereto.
The Debtor's federal employer identification number is correctly set forth
under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the Debtor has no
tangible Collateral. The Debtor will not permit any tangible Collateral to
be located in any state (and, if county filing is required, in any county)
in which a financing statement covering such Collateral is required to be,
but has not in fact been, filed in order to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not change its
business name, without prior written notice to the Secured Party. The
Debtor will not change its business address, without prior written notice
to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible Collateral to
become part of or to be affixed to any real property without first assuring
to the reasonable satisfaction of the Secured Party that the Security
Interest will be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or the owner or
purchaser of any interest therein. If any part or all of the tangible
Collateral is now or will become so related to particular real estate as to
be a fixture, the real estate concerned and the name of the record owner
are accurately set forth in Exhibit A hereto.
(f) RIGHTS TO PAYMENT. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or will be when arising, issued or assigned to the Secured
Party) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim (other
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<PAGE>
than those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records pertaining
thereto as being obligated to pay such obligation. The Debtor will neither
agree to any material modification or amendment nor agree to any
forbearance, release or cancellation of any such obligation without the
Secured Party's prior written consent, and will not subordinate any such
right to payment to claims of other creditors of such account debtor or
other obligor, unless the Debtor in good faith believes it is appropriate
to do so in order to maximize recovery from such account debtor or other
obligor or such account debtor or other obligor has a legitimate basis for
requesting any of the foregoing based on the Debtor's performance.
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair, working order
and condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured Party, the
Banks or their representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy the Debtor's books
and records pertaining to the Collateral and its business and
financial condition and to send and discuss with account debtors and
other obligors requests for verifications of amounts owed to the
Debtor;
(iv) keep accurate and complete records pertaining to the
Collateral and pertaining to the Debtor's business and financial
condition and submit to the Secured Party such periodic reports
concerning the Collateral and the Debtor's business and financial
condition as the Secured Party may from time to time reasonably
request;
(v) promptly notify the Secured Party of any loss of or
material damage to any Collateral or of any adverse change, known to
the Debtor, in the prospect of payment of any sums due on or under any
instrument, chattel paper, or account constituting Collateral;
(vi) if the Secured Party at any time so requests (whether the
request is made before or after the occurrence of an Event of
Default), promptly deliver to the Secured Party any instrument,
document or chattel paper constituting Collateral, duly endorsed or
assigned by the Debtor;
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<PAGE>
(vii) at all times keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft,
collision (in case of Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Secured Party may
reasonably request, with any loss payable to the Secured Party to the
extent of its interest;
(viii) from time to time execute such financing statements as
the Secured Party may reasonably require in order to perfect the
Security Interest and, if any Collateral consists of a motor vehicle,
execute such documents as may be required to have the Security
Interest properly noted on a certificate of title;
(ix) pay when due or reimburse the Secured Party on demand for
all costs of collection of any of the Obligations and all other out-
of-pocket expenses (including in each case all reasonable attorneys'
fees) incurred by the Secured Party in connection with the creation,
perfection, satisfaction, protection, defense or enforcement of the
Security Interest or the creation, continuance, protection, defense or
enforcement of this Agreement or any or all of the Obligations,
including expenses incurred in any litigation or bankruptcy or
insolvency proceedings;
(x) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which the Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be used or
kept, for any unlawful purpose or in violation of any federal, state
or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor at any time
fails to perform or observe any agreement contained in Section 3(g), and if
such failure continues for a period of ten calendar days after the Secured
Party gives the Debtor written notice thereof (or, in the case of the
agreements contained in clauses (vii) and (viii) of Section 3(g),
immediately upon the occurrence of such failure, without notice or lapse of
time), the Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of the Debtor (or, at
the Secured Party's option, in the Secured Party's own name) and may (but
need not) take any and all other actions which the Secured Party may
reasonably deem necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of security
interests, liens, or encumbrances, the performance of obligations under
contracts or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of financing
statements, the
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<PAGE>
endorsement of instruments, and the procurement of repairs, transportation
or insurance); and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or otherwise
illegal under any applicable law, the Debtor shall thereupon pay the
Secured Party on demand the amount of all moneys expended and all costs and
expenses (including reasonable attorneys' fees) incurred by the Secured
Party in connection with or as a result of the Secured Party's performing
or observing such agreements or taking such actions, together with interest
thereon from the date expended or incurred by the Secured Party at the
highest rate then applicable to any of the Obligations. To facilitate the
performance or observance by the Secured Party of such agreements of the
Debtor, the Debtor hereby irrevocably appoints (which appointment is
coupled with an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with the right (but not the duty) from time
to time to create, prepare, complete, execute, deliver, endorse or file, in
the name and on behalf of the Debtor, any and all instruments, documents,
financing statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by the
Debtor under this Section 3 and Section 6.
4. Assignment of Insurance. The Debtor hereby assigns to the Secured
------------------------
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of insurance covering the
Collateral, and the Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to the Secured Party. Both before and after the
occurrence of an Event of Default, the Secured Party may (but need not), in its
own name or in the Debtor's name, execute and deliver proofs of claim, receive
all such moneys, endorse checks and other instruments representing payment of
such moneys, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.
5. Events of Default. Each of the following occurrences shall
------------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) an Event of Default shall occur under the Credit Agreement; or
(ii) the Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand; or (iii) the Debtor shall fail to observe or
perform any covenant or agreement herein binding on it.
6. Remedies upon Event of Default. Upon the occurrence of an Event of
------------------------------
Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights and remedies:
(a) ACCELERATION. The Secured Party may declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon
be immediately due and payable, without presentment or other notice or
demand;
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<PAGE>
(b) ACCOUNT VERIFICATION. The Secured Party may verify any accounts in
the name of the Debtor or in its own name; and the Debtor, whenever
requested, shall furnish the Secured Party with duplicate statements of the
accounts, which statements may be mailed or delivered by the Secured Party
for that purpose.
(c) COLLATERAL ACCOUNT. The Secured Party may establish a collateral
account for the deposit of checks, drafts and cash payments made by the
Debtor's account debtors. If a collateral account is so established, the
Debtor shall promptly deliver to the Secured Party, for deposit into said
collateral account, all payments on accounts and chattel paper received by
it. All such payments shall be delivered to the Secured Party in the form
received (except for the Debtor's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by the
Debtor shall be held in trust by the Debtor for and as the property of the
Secured Party and shall not be commingled with any funds or property of the
Debtor. All deposits in said collateral account shall constitute proceeds
of Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the Secured
Party shall permit the Debtor to withdraw all or any part of the balance on
deposit in said collateral account. Following the occurrence and during the
continuance of a Default or Event of Default, the Secured Party may, at its
option at any time, apply finally collected funds on deposit in said
collateral account to the payment of the Obligations in such order of
application as the Secured Party may determine, or permit the Debtor to
withdraw all or any part of the balance on deposit in said collateral
account.
(d) LOCKBOX. The Secured Party may, by notice to the Debtor, require
the Debtor to direct each of its account debtors to make payments due under
the relevant account or chattel paper directly to a special lockbox to be
under the control of the Secured Party. The Debtor hereby authorizes and
directs the Secured Party to deposit all checks, drafts and cash payments
received in said lockbox into the collateral account established as set
forth above.
(e) DIRECT COLLECTION. The Secured Party may, after the occurrence and
during the continuance of an Event of Default, notify any account debtor,
or any other person obligated to pay any amount due, that such chattel
paper, account, or other right to payment has been assigned or transferred
to the Secured Party for security and shall be paid directly to the Secured
Party. If the Secured Party so requests at any time, the Debtor will so
notify such account debtors and other obligors in writing and will indicate
on all invoices to such account debtors or other obligors that the amount
due is payable directly to the Secured Party. At any time after the Secured
Party or the Debtor gives such notice to an account debtor or other
obligor, the Secured Party may (but need not), in its own name or in the
Debtor's name, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to, make
any compromise or settlement with or otherwise agree to waive,
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<PAGE>
modify, amend or change the obligations (including collateral obligations)
of any such account debtor or other obligor.
(f) RIGHTS UNDER UCC. The Secured Party may exercise and enforce any
or all rights and remedies available upon default to a secured party under
the Uniform Commercial Code, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which the
Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral available to
the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties, and if notice to the Debtor of any
intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8) at least 10
calendar days prior to the date of intended disposition or other action;
(i) exercise or enforce any or all other rights or remedies available to
the Secured Party by law or agreement against the Collateral, against the
Debtor or against any other person or property.
(g) OTHER RIGHTS. The Secured Party may exercise or enforce any or all
other rights or remedies available to the Secured Party by law or agreement
against the Collateral, against the Debtor or against any other person or
property.
The Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
7. Other Personal Property. Unless at the time the Secured Party
------------------------
takes possession of any tangible Collateral, or within seven days thereafter,
the Debtor gives written notice to the Secured Party of the existence of any
goods, papers or other property of the Debtor, not affixed to or constituting a
part of such Collateral, but which are located or found upon or within such
Collateral, describing such property, the Secured Party shall not be responsible
or liable to the Debtor for any action taken or omitted by or on behalf of the
Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that it was located
or to be found upon or within such Collateral.
8. Notice. All notices and other communications hereunder shall be in
-------
writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below its signature or, as to each party, at such other address or telecopier
number as may hereafter be designated by such party in a written notice to the
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<PAGE>
other party complying as to delivery with the terms of this Section. All such
notices, requests, demands and other communications shall be deemed to have been
given on (i) the date received if personally delivered, (ii) when deposited in
the mail if delivered by mail, (iii) the date sent if sent by overnight courier,
or (iv) the date of transmission if delivered by telecopy.
9. Miscellaneous. This Agreement has been duly and validly authorized
--------------
by all necessary corporate action. This Agreement does not contemplate a sale of
accounts, or chattel paper. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by the Secured Party. A waiver signed by the
Secured Party shall be effective only in the specific instance and for the
specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of the Secured Party's rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. This Agreement
shall be governed by the law of Minnesota. If any provision or application of
this Agreement is held unlawful or unenforceable in any respect, such illegality
or unenforceability shall not affect other provisions or applications which can
be given effect and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
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<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
NORWEST BANK MINNESOTA, EAGLE ELECTRIC HOLDINGS, INC.
NATIONAL ASSOCIATION, as Agent
By /s/ Laura Schmaltz Oberst By /s/ Frank R. Clark
----------------------------- -----------------------------
Laura Schmaltz Oberst Frank R. Clark
Its Vice President Its Secretary
Address: Address:
Norwest Center c/o Nationwide Electric, Inc.
Sixth Street and Marquette Avenue 2800 Metropolitan Centre
Minneapolis, Minnesota 55479-0091 333 South Seventh Street
Minneapolis, Minnesota 55402
Employer identification number: Attn: Frank R. Clark
41-1592157
Employer identification number:
None
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<PAGE>
EXHIBIT 10.18
SECURITY AGREEMENT
(EAGLE ELECTRICAL SYSTEMS, INC.)
This Agreement, dated as of December 22, 1998, is made by Eagle
Electrical Systems, Inc., an Ohio corporation (the "Debtor"), for the benefit of
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as
agent (in such capacity, the "Secured Party") for the Banks, as defined in the
Credit Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to making such advances and extending such financial
accommodations, the Secured Party has required the execution and delivery of the
Debtor's Guaranty of even date herewith, guaranteeing the payment and
performance of all obligations of the Borrower arising under or pursuant to the
Credit Agreement (the "Guaranty").
As a further condition to making such advances and extending such
other financial accommodations under the Credit Agreement, the Secured Party and
the Banks have required the execution and delivery of this Agreement by the
Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the recitals hereto and the
------------
Credit Agreement that are not otherwise defined herein shall have the meanings
given them in the recitals and the Credit Agreement. In addition, the following
terms have the meanings set forth below:
"Accounts" means each and every account and other right of the Debtor
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale, lease
or other disposition of goods or other property by the Debtor, out of a
rendering of services by the Debtor, out of a loan by the Debtor, out of
the overpayment of taxes or other liabilities of the Debtor, or otherwise
arises under any contract or agreement, whether such right to payment is or
is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including
all liens and security interests) which the Debtor may at any time have by
law or agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property of such account debtor
or other obligor, all including but not limited to all present and future
debt instruments, chattel papers, accounts, loans and obligations
receivable and tax refunds.
<PAGE>
"Collateral" means the Accounts, Inventory, Equipment, General
Intangibles and Investment Property, together with all substitutions and
replacements for, products and proceeds of, any of the foregoing property,
all accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any of
the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Equipment" means all equipment of the Debtor, whether now owned or
hereafter acquired and wherever located, including but not limited to all
present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment, office and
recordkeeping equipment, parts and tools.
"Event of Default" has the meaning specified in Section 5.
"General Intangibles" means all general intangibles of the Debtor,
whether now owned or hereafter acquired, including but not limited to
applications for patents, patents, copyrights, trademarks, trade secrets,
good will, trade names, customer lists, permits and franchises, and the
right to use the Debtor's name.
"Inventory" means all inventory of the Debtor, whether now owned or
hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Obligations" means (i) the Obligations (as defined in the Credit
Agreement) and (ii) each and every debt, liability and obligation of every
type and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now exists
or is hereafter created or incurred and whether it is or may be direct or
indirect, due or to become due, or absolute or contingent, including
without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
"UCC" means the Uniform Commercial Code, as in enacted in the state of
Minnesota.
2. Security Interest. The Debtor hereby grants the Secured Party a
------------------
security interest (the "Security Interest") in the Collateral to secure payment
of the Obligations.
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<PAGE>
3. Representations, Warranties and Agreements. The Debtor hereby
-------------------------------------------
represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each item of
Collateral in existence on the date hereof, free and clear of all security
interests, liens and encumbrances, except the Security Interest, (ii) will
have, at the time the Debtor acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free and clear of
all security interests, liens and encumbrances, except the Security
Interest, (iii) will keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest, and (iv)
will defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise dispose
of the Collateral or any interest therein without the prior written consent
of the Secured Party, except that, until the occurrence of an Event of
Default and the revocation by the Secured Party of the Debtor's right to do
so, the Debtor may sell any inventory constituting Collateral to buyers in
the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The Debtor's chief
executive office is located at the address set forth on Exhibit A hereto.
The Debtor's federal employer identification number is correctly set forth
under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the tangible
Collateral is located only in the state of Ohio. The Debtor will not permit
any tangible Collateral to be located in any state (and, if county filing
is required, in any county) in which a financing statement covering such
Collateral is required to be, but has not in fact been, filed in order to
perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not change its
business name, without prior written notice to the Secured Party. The
Debtor will not change its business address, without prior written notice
to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible Collateral to
become part of or to be affixed to any real property without first assuring
to the reasonable satisfaction of the Secured Party that the Security
Interest will be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or the owner or
purchaser of any interest therein. If any part or all of the tangible
Collateral is now or will become so related to particular real estate as to
be a fixture, the real estate concerned and the name of the record owner
are accurately set forth in Exhibit A hereto.
(f) RIGHTS TO PAYMENT. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or will be when arising, issued or assigned to the Secured
Party) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim (other
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<PAGE>
than those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records pertaining
thereto as being obligated to pay such obligation. The Debtor will neither
agree to any material modification or amendment nor agree to any
forbearance, release or cancellation of any such obligation without the
Secured Party's prior written consent, and will not subordinate any such
right to payment to claims of other creditors of such account debtor or
other obligor, unless the Debtor in good faith believes it is appropriate
to do so in order to maximize recovery from such account debtor or other
obligor or such account debtor or other obligor has a legitimate basis for
requesting any of the foregoing based on the Debtor's performance.
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair, working order
and condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured Party, the
Banks or their representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy the Debtor's books
and records pertaining to the Collateral and its business and
financial condition and to send and discuss with account debtors and
other obligors requests for verifications of amounts owed to the
Debtor;
(iv) keep accurate and complete records pertaining to the
Collateral and pertaining to the Debtor's business and financial
condition and submit to the Secured Party such periodic reports
concerning the Collateral and the Debtor's business and financial
condition as the Secured Party may from time to time reasonably
request;
(v) promptly notify the Secured Party of any loss of or
material damage to any Collateral or of any adverse change, known to
the Debtor, in the prospect of payment of any sums due on or under any
instrument, chattel paper, or account constituting Collateral;
(vi) if the Secured Party at any time so requests (whether the
request is made before or after the occurrence of an Event of
Default), promptly deliver to the Secured Party any instrument,
document or chattel paper constituting Collateral, duly endorsed or
assigned by the Debtor;
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<PAGE>
(vii) at all times keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft,
collision (in case of Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Secured Party may
reasonably request, with any loss payable to the Secured Party to the
extent of its interest;
(viii) from time to time execute such financing statements as
the Secured Party may reasonably require in order to perfect the
Security Interest and, if any Collateral consists of a motor vehicle,
execute such documents as may be required to have the Security
Interest properly noted on a certificate of title;
(ix) pay when due or reimburse the Secured Party on demand for
all costs of collection of any of the Obligations and all other out-
of-pocket expenses (including in each case all reasonable attorneys'
fees) incurred by the Secured Party in connection with the creation,
perfection, satisfaction, protection, defense or enforcement of the
Security Interest or the creation, continuance, protection, defense or
enforcement of this Agreement or any or all of the Obligations,
including expenses incurred in any litigation or bankruptcy or
insolvency proceedings;
(x) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which the Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be used or
kept, for any unlawful purpose or in violation of any federal, state
or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor at any time
fails to perform or observe any agreement contained in Section 3(g), and if
such failure continues for a period of ten calendar days after the Secured
Party gives the Debtor written notice thereof (or, in the case of the
agreements contained in clauses (vii) and (viii) of Section 3(g),
immediately upon the occurrence of such failure, without notice or lapse of
time), the Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of the Debtor (or, at
the Secured Party's option, in the Secured Party's own name) and may (but
need not) take any and all other actions which the Secured Party may
reasonably deem necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of security
interests, liens, or encumbrances, the performance of obligations under
contracts or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of financing
statements, the
-5-
<PAGE>
endorsement of instruments, and the procurement of repairs, transportation
or insurance); and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or otherwise
illegal under any applicable law, the Debtor shall thereupon pay the
Secured Party on demand the amount of all moneys expended and all costs and
expenses (including reasonable attorneys' fees) incurred by the Secured
Party in connection with or as a result of the Secured Party's performing
or observing such agreements or taking such actions, together with interest
thereon from the date expended or incurred by the Secured Party at the
highest rate then applicable to any of the Obligations. To facilitate the
performance or observance by the Secured Party of such agreements of the
Debtor, the Debtor hereby irrevocably appoints (which appointment is
coupled with an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with the right (but not the duty) from time
to time to create, prepare, complete, execute, deliver, endorse or file, in
the name and on behalf of the Debtor, any and all instruments, documents,
financing statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by the
Debtor under this Section 3 and Section 6.
4. Assignment of Insurance. The Debtor hereby assigns to the Secured
------------------------
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of insurance covering the
Collateral, and the Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to the Secured Party. Both before and after the
occurrence of an Event of Default, the Secured Party may (but need not), in its
own name or in the Debtor's name, execute and deliver proofs of claim, receive
all such moneys, endorse checks and other instruments representing payment of
such moneys, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.
5. Events of Default. Each of the following occurrences shall
------------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) an Event of Default shall occur under the Credit Agreement; or
(ii) the Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand; or (iii) the Debtor shall fail to observe or
perform any covenant or agreement herein binding on it.
6. Remedies upon Event of Default. Upon the occurrence of an Event of
------------------------------
Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights and remedies:
(a) ACCELERATION. The Secured Party may declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon
be immediately due and payable, without presentment or other notice or
demand;
-6-
<PAGE>
(b) ACCOUNT VERIFICATION. The Secured Party may verify any accounts in
the name of the Debtor or in its own name; and the Debtor, whenever
requested, shall furnish the Secured Party with duplicate statements of the
accounts, which statements may be mailed or delivered by the Secured Party
for that purpose.
(c) COLLATERAL ACCOUNT. The Secured Party may establish a collateral
account for the deposit of checks, drafts and cash payments made by the
Debtor's account debtors. If a collateral account is so established, the
Debtor shall promptly deliver to the Secured Party, for deposit into said
collateral account, all payments on accounts and chattel paper received by
it. All such payments shall be delivered to the Secured Party in the form
received (except for the Debtor's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by the
Debtor shall be held in trust by the Debtor for and as the property of the
Secured Party and shall not be commingled with any funds or property of the
Debtor. All deposits in said collateral account shall constitute proceeds
of Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the Secured
Party shall permit the Debtor to withdraw all or any part of the balance on
deposit in said collateral account. Following the occurrence and during the
continuance of a Default or Event of Default, the Secured Party may, at its
option at any time, apply finally collected funds on deposit in said
collateral account to the payment of the Obligations in such order of
application as the Secured Party may determine, or permit the Debtor to
withdraw all or any part of the balance on deposit in said collateral
account.
(d) LOCKBOX. The Secured Party may, by notice to the Debtor, require
the Debtor to direct each of its account debtors to make payments due under
the relevant account or chattel paper directly to a special lockbox to be
under the control of the Secured Party. The Debtor hereby authorizes and
directs the Secured Party to deposit all checks, drafts and cash payments
received in said lockbox into the collateral account established as set
forth above.
(e) DIRECT COLLECTION. The Secured Party may, after the occurrence and
during the continuance of an Event of Default, notify any account debtor,
or any other person obligated to pay any amount due, that such chattel
paper, account, or other right to payment has been assigned or transferred
to the Secured Party for security and shall be paid directly to the Secured
Party. If the Secured Party so requests at any time, the Debtor will so
notify such account debtors and other obligors in writing and will indicate
on all invoices to such account debtors or other obligors that the amount
due is payable directly to the Secured Party. At any time after the Secured
Party or the Debtor gives such notice to an account debtor or other
obligor, the Secured Party may (but need not), in its own name or in the
Debtor's name, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to, make
any compromise or settlement with or otherwise agree to waive,
-7-
<PAGE>
modify, amend or change the obligations (including collateral obligations)
of any such account debtor or other obligor.
(f) RIGHTS UNDER UCC. The Secured Party may exercise and enforce any
or all rights and remedies available upon default to a secured party under
the Uniform Commercial Code, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which the
Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral available to
the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties, and if notice to the Debtor of any
intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8) at least 10
calendar days prior to the date of intended disposition or other action;
(i) exercise or enforce any or all other rights or remedies available to
the Secured Party by law or agreement against the Collateral, against the
Debtor or against any other person or property.
(g) OTHER RIGHTS. The Secured Party may exercise or enforce any or all
other rights or remedies available to the Secured Party by law or agreement
against the Collateral, against the Debtor or against any other person or
property.
The Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
7. Other Personal Property. Unless at the time the Secured Party
------------------------
takes possession of any tangible Collateral, or within seven days thereafter,
the Debtor gives written notice to the Secured Party of the existence of any
goods, papers or other property of the Debtor, not affixed to or constituting a
part of such Collateral, but which are located or found upon or within such
Collateral, describing such property, the Secured Party shall not be responsible
or liable to the Debtor for any action taken or omitted by or on behalf of the
Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that it was located
or to be found upon or within such Collateral.
8. Notice. All notices and other communications hereunder shall be in
-------
writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below its signature or, as to each party, at such other address or telecopier
number as may hereafter be designated by such party in a written notice to the
-8-
<PAGE>
other party complying as to delivery with the terms of this Section. All such
notices, requests, demands and other communications shall be deemed to have been
given on (i) the date received if personally delivered, (ii) when deposited in
the mail if delivered by mail, (iii) the date sent if sent by overnight courier,
or (iv) the date of transmission if delivered by telecopy.
9. Miscellaneous. This Agreement has been duly and validly authorized
--------------
by all necessary corporate action. This Agreement does not contemplate a sale of
accounts, or chattel paper. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by the Secured Party. A waiver signed by the
Secured Party shall be effective only in the specific instance and for the
specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of the Secured Party's rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. This Agreement
shall be governed by the law of Minnesota. If any provision or application of
this Agreement is held unlawful or unenforceable in any respect, such illegality
or unenforceability shall not affect other provisions or applications which can
be given effect and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
-9-
<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
NORWEST BANK MINNESOTA, EAGLE ELECTRICAL SYSTEMS, INC.
NATIONAL ASSOCIATION, as Agent
By /s/ Laura Schmaltz Oberst By /s/ Frank R. Clark
------------------------------- -----------------------------
Laura Schmaltz Oberst Frank R. Clark
Its Vice President Its Assistant Secretary
Address: Address:
Norwest Center c/o Nationwide Electric, Inc.
Sixth Street and Marquette Avenue 2800 Metropolitan Centre
Minneapolis, Minnesota 55479-0091 333 South Seventh Street
Minneapolis, Minnesota 55402
Employer identification number: Attn: Frank R. Clark
41-1592157
Employer identification number:
61-1116184
-10-
<PAGE>
EXHIBIT 10.19
SECURITY AGREEMENT
(PARSONS ELECTRIC CO.)
This Agreement, dated as of December 22, 1998, is made by Parsons
Electric Co., a Minnesota corporation (the "Debtor"), for the benefit of NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as agent
(in such capacity, the "Secured Party") for the Banks, as defined in the Credit
Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to making such advances and extending such financial
accommodations, the Secured Party has required the execution and delivery of the
Debtor's Guaranty of even date herewith, guaranteeing the payment and
performance of all obligations of the Borrower arising under or pursuant to the
Credit Agreement (the "Guaranty").
As a further condition to making such advances and extending such
other financial accommodations under the Credit Agreement, the Secured Party and
the Banks have required the execution and delivery of this Agreement by the
Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the recitals hereto and the
------------
Credit Agreement that are not otherwise defined herein shall have the meanings
given them in the recitals and the Credit Agreement. In addition, the following
terms have the meanings set forth below:
"Accounts" means each and every account and other right of the Debtor
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale, lease
or other disposition of goods or other property by the Debtor, out of a
rendering of services by the Debtor, out of a loan by the Debtor, out of
the overpayment of taxes or other liabilities of the Debtor, or otherwise
arises under any contract or agreement, whether such right to payment is or
is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including
all liens and security interests) which the Debtor may at any time have by
law or agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property of such account debtor
or other obligor, all including but not limited to all present and future
debt instruments, chattel papers, accounts, loans and obligations
receivable and tax refunds.
<PAGE>
"Collateral" means the Accounts, Inventory, Equipment, General
Intangibles and Investment Property, together with all substitutions and
replacements for, products and proceeds of, any of the foregoing property,
all accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any of
the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Equipment" means all equipment of the Debtor, whether now owned or
hereafter acquired and wherever located, including but not limited to all
present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment, office and
recordkeeping equipment, parts and tools.
"Event of Default" has the meaning specified in Section 5.
"General Intangibles" means all general intangibles of the Debtor,
whether now owned or hereafter acquired, including but not limited to
applications for patents, patents, copyrights, trademarks, trade secrets,
good will, trade names, customer lists, permits and franchises, and the
right to use the Debtor's name.
"Inventory" means all inventory of the Debtor, whether now owned or
hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Obligations" means (i) the Obligations (as defined in the Credit
Agreement) and (ii) each and every debt, liability and obligation of every
type and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now exists
or is hereafter created or incurred and whether it is or may be direct or
indirect, due or to become due, or absolute or contingent, including
without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
"UCC" means the Uniform Commercial Code, as in enacted in the state of
Minnesota.
2. Security Interest. The Debtor hereby grants the Secured Party a
------------------
security interest (the "Security Interest") in the Collateral to secure payment
of the Obligations.
-2-
<PAGE>
3. Representations, Warranties and Agreements. The Debtor hereby
-------------------------------------------
represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each item of
Collateral in existence on the date hereof, free and clear of all security
interests, liens and encumbrances, except the Security Interest, (ii) will
have, at the time the Debtor acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free and clear of
all security interests, liens and encumbrances, except the Security
Interest, (iii) will keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest, and (iv)
will defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise dispose
of the Collateral or any interest therein without the prior written consent
of the Secured Party, except that, until the occurrence of an Event of
Default and the revocation by the Secured Party of the Debtor's right to do
so, the Debtor may sell any inventory constituting Collateral to buyers in
the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The Debtor's chief
executive office is located at the address set forth on Exhibit A hereto.
The Debtor's federal employer identification number is correctly set forth
under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the tangible
Collateral is located only in the state of Minnesota. The Debtor will not
permit any tangible Collateral to be located in any state (and, if county
filing is required, in any county) in which a financing statement covering
such Collateral is required to be, but has not in fact been, filed in order
to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not change its
business name, without prior written notice to the Secured Party. The
Debtor will not change its business address, without prior written notice
to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible Collateral to
become part of or to be affixed to any real property without first assuring
to the reasonable satisfaction of the Secured Party that the Security
Interest will be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or the owner or
purchaser of any interest therein. If any part or all of the tangible
Collateral is now or will become so related to particular real estate as to
be a fixture, the real estate concerned and the name of the record owner
are accurately set forth in Exhibit A hereto.
(f) RIGHTS TO PAYMENT. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or will be when arising, issued or assigned to the Secured
Party) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim (other
-3-
<PAGE>
than those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records pertaining
thereto as being obligated to pay such obligation. The Debtor will neither
agree to any material modification or amendment nor agree to any
forbearance, release or cancellation of any such obligation without the
Secured Party's prior written consent, and will not subordinate any such
right to payment to claims of other creditors of such account debtor or
other obligor, unless the Debtor in good faith believes it is appropriate
to do so in order to maximize recovery from such account debtor or other
obligor or such account debtor or other obligor has a legitimate basis for
requesting any of the foregoing based on the Debtor's performance.
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair, working order
and condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured Party, the
Banks or their representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy the Debtor's books
and records pertaining to the Collateral and its business and
financial condition and to send and discuss with account debtors and
other obligors requests for verifications of amounts owed to the
Debtor;
(iv) keep accurate and complete records pertaining to the
Collateral and pertaining to the Debtor's business and financial
condition and submit to the Secured Party such periodic reports
concerning the Collateral and the Debtor's business and financial
condition as the Secured Party may from time to time reasonably
request;
(v) promptly notify the Secured Party of any loss of or
material damage to any Collateral or of any adverse change, known to
the Debtor, in the prospect of payment of any sums due on or under any
instrument, chattel paper, or account constituting Collateral;
(vi) if the Secured Party at any time so requests (whether the
request is made before or after the occurrence of an Event of
Default), promptly deliver to the Secured Party any instrument,
document or chattel paper constituting Collateral, duly endorsed or
assigned by the Debtor;
-4-
<PAGE>
(vii) at all times keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft,
collision (in case of Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Secured Party may
reasonably request, with any loss payable to the Secured Party to the
extent of its interest;
(viii) from time to time execute such financing statements as the
Secured Party may reasonably require in order to perfect the Security
Interest and, if any Collateral consists of a motor vehicle, execute
such documents as may be required to have the Security Interest
properly noted on a certificate of title;
(ix) pay when due or reimburse the Secured Party on demand for
all costs of collection of any of the Obligations and all other
out-of-pocket expenses (including in each case all reasonable
attorneys' fees) incurred by the Secured Party in connection with the
creation, perfection, satisfaction, protection, defense or enforcement
of the Security Interest or the creation, continuance, protection,
defense or enforcement of this Agreement or any or all of the
Obligations, including expenses incurred in any litigation or
bankruptcy or insolvency proceedings;
(x) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which the Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be used or
kept, for any unlawful purpose or in violation of any federal, state
or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor at any time
fails to perform or observe any agreement contained in Section 3(g), and if
such failure continues for a period of ten calendar days after the Secured
Party gives the Debtor written notice thereof (or, in the case of the
agreements contained in clauses (vii) and (viii) of Section 3(g),
immediately upon the occurrence of such failure, without notice or lapse of
time), the Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of the Debtor (or, at
the Secured Party's option, in the Secured Party's own name) and may (but
need not) take any and all other actions which the Secured Party may
reasonably deem necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of security
interests, liens, or encumbrances, the performance of obligations under
contracts or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of financing
statements, the
-5-
<PAGE>
endorsement of instruments, and the procurement of repairs, transportation
or insurance); and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or otherwise
illegal under any applicable law, the Debtor shall thereupon pay the
Secured Party on demand the amount of all moneys expended and all costs and
expenses (including reasonable attorneys' fees) incurred by the Secured
Party in connection with or as a result of the Secured Party's performing
or observing such agreements or taking such actions, together with interest
thereon from the date expended or incurred by the Secured Party at the
highest rate then applicable to any of the Obligations. To facilitate the
performance or observance by the Secured Party of such agreements of the
Debtor, the Debtor hereby irrevocably appoints (which appointment is
coupled with an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with the right (but not the duty) from time
to time to create, prepare, complete, execute, deliver, endorse or file, in
the name and on behalf of the Debtor, any and all instruments, documents,
financing statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by the
Debtor under this Section 3 and Section 6.
4. Assignment of Insurance. The Debtor hereby assigns to the Secured
------------------------
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of insurance covering the
Collateral, and the Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to the Secured Party. Both before and after the
occurrence of an Event of Default, the Secured Party may (but need not), in its
own name or in the Debtor's name, execute and deliver proofs of claim, receive
all such moneys, endorse checks and other instruments representing payment of
such moneys, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.
5. Events of Default. Each of the following occurrences shall
------------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) an Event of Default shall occur under the Credit Agreement; or
(ii) the Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand; or (iii) the Debtor shall fail to observe or
perform any covenant or agreement herein binding on it.
6. Remedies upon Event of Default. Upon the occurrence of an Event
------------------------------
of Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights and remedies:
(a) ACCELERATION. The Secured Party may declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon
be immediately due and payable, without presentment or other notice or
demand;
-6-
<PAGE>
(b) ACCOUNT VERIFICATION. The Secured Party may verify any accounts
in the name of the Debtor or in its own name; and the Debtor, whenever
requested, shall furnish the Secured Party with duplicate statements of the
accounts, which statements may be mailed or delivered by the Secured Party
for that purpose.
(c) COLLATERAL ACCOUNT. The Secured Party may establish a collateral
account for the deposit of checks, drafts and cash payments made by the
Debtor's account debtors. If a collateral account is so established, the
Debtor shall promptly deliver to the Secured Party, for deposit into said
collateral account, all payments on accounts and chattel paper received by
it. All such payments shall be delivered to the Secured Party in the form
received (except for the Debtor's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by the
Debtor shall be held in trust by the Debtor for and as the property of the
Secured Party and shall not be commingled with any funds or property of the
Debtor. All deposits in said collateral account shall constitute proceeds
of Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the Secured
Party shall permit the Debtor to withdraw all or any part of the balance on
deposit in said collateral account. Following the occurrence and during the
continuance of a Default or Event of Default, the Secured Party may, at its
option at any time, apply finally collected funds on deposit in said
collateral account to the payment of the Obligations in such order of
application as the Secured Party may determine, or permit the Debtor to
withdraw all or any part of the balance on deposit in said collateral
account.
(d) LOCKBOX. The Secured Party may, by notice to the Debtor, require
the Debtor to direct each of its account debtors to make payments due under
the relevant account or chattel paper directly to a special lockbox to be
under the control of the Secured Party. The Debtor hereby authorizes and
directs the Secured Party to deposit all checks, drafts and cash payments
received in said lockbox into the collateral account established as set
forth above.
(e) DIRECT COLLECTION. The Secured Party may, after the occurrence
and during the continuance of an Event of Default, notify any account
debtor, or any other person obligated to pay any amount due, that such
chattel paper, account, or other right to payment has been assigned or
transferred to the Secured Party for security and shall be paid directly to
the Secured Party. If the Secured Party so requests at any time, the Debtor
will so notify such account debtors and other obligors in writing and will
indicate on all invoices to such account debtors or other obligors that the
amount due is payable directly to the Secured Party. At any time after the
Secured Party or the Debtor gives such notice to an account debtor or other
obligor, the Secured Party may (but need not), in its own name or in the
Debtor's name, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to, make
any compromise or settlement with or otherwise agree to waive,
-7-
<PAGE>
modify, amend or change the obligations (including collateral obligations)
of any such account debtor or other obligor.
(f) RIGHTS UNDER UCC. The Secured Party may exercise and enforce any
or all rights and remedies available upon default to a secured party under
the Uniform Commercial Code, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which the
Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral available to
the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties, and if notice to the Debtor of any
intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8) at least 10
calendar days prior to the date of intended disposition or other action;
(i) exercise or enforce any or all other rights or remedies available to
the Secured Party by law or agreement against the Collateral, against the
Debtor or against any other person or property.
(g) OTHER RIGHTS. The Secured Party may exercise or enforce any or
all other rights or remedies available to the Secured Party by law or
agreement against the Collateral, against the Debtor or against any other
person or property.
The Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
7. Other Personal Property. Unless at the time the Secured Party
------------------------
takes possession of any tangible Collateral, or within seven days thereafter,
the Debtor gives written notice to the Secured Party of the existence of any
goods, papers or other property of the Debtor, not affixed to or constituting a
part of such Collateral, but which are located or found upon or within such
Collateral, describing such property, the Secured Party shall not be responsible
or liable to the Debtor for any action taken or omitted by or on behalf of the
Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that it was located
or to be found upon or within such Collateral.
8. Notice. All notices and other communications hereunder shall be
-------
in writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below its signature or, as to each party, at such other address or telecopier
number as may hereafter be designated by such party in a written notice to the
-8-
<PAGE>
other party complying as to delivery with the terms of this Section. All such
notices, requests, demands and other communications shall be deemed to have been
given on (i) the date received if personally delivered, (ii) when deposited in
the mail if delivered by mail, (iii) the date sent if sent by overnight courier,
or (iv) the date of transmission if delivered by telecopy.
9. Miscellaneous. This Agreement has been duly and validly
--------------
authorized by all necessary corporate action. This Agreement does not
contemplate a sale of accounts, or chattel paper. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security Interest can be
released, only explicitly in a writing signed by the Secured Party. A waiver
signed by the Secured Party shall be effective only in the specific instance and
for the specific purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any of the Secured Party's rights or remedies.
All rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. This Agreement
shall be governed by the law of Minnesota. If any provision or application of
this Agreement is held unlawful or unenforceable in any respect, such illegality
or unenforceability shall not affect other provisions or applications which can
be given effect and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
-9-
<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
NORWEST BANK MINNESOTA, PARSONS ELECTRIC CO.
NATIONAL ASSOCIATION, as Agent
By /s/ Laura Schmaltz Oberst By /s/ Frank R. Clark
-------------------------------- --------------------------------
Laura Schmaltz Oberst Frank R. Clark
Its Vice President Its Chief Financial Officer
Address: Address:
Norwest Center c/o Nationwide Electric, Inc.
Sixth Street and Marquette Avenue 2800 Metropolitan Centre
Minneapolis, Minnesota 55479-0091 333 South Seventh Street
Minneapolis, Minnesota 55402
Employer identification number: Attn: Frank R. Clark
41-1592157
Employer identification number:
41-0654761
-10-
<PAGE>
EXHIBIT 10.20
SECURITY AGREEMENT
(PARSONS ELECTRIC HOLDINGS, INC.)
This Agreement, dated as of December 22, 1998, is made by Parsons
Electric Holdings, Inc., a Delaware corporation (the "Debtor"), for the benefit
of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association,
as agent (in such capacity, the "Secured Party") for the Banks, as defined in
the Credit Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to making such advances and extending such financial
accommodations, the Secured Party has required the execution and delivery of the
Debtor's Guaranty of even date herewith, guaranteeing the payment and
performance of all obligations of the Borrower arising under or pursuant to the
Credit Agreement (the "Guaranty") and a Collateral Pledge Agreement of even date
herewith.
As a further condition to making such advances and extending such
other financial accommodations under the Credit Agreement, the Secured Party and
the Banks have required the execution and delivery of this Agreement by the
Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the recitals hereto and the
------------
Credit Agreement that are not otherwise defined herein shall have the meanings
given them in the recitals and the Credit Agreement. In addition, the following
terms have the meanings set forth below:
"Accounts" means each and every account and other right of the Debtor
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale, lease
or other disposition of goods or other property by the Debtor, out of a
rendering of services by the Debtor, out of a loan by the Debtor, out of
the overpayment of taxes or other liabilities of the Debtor, or otherwise
arises under any contract or agreement, whether such right to payment is or
is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including
all liens and security interests) which the Debtor may at any time have by
law or agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property of such account debtor
or other obligor, all including but not limited to all present and future
debt instruments, chattel papers, accounts, loans and obligations
receivable and tax refunds.
<PAGE>
"Collateral" means the Accounts, Inventory, Equipment, General
Intangibles and Investment Property, together with all substitutions and
replacements for, products and proceeds of, any of the foregoing property,
all accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any of
the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Equipment" means all equipment of the Debtor, whether now owned or
hereafter acquired and wherever located, including but not limited to all
present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment, office and
recordkeeping equipment, parts and tools.
"Event of Default" has the meaning specified in Section 5.
"General Intangibles" means all general intangibles of the Debtor,
whether now owned or hereafter acquired, including but not limited to
applications for patents, patents, copyrights, trademarks, trade secrets,
good will, trade names, customer lists, permits and franchises, and the
right to use the Debtor's name.
"Inventory" means all inventory of the Debtor, whether now owned or
hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Obligations" means (i) the Obligations (as defined in the Credit
Agreement) and (ii) each and every debt, liability and obligation of every
type and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now exists
or is hereafter created or incurred and whether it is or may be direct or
indirect, due or to become due, or absolute or contingent, including
without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
"UCC" means the Uniform Commercial Code, as in enacted in the state of
Minnesota.
2. Security Interest. The Debtor hereby grants the Secured Party a
------------------
security interest (the "Security Interest") in the Collateral to secure payment
of the Obligations.
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<PAGE>
3. Representations, Warranties and Agreements. The Debtor hereby
-------------------------------------------
represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each item of
Collateral in existence on the date hereof, free and clear of all security
interests, liens and encumbrances, except the Security Interest, (ii) will
have, at the time the Debtor acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free and clear of
all security interests, liens and encumbrances, except the Security
Interest, (iii) will keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest, and (iv)
will defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise dispose
of the Collateral or any interest therein without the prior written consent
of the Secured Party, except that, until the occurrence of an Event of
Default and the revocation by the Secured Party of the Debtor's right to do
so, the Debtor may sell any inventory constituting Collateral to buyers in
the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The Debtor's chief
executive office is located at the address set forth on Exhibit A hereto.
The Debtor's federal employer identification number is correctly set forth
under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the tangible
Collateral is located only in the state of Minnesota. The Debtor will not
permit any tangible Collateral to be located in any state (and, if county
filing is required, in any county) in which a financing statement covering
such Collateral is required to be, but has not in fact been, filed in order
to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not change its
business name, without prior written notice to the Secured Party. The
Debtor will not change its business address, without prior written notice
to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible Collateral to
become part of or to be affixed to any real property without first assuring
to the reasonable satisfaction of the Secured Party that the Security
Interest will be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or the owner or
purchaser of any interest therein. If any part or all of the tangible
Collateral is now or will become so related to particular real estate as to
be a fixture, the real estate concerned and the name of the record owner
are accurately set forth in Exhibit A hereto.
(f) RIGHTS TO PAYMENT. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or will be when arising, issued or assigned to the Secured
Party) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim (other
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<PAGE>
than those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records pertaining
thereto as being obligated to pay such obligation. The Debtor will neither
agree to any material modification or amendment nor agree to any
forbearance, release or cancellation of any such obligation without the
Secured Party's prior written consent, and will not subordinate any such
right to payment to claims of other creditors of such account debtor or
other obligor, unless the Debtor in good faith believes it is appropriate
to do so in order to maximize recovery from such account debtor or other
obligor or such account debtor or other obligor has a legitimate basis for
requesting any of the foregoing based on the Debtor's performance.
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair, working order
and condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured Party, the
Banks or their representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy the Debtor's books
and records pertaining to the Collateral and its business and
financial condition and to send and discuss with account debtors and
other obligors requests for verifications of amounts owed to the
Debtor;
(iv) keep accurate and complete records pertaining to the
Collateral and pertaining to the Debtor's business and financial
condition and submit to the Secured Party such periodic reports
concerning the Collateral and the Debtor's business and financial
condition as the Secured Party may from time to time reasonably
request;
(v) promptly notify the Secured Party of any loss of or
material damage to any Collateral or of any adverse change, known to
the Debtor, in the prospect of payment of any sums due on or under any
instrument, chattel paper, or account constituting Collateral;
(vi) if the Secured Party at any time so requests (whether the
request is made before or after the occurrence of an Event of
Default), promptly deliver to the Secured Party any instrument,
document or chattel paper constituting Collateral, duly endorsed or
assigned by the Debtor;
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<PAGE>
(vii) at all times keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft,
collision (in case of Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Secured Party may
reasonably request, with any loss payable to the Secured Party to the
extent of its interest;
(viii) from time to time execute such financing statements as
the Secured Party may reasonably require in order to perfect the
Security Interest and, if any Collateral consists of a motor vehicle,
execute such documents as may be required to have the Security
Interest properly noted on a certificate of title;
(ix) pay when due or reimburse the Secured Party on demand for
all costs of collection of any of the Obligations and all other out-
of-pocket expenses (including in each case all reasonable attorneys'
fees) incurred by the Secured Party in connection with the creation,
perfection, satisfaction, protection, defense or enforcement of the
Security Interest or the creation, continuance, protection, defense or
enforcement of this Agreement or any or all of the Obligations,
including expenses incurred in any litigation or bankruptcy or
insolvency proceedings;
(x) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which the Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be used or
kept, for any unlawful purpose or in violation of any federal, state
or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor at any time
fails to perform or observe any agreement contained in Section 3(g), and if
such failure continues for a period of ten calendar days after the Secured
Party gives the Debtor written notice thereof (or, in the case of the
agreements contained in clauses (vii) and (viii) of Section 3(g),
immediately upon the occurrence of such failure, without notice or lapse of
time), the Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of the Debtor (or, at
the Secured Party's option, in the Secured Party's own name) and may (but
need not) take any and all other actions which the Secured Party may
reasonably deem necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of security
interests, liens, or encumbrances, the performance of obligations under
contracts or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of financing
statements, the
-5-
<PAGE>
endorsement of instruments, and the procurement of repairs, transportation
or insurance); and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or otherwise
illegal under any applicable law, the Debtor shall thereupon pay the
Secured Party on demand the amount of all moneys expended and all costs and
expenses (including reasonable attorneys' fees) incurred by the Secured
Party in connection with or as a result of the Secured Party's performing
or observing such agreements or taking such actions, together with interest
thereon from the date expended or incurred by the Secured Party at the
highest rate then applicable to any of the Obligations. To facilitate the
performance or observance by the Secured Party of such agreements of the
Debtor, the Debtor hereby irrevocably appoints (which appointment is
coupled with an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with the right (but not the duty) from time
to time to create, prepare, complete, execute, deliver, endorse or file, in
the name and on behalf of the Debtor, any and all instruments, documents,
financing statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by the
Debtor under this Section 3 and Section 6.
4. Assignment of Insurance. The Debtor hereby assigns to the Secured
------------------------
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of insurance covering the
Collateral, and the Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to the Secured Party. Both before and after the
occurrence of an Event of Default, the Secured Party may (but need not), in its
own name or in the Debtor's name, execute and deliver proofs of claim, receive
all such moneys, endorse checks and other instruments representing payment of
such moneys, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.
5. Events of Default. Each of the following occurrences shall
------------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) an Event of Default shall occur under the Credit Agreement; or
(ii) the Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand; or (iii) the Debtor shall fail to observe or
perform any covenant or agreement herein binding on it.
6. Remedies upon Event of Default. Upon the occurrence of an Event of
------------------------------
Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights and remedies:
(a) ACCELERATION. The Secured Party may declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon
be immediately due and payable, without presentment or other notice or
demand;
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<PAGE>
(b) ACCOUNT VERIFICATION. The Secured Party may verify any accounts in
the name of the Debtor or in its own name; and the Debtor, whenever
requested, shall furnish the Secured Party with duplicate statements of the
accounts, which statements may be mailed or delivered by the Secured Party
for that purpose.
(c) COLLATERAL ACCOUNT. The Secured Party may establish a collateral
account for the deposit of checks, drafts and cash payments made by the
Debtor's account debtors. If a collateral account is so established, the
Debtor shall promptly deliver to the Secured Party, for deposit into said
collateral account, all payments on accounts and chattel paper received by
it. All such payments shall be delivered to the Secured Party in the form
received (except for the Debtor's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by the
Debtor shall be held in trust by the Debtor for and as the property of the
Secured Party and shall not be commingled with any funds or property of the
Debtor. All deposits in said collateral account shall constitute proceeds
of Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the Secured
Party shall permit the Debtor to withdraw all or any part of the balance on
deposit in said collateral account. Following the occurrence and during the
continuance of a Default or Event of Default, the Secured Party may, at its
option at any time, apply finally collected funds on deposit in said
collateral account to the payment of the Obligations in such order of
application as the Secured Party may determine, or permit the Debtor to
withdraw all or any part of the balance on deposit in said collateral
account.
(d) LOCKBOX. The Secured Party may, by notice to the Debtor, require
the Debtor to direct each of its account debtors to make payments due under
the relevant account or chattel paper directly to a special lockbox to be
under the control of the Secured Party. The Debtor hereby authorizes and
directs the Secured Party to deposit all checks, drafts and cash payments
received in said lockbox into the collateral account established as set
forth above.
(e) DIRECT COLLECTION. The Secured Party may, after the occurrence and
during the continuance of an Event of Default, notify any account debtor,
or any other person obligated to pay any amount due, that such chattel
paper, account, or other right to payment has been assigned or transferred
to the Secured Party for security and shall be paid directly to the Secured
Party. If the Secured Party so requests at any time, the Debtor will so
notify such account debtors and other obligors in writing and will indicate
on all invoices to such account debtors or other obligors that the amount
due is payable directly to the Secured Party. At any time after the Secured
Party or the Debtor gives such notice to an account debtor or other
obligor, the Secured Party may (but need not), in its own name or in the
Debtor's name, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to, make
any compromise or settlement with or otherwise agree to waive,
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<PAGE>
modify, amend or change the obligations (including collateral obligations)
of any such account debtor or other obligor.
(f) RIGHTS UNDER UCC. The Secured Party may exercise and enforce any
or all rights and remedies available upon default to a secured party under
the Uniform Commercial Code, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which the
Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral available to
the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties, and if notice to the Debtor of any
intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8) at least 10
calendar days prior to the date of intended disposition or other action;
(i) exercise or enforce any or all other rights or remedies available to
the Secured Party by law or agreement against the Collateral, against the
Debtor or against any other person or property.
(g) OTHER RIGHTS. The Secured Party may exercise or enforce any or all
other rights or remedies available to the Secured Party by law or agreement
against the Collateral, against the Debtor or against any other person or
property.
The Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
7. Other Personal Property. Unless at the time the Secured Party
------------------------
takes possession of any tangible Collateral, or within seven days thereafter,
the Debtor gives written notice to the Secured Party of the existence of any
goods, papers or other property of the Debtor, not affixed to or constituting a
part of such Collateral, but which are located or found upon or within such
Collateral, describing such property, the Secured Party shall not be responsible
or liable to the Debtor for any action taken or omitted by or on behalf of the
Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that it was located
or to be found upon or within such Collateral.
8. Notice. All notices and other communications hereunder shall be in
-------
writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below its signature or, as to each party, at such other address or telecopier
number as may hereafter be designated by such party in a written notice to the
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<PAGE>
other party complying as to delivery with the terms of this Section. All such
notices, requests, demands and other communications shall be deemed to have been
given on (i) the date received if personally delivered, (ii) when deposited in
the mail if delivered by mail, (iii) the date sent if sent by overnight courier,
or (iv) the date of transmission if delivered by telecopy.
9. Miscellaneous. This Agreement has been duly and validly authorized
--------------
by all necessary corporate action. This Agreement does not contemplate a sale of
accounts, or chattel paper. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by the Secured Party. A waiver signed by the
Secured Party shall be effective only in the specific instance and for the
specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of the Secured Party's rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. This Agreement
shall be governed by the law of Minnesota. If any provision or application of
this Agreement is held unlawful or unenforceable in any respect, such illegality
or unenforceability shall not affect other provisions or applications which can
be given effect and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
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<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
NORWEST BANK MINNESOTA, PARSONS ELECTRIC HOLDINGS, INC.
NATIONAL ASSOCIATION, as Agent
By /s/ Laura Schmaltz Oberst By /s/ Frank R. Clark
----------------------------- -----------------------------
Laura Schmaltz Oberst Frank R. Clark
Its Vice President Its Assistant Secretary
Address: Address:
Norwest Center c/o Nationwide Electric, Inc.
Sixth Street and Marquette Avenue 2800 Metropolitan Centre
Minneapolis, Minnesota 55479-0091 333 South Seventh Street
Minneapolis, Minnesota 55402
Employer identification number: Attn: Frank R. Clark
41-1592157
Employer identification number:
41-1924687
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<PAGE>
EXHIBIT 10.21
GUARANTY BY CORPORATION
(THE ALLISON COMPANY)
Minneapolis, Minnesota
December 22, 1998
This Guaranty, dated as of December 22, 1998, is made by THE ALLISON
COMPANY, a Georgia corporation (the "Guarantor") for the benefit of Norwest Bank
Minnesota, National Association, a national banking association as agent (in
such capacity, the "Agent") for the Banks, as defined in the Credit Agreement
described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to extending such credit to the Borrower, the Banks
have required the execution and delivery of this Guaranty, a Security Agreement
and a Collateral Pledge Agreement of even date herewith.
ACCORDINGLY, the Guarantor, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Definitions. All terms defined in the Credit Agreement that are
-----------
not otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. Guaranty. The Guarantor hereby absolutely and unconditionally to
--------
the Agent and the Banks the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of (i) the
Obligations and (ii) each and every other sum now or hereafter owing to a Bank
by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to a Bank
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by a Bank, in each case whether now existing or
hereafter arising, whether arising directly in a transaction or event involving
a Bank or acquired by a Bank from another by purchase or assignment or as
collateral security, whether owed by the Borrower as drawer, maker, endorser,
accommodation party, guarantor, principal, surety or as a member of any
partnership, syndicate, association or group or in any other capacity, whether
absolute or contingent, direct or indirect, primary or secondary, sole, joint,
several or joint and several, secured or unsecured, due or not due, contractual,
tortious or statutory, liquidated or unliquidated, arising by agreement or
imposed by law or otherwise (all of said sums being hereinafter called the
"Indebtedness").
<PAGE>
3. Guarantor's Representations and Warranties. The Guarantor
------------------------------------------
represents and warrants to the Agent and the Banks that (i) the Guarantor is a
corporation, duly organized and existing in good standing and has full power and
authority to make and deliver this Guaranty; (ii) the execution, delivery and
performance of this Guaranty by the Guarantor have been duly authorized by all
necessary action of its board of directors and shareholders and do not and will
not violate the provisions of, or constitute a default under, any presently
applicable law or its articles of incorporation or bylaws or any agreement
presently binding on it; (iii) this Guaranty has been duly executed and
delivered by the authorized officer of the Guarantor and constitutes its lawful,
binding and legally enforceable obligation; and (iv) the authorization,
execution, delivery and performance of this Guaranty do not require notification
to, registration with, or consent or approval by, any federal, state or local
regulatory body or administrative agency. The Guarantor further represents and
warrants to Agent and the Banks that the Guarantor has a direct and substantial
economic interest in the Borrower and expects to derive substantial benefits
therefrom and from any loans, credit transactions, financial accommodations,
discounts, purchases of property and other transactions and events resulting in
the creation of the Indebtedness guarantied hereby, and that this Guaranty is
given for a business purpose. The Guarantor agrees to rely exclusively on the
right to revoke this Guaranty prospectively as to future transactions, in
accordance with paragraph 4, if at any time, in the opinion of the board of
directors of the Guarantor or its officers, the benefits then being received by
the Guarantor in connection with this Guaranty are not sufficient to warrant the
continuance of this Guaranty as to the future Indebtedness of the Borrower.
Accordingly, so long as this Guaranty is not revoked prospectively in accordance
with paragraph 4, the Banks or the Agent may rely conclusively on a continuing
warranty, hereby made, that the Guarantor continues to be benefitted by this
Guaranty and the Banks or the Agent shall have no duty to inquire into or
confirm the receipt of any such benefits, and this Guaranty shall be effective
and enforceable by the Banks or the Agent without regard to the receipt, nature
or value of any such benefits.
4. Unconditional Nature. No act or thing need occur to establish the
--------------------
Guarantor's liability hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or modify, reduce, limit or release the Guarantor's liability
hereunder. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
Guarantor, whether or not all of the Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Agent, and such revocation shall not be effective as to
the amount of Indebtedness existing or committed for at the time of actual
receipt of such notice by the Agent, or as to any renewals, extensions,
refinancings or refundings thereof.
5. Disolution or Insolvency of Guarantor. The dissolution or
-------------------------------------
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Agent and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however defined), then the
Agent and the Banks shall have the right to declare immediately due and payable,
and the Guarantor will forthwith pay to the Agent, the full amount of all of the
Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily
commences or there is commenced
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<PAGE>
involuntarily against the Guarantor a case under the United States Bankruptcy
Code, the full amount of all Indebtedness, whether due and payable or unmatured,
shall be immediately due and payable without demand or notice thereof.
6. Subrogation, etc. The Guarantor hereby waives all rights that the
-----------------
Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrower or from any property of the Borrower any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrower or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the
--------------------
Agent and the Banks for all costs, expenses and attorneys' fees paid or incurred
by the Agent and the Banks in endeavoring to collect and enforce the
Indebtedness and in enforcing this Guaranty.
8. Banks' Rights. The Agent and the Banks shall not be obligated by
-------------
reason of their acceptance of this Guaranty to engage in any transactions with
or for the Borrower. Whether or not any existing relationship between the
Guarantor and the Borrower has been changed or ended and whether or not this
Guaranty has been revoked, the Agent and the Banks may enter into transactions
resulting in the creation or continuance of the Indebtedness and may otherwise
agree, consent to or suffer the creation or continuance of any of the
Indebtedness, without any consent or approval by the Guarantor and without any
prior or subsequent notice to the Guarantor. The Guarantor's liability shall not
be affected or impaired by any of the following acts or things (which the Agent
and the Banks are expressly authorized to do, omit or suffer from time to time,
both before and after revocation of this Guaranty, without consent or approval
by or notice to the Guarantor): (i) any acceptance of collateral security,
guarantors, accommodation parties or sureties for any or all of the
Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities, if any, or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any
-3-
<PAGE>
of the Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of any payments or credits upon the Indebtedness; and (x) any
election by the Agent and the Banks under Section 1111(b) of the United States
Bankruptcy Code. The Guarantor waives any and all defenses and discharges
available to a surety, guarantor or accommodation co-obligor.
9. Waivers by Guarantor. The Guarantor waives any and all defenses,
--------------------
claims, setoffs and discharges of the Borrower, or any other obligor, pertaining
to the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Agent or the Banks any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrower or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Agent or the Banks to the Borrower or any other such
person, whether or not on account of a related transaction. The Guarantor
expressly agrees that the Guarantor shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing the Indebtedness, whether or not the liability of the Borrower or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision. The liability of the Guarantor shall not be affected or impaired by
any voluntary or involuntary liquidation, dissolution, sale or other disposition
of all or substantially all of the assets, marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of, or other
similar event or proceeding affecting, the Borrower or any of its assets. The
Guarantor will not assert, plead or enforce against the Agent or the Banks any
claim, defense or setoff available to the Guarantor against the Borrower. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Agent
and the Banks shall not be required first to resort for payment of the
Indebtedness to the Borrower or other persons, or their properties, or first to
enforce, realize upon or exhaust any collateral security for the Indebtedness,
before enforcing this Guaranty.
10. If Payments Set Aside, etc. If any payment applied by the Agent
--------------------------
or the Banks to the Indebtedness is thereafter set aside, recovered, rescinded
or required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrower or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. No Duties Owed by Banks. The Guarantor acknowledges and agrees
-----------------------
that the Agent and the Banks (i) have not made any representations or warranties
with respect to, (ii) do not assume any responsibility to the Guarantor for, and
(iii) have no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrower or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Agent or the Banks continue to make such determinations.
-4-
<PAGE>
12. Additional Obligation of Guarantor. The Guarantor's liability
----------------------------------
under this Guaranty is in addition to and shall be cumulative with all other
liabilities of the Guarantor to the Agent or any Bank as guarantor, surety,
endorser, accommodation co-obligor or otherwise of any of the Indebtedness or
obligation of the Borrower, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
13. Miscellaneous. This Guaranty shall be effective upon delivery to
-------------
the Agent, without further act, condition or acceptance by the Agent or the
Banks, shall be binding upon the Guarantor and the successors and assigns of the
Guarantor and shall inure to the benefit of the Agent and the Banks and its
participants, successors and assigns. Any invalidity or unenforceability of any
provision or application of this Guaranty shall not affect other lawful
provisions and application thereof, and to this end the provisions of this
Guaranty are declared to be severable. This Guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by a writing
signed by the Guarantor and the Agent. This Guaranty shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of Minnesota. The Guarantor hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this Guaranty; (ii) waives any
argument that venue in any such forum is not convenient, (iii) agrees that any
litigation initiated by the Agent or the Banks or the Guarantor in connection
with this Guaranty shall be venued in either the District Court of Hennepin
County, Minnesota, or the United States District Court, District of Minnesota,
Fourth Division; and (iv) agrees that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
-5-
<PAGE>
14. Waiver of Jury Trial. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES
--------------------
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the Guarantor
the date first written above.
THE ALLISON COMPANY
By /s/ Frank R. Clark
---------------------------
Frank R. Clark
Its Assistant Secretary
Address: c/o Nationwide Electric, Inc.
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
Attn: Frank R. Clark
STATE OF MINNESOTA )
)
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 22nd day of
December, 1998 by Frank R. Clark, the Assistant Secretary of THE ALLISON
COMPANY, a Georgia corporation, on behalf of the corporation.
/s/ Angela Mary Zmuda
---------------------------
Notary Public
[SEAL]
-6-
<PAGE>
EXHIBIT 10.22
GUARANTY BY CORPORATION
(ALLISON-SMITH COMPANY)
Minneapolis, Minnesota
December 22, 1998
This Guaranty, dated as of December 22, 1998, is made by ALLISON-SMITH
COMPANY, a Georgia corporation (the "Guarantor") for the benefit of Norwest Bank
Minnesota, National Association, a national banking association as agent (in
such capacity, the "Agent") for the Banks, as defined in the Credit Agreement
described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to extending such credit to the Borrower, the Banks
have required the execution and delivery of this Guaranty, and a Security
Agreement of even date herewith.
ACCORDINGLY, the Guarantor, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Definitions. All terms defined in the Credit Agreement that are
-----------
not otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. Guaranty. The Guarantor hereby absolutely and unconditionally to
--------
the Agent and the Banks the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of (i) the
Obligations and (ii) each and every other sum now or hereafter owing to a Bank
by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to a Bank
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by a Bank, in each case whether now existing or
hereafter arising, whether arising directly in a transaction or event involving
a Bank or acquired by a Bank from another by purchase or assignment or as
collateral security, whether owed by the Borrower as drawer, maker, endorser,
accommodation party, guarantor, principal, surety or as a member of any
partnership, syndicate, association or group or in any other capacity, whether
absolute or contingent, direct or indirect, primary or secondary, sole, joint,
several or joint and several, secured or unsecured, due or not due, contractual,
tortious or statutory, liquidated or unliquidated, arising by agreement or
imposed by law or otherwise (all of said sums being hereinafter called the
"Indebtedness").
3. Guarantor's Representations and Warranties. The Guarantor
------------------------------------------
represents and warrants to the Agent and the Banks that (i) the Guarantor is a
corporation, duly organized
<PAGE>
and existing in good standing and has full power and authority to make and
deliver this Guaranty; (ii) the execution, delivery and performance of this
Guaranty by the Guarantor have been duly authorized by all necessary action of
its board of directors and shareholders and do not and will not violate the
provisions of, or constitute a default under, any presently applicable law or
its articles of incorporation or bylaws or any agreement presently binding on
it; (iii) this Guaranty has been duly executed and delivered by the authorized
officer of the Guarantor and constitutes its lawful, binding and legally
enforceable obligation; and (iv) the authorization, execution, delivery and
performance of this Guaranty do not require notification to, registration with,
or consent or approval by, any federal, state or local regulatory body or
administrative agency. The Guarantor further represents and warrants to Agent
and the Banks that the Guarantor has a direct and substantial economic interest
in the Borrower and expects to derive substantial benefits therefrom and from
any loans, credit transactions, financial accommodations, discounts, purchases
of property and other transactions and events resulting in the creation of the
Indebtedness guarantied hereby, and that this Guaranty is given for a business
purpose. The Guarantor agrees to rely exclusively on the right to revoke this
Guaranty prospectively as to future transactions, in accordance with paragraph
4, if at any time, in the opinion of the board of directors of the Guarantor or
its officers, the benefits then being received by the Guarantor in connection
with this Guaranty are not sufficient to warrant the continuance of this
Guaranty as to the future Indebtedness of the Borrower. Accordingly, so long as
this Guaranty is not revoked prospectively in accordance with paragraph 4, the
Banks or the Agent may rely conclusively on a continuing warranty, hereby made,
that the Guarantor continues to be benefitted by this Guaranty and the Banks or
the Agent shall have no duty to inquire into or confirm the receipt of any such
benefits, and this Guaranty shall be effective and enforceable by the Banks or
the Agent without regard to the receipt, nature or value of any such benefits.
4. Unconditional Nature. No act or thing need occur to establish the
--------------------
Guarantor's liability hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or modify, reduce, limit or release the Guarantor's liability
hereunder. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
Guarantor, whether or not all of the Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Agent, and such revocation shall not be effective as to
the amount of Indebtedness existing or committed for at the time of actual
receipt of such notice by the Agent, or as to any renewals, extensions,
refinancings or refundings thereof.
5. Disolution or Insolvency of Guarantor. The dissolution or
-------------------------------------
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Agent and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however defined), then the
Agent and the Banks shall have the right to declare immediately due and payable,
and the Guarantor will forthwith pay to the Agent, the full amount of all of the
Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily
commences or there is commenced involuntarily against the Guarantor a case under
the United States Bankruptcy Code, the full
-2-
<PAGE>
amount of all Indebtedness, whether due and payable or unmatured, shall be
immediately due and payable without demand or notice thereof.
6. Subrogation, etc. The Guarantor hereby waives all rights that the
-----------------
Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrower or from any property of the Borrower any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrower or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the
--------------------
Agent and the Banks for all costs, expenses and attorneys' fees paid or incurred
by the Agent and the Banks in endeavoring to collect and enforce the
Indebtedness and in enforcing this Guaranty.
8. Banks' Rights. The Agent and the Banks shall not be obligated by
-------------
reason of their acceptance of this Guaranty to engage in any transactions with
or for the Borrower. Whether or not any existing relationship between the
Guarantor and the Borrower has been changed or ended and whether or not this
Guaranty has been revoked, the Agent and the Banks may enter into transactions
resulting in the creation or continuance of the Indebtedness and may otherwise
agree, consent to or suffer the creation or continuance of any of the
Indebtedness, without any consent or approval by the Guarantor and without any
prior or subsequent notice to the Guarantor. The Guarantor's liability shall not
be affected or impaired by any of the following acts or things (which the Agent
and the Banks are expressly authorized to do, omit or suffer from time to time,
both before and after revocation of this Guaranty, without consent or approval
by or notice to the Guarantor): (i) any acceptance of collateral security,
guarantors, accommodation parties or sureties for any or all of the
Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities, if any, or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any of the
Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of
-3-
<PAGE>
any payments or credits upon the Indebtedness; and (x) any election by the Agent
and the Banks under Section 1111(b) of the United States Bankruptcy Code. The
Guarantor waives any and all defenses and discharges available to a surety,
guarantor or accommodation co-obligor.
9. Waivers by Guarantor. The Guarantor waives any and all defenses,
--------------------
claims, setoffs and discharges of the Borrower, or any other obligor, pertaining
to the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Agent or the Banks any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrower or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Agent or the Banks to the Borrower or any other such
person, whether or not on account of a related transaction. The Guarantor
expressly agrees that the Guarantor shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing the Indebtedness, whether or not the liability of the Borrower or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision. The liability of the Guarantor shall not be affected or impaired by
any voluntary or involuntary liquidation, dissolution, sale or other disposition
of all or substantially all of the assets, marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of, or other
similar event or proceeding affecting, the Borrower or any of its assets. The
Guarantor will not assert, plead or enforce against the Agent or the Banks any
claim, defense or setoff available to the Guarantor against the Borrower. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Agent
and the Banks shall not be required first to resort for payment of the
Indebtedness to the Borrower or other persons, or their properties, or first to
enforce, realize upon or exhaust any collateral security for the Indebtedness,
before enforcing this Guaranty.
10. If Payments Set Aside, etc. If any payment applied by the Agent
--------------------------
or the Banks to the Indebtedness is thereafter set aside, recovered, rescinded
or required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrower or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. No Duties Owed by Banks. The Guarantor acknowledges and agrees
-----------------------
that the Agent and the Banks (i) have not made any representations or warranties
with respect to, (ii) do not assume any responsibility to the Guarantor for, and
(iii) have no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrower or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Agent or the Banks continue to make such determinations.
-4-
<PAGE>
12. Additional Obligation of Guarantor. The Guarantor's liability
----------------------------------
under this Guaranty is in addition to and shall be cumulative with all other
liabilities of the Guarantor to the Agent or any Bank as guarantor, surety,
endorser, accommodation co-obligor or otherwise of any of the Indebtedness or
obligation of the Borrower, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
13. Miscellaneous. This Guaranty shall be effective upon delivery to
-------------
the Agent, without further act, condition or acceptance by the Agent or the
Banks, shall be binding upon the Guarantor and the successors and assigns of the
Guarantor and shall inure to the benefit of the Agent and the Banks and its
participants, successors and assigns. Any invalidity or unenforceability of any
provision or application of this Guaranty shall not affect other lawful
provisions and application thereof, and to this end the provisions of this
Guaranty are declared to be severable. This Guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by a writing
signed by the Guarantor and the Agent. This Guaranty shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of Minnesota. The Guarantor hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this Guaranty; (ii) waives any
argument that venue in any such forum is not convenient, (iii) agrees that any
litigation initiated by the Agent or the Banks or the Guarantor in connection
with this Guaranty shall be venued in either the District Court of Hennepin
County, Minnesota, or the United States District Court, District of Minnesota,
Fourth Division; and (iv) agrees that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
-5-
<PAGE>
14. Waiver of Jury Trial. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES
--------------------
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the Guarantor
the date first written above.
ALLISON-SMITH COMPANY
By /s/ Frank R. Clark
-----------------------------------------
Frank R. Clark
Its Assistant Secretary
Address: c/o Nationwide Electric, Inc.
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
Attn: Frank R. Clark
STATE OF MINNESOTA )
)
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 22nd day of
December, 1998 by Frank R. Clark, the Assistant Secretary of ALLISON SMITH
COMPANY, a Georgia corporation, on behalf of the corporation.
/s/ Angela Mary Zmuda
---------------------------------------------
Notary Public
[SEAL]
-6-
<PAGE>
EXHIBIT 10.23
GUARANTY BY CORPORATION
(HENDERSON ELECTRIC CO., INC.)
Minneapolis, Minnesota
December 22, 1998
This Guaranty, dated as of December 22, 1998, is made by HENDERSON
ELECTRIC CO., INC., a Delaware corporation (the "Guarantor") for the benefit of
Norwest Bank Minnesota, National Association, a national banking association as
agent (in such capacity, the "Agent") for the Banks, as defined in the Credit
Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to extending such credit to the Borrower, the Banks
have required the execution and delivery of this Guaranty and a Security
Agreement of even date herewith.
ACCORDINGLY, the Guarantor, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Definitions. All terms defined in the Credit Agreement that are
-----------
not otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. Guaranty. The Guarantor hereby absolutely and unconditionally to
--------
the Agent and the Banks the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of (i) the
Obligations and (ii) each and every other sum now or hereafter owing to a Bank
by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to a Bank
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by a Bank, in each case whether now existing or
hereafter arising, whether arising directly in a transaction or event involving
a Bank or acquired by a Bank from another by purchase or assignment or as
collateral security, whether owed by the Borrower as drawer, maker, endorser,
accommodation party, guarantor, principal, surety or as a member of any
partnership, syndicate, association or group or in any other capacity, whether
absolute or contingent, direct or indirect, primary or secondary, sole, joint,
several or joint and several, secured or unsecured, due or not due, contractual,
tortious or statutory, liquidated or unliquidated, arising by agreement or
imposed by law or otherwise (all of said sums being hereinafter called the
"Indebtedness").
3. Guarantor's Representations and Warranties. The Guarantor
------------------------------------------
represents and warrants to the Agent and the Banks that (i) the Guarantor is a
corporation, duly organized
<PAGE>
and existing in good standing and has full power and authority to make and
deliver this Guaranty; (ii) the execution, delivery and performance of this
Guaranty by the Guarantor have been duly authorized by all necessary action of
its board of directors and shareholders and do not and will not violate the
provisions of, or constitute a default under, any presently applicable law or
its articles of incorporation or bylaws or any agreement presently binding on
it; (iii) this Guaranty has been duly executed and delivered by the authorized
officer of the Guarantor and constitutes its lawful, binding and legally
enforceable obligation; and (iv) the authorization, execution, delivery and
performance of this Guaranty do not require notification to, registration with,
or consent or approval by, any federal, state or local regulatory body or
administrative agency. The Guarantor further represents and warrants to Agent
and the Banks that the Guarantor has a direct and substantial economic interest
in the Borrower and expects to derive substantial benefits therefrom and from
any loans, credit transactions, financial accommodations, discounts, purchases
of property and other transactions and events resulting in the creation of the
Indebtedness guarantied hereby, and that this Guaranty is given for a business
purpose. The Guarantor agrees to rely exclusively on the right to revoke this
Guaranty prospectively as to future transactions, in accordance with paragraph
4, if at any time, in the opinion of the board of directors of the Guarantor or
its officers, the benefits then being received by the Guarantor in connection
with this Guaranty are not sufficient to warrant the continuance of this
Guaranty as to the future Indebtedness of the Borrower. Accordingly, so long as
this Guaranty is not revoked prospectively in accordance with paragraph 4, the
Banks or the Agent may rely conclusively on a continuing warranty, hereby made,
that the Guarantor continues to be benefitted by this Guaranty and the Banks or
the Agent shall have no duty to inquire into or confirm the receipt of any such
benefits, and this Guaranty shall be effective and enforceable by the Banks or
the Agent without regard to the receipt, nature or value of any such benefits.
4. Unconditional Nature. No act or thing need occur to establish the
--------------------
Guarantor's liability hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or modify, reduce, limit or release the Guarantor's liability
hereunder. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
Guarantor, whether or not all of the Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Agent, and such revocation shall not be effective as to
the amount of Indebtedness existing or committed for at the time of actual
receipt of such notice by the Agent, or as to any renewals, extensions,
refinancings or refundings thereof.
5. Disolution or Insolvency of Guarantor. The dissolution or
-------------------------------------
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Agent and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however defined), then the
Agent and the Banks shall have the right to declare immediately due and payable,
and the Guarantor will forthwith pay to the Agent, the full amount of all of the
Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily
commences or there is commenced involuntarily against the Guarantor a case under
the United States Bankruptcy Code, the full
-2-
<PAGE>
amount of all Indebtedness, whether due and payable or unmatured, shall be
immediately due and payable without demand or notice thereof.
6. Subrogation, etc. The Guarantor hereby waives all rights that the
-----------------
Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrower or from any property of the Borrower any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrower or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the
--------------------
Agent and the Banks for all costs, expenses and attorneys' fees paid or incurred
by the Agent and the Banks in endeavoring to collect and enforce the
Indebtedness and in enforcing this Guaranty.
8. Banks' Rights. The Agent and the Banks shall not be obligated by
-------------
reason of their acceptance of this Guaranty to engage in any transactions with
or for the Borrower. Whether or not any existing relationship between the
Guarantor and the Borrower has been changed or ended and whether or not this
Guaranty has been revoked, the Agent and the Banks may enter into transactions
resulting in the creation or continuance of the Indebtedness and may otherwise
agree, consent to or suffer the creation or continuance of any of the
Indebtedness, without any consent or approval by the Guarantor and without any
prior or subsequent notice to the Guarantor. The Guarantor's liability shall not
be affected or impaired by any of the following acts or things (which the Agent
and the Banks are expressly authorized to do, omit or suffer from time to time,
both before and after revocation of this Guaranty, without consent or approval
by or notice to the Guarantor): (i) any acceptance of collateral security,
guarantors, accommodation parties or sureties for any or all of the
Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities, if any, or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any of the
Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of
-3-
<PAGE>
any payments or credits upon the Indebtedness; and (x) any election by the Agent
and the Banks under Section 1111(b) of the United States Bankruptcy Code. The
Guarantor waives any and all defenses and discharges available to a surety,
guarantor or accommodation co-obligor.
9. Waivers by Guarantor. The Guarantor waives any and all defenses,
--------------------
claims, setoffs and discharges of the Borrower, or any other obligor, pertaining
to the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Agent or the Banks any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrower or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Agent or the Banks to the Borrower or any other such
person, whether or not on account of a related transaction. The Guarantor
expressly agrees that the Guarantor shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing the Indebtedness, whether or not the liability of the Borrower or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision. The liability of the Guarantor shall not be affected or impaired by
any voluntary or involuntary liquidation, dissolution, sale or other disposition
of all or substantially all of the assets, marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of, or other
similar event or proceeding affecting, the Borrower or any of its assets. The
Guarantor will not assert, plead or enforce against the Agent or the Banks any
claim, defense or setoff available to the Guarantor against the Borrower. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Agent
and the Banks shall not be required first to resort for payment of the
Indebtedness to the Borrower or other persons, or their properties, or first to
enforce, realize upon or exhaust any collateral security for the Indebtedness,
before enforcing this Guaranty.
10. If Payments Set Aside, etc. If any payment applied by the Agent
--------------------------
or the Banks to the Indebtedness is thereafter set aside, recovered, rescinded
or required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrower or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. No Duties Owed by Banks. The Guarantor acknowledges and agrees
-----------------------
that the Agent and the Banks (i) have not made any representations or warranties
with respect to, (ii) do not assume any responsibility to the Guarantor for, and
(iii) have no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrower or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Agent or the Banks continue to make such determinations.
-4-
<PAGE>
12. Additional Obligation of Guarantor. The Guarantor's liability
----------------------------------
under this Guaranty is in addition to and shall be cumulative with all other
liabilities of the Guarantor to the Agent or any Bank as guarantor, surety,
endorser, accommodation co-obligor or otherwise of any of the Indebtedness or
obligation of the Borrower, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
13. Miscellaneous. This Guaranty shall be effective upon delivery to
-------------
the Agent, without further act, condition or acceptance by the Agent or the
Banks, shall be binding upon the Guarantor and the successors and assigns of the
Guarantor and shall inure to the benefit of the Agent and the Banks and its
participants, successors and assigns. Any invalidity or unenforceability of any
provision or application of this Guaranty shall not affect other lawful
provisions and application thereof, and to this end the provisions of this
Guaranty are declared to be severable. This Guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by a writing
signed by the Guarantor and the Agent. This Guaranty shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of Minnesota. The Guarantor hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this Guaranty; (ii) waives any
argument that venue in any such forum is not convenient, (iii) agrees that any
litigation initiated by the Agent or the Banks or the Guarantor in connection
with this Guaranty shall be venued in either the District Court of Hennepin
County, Minnesota, or the United States District Court, District of Minnesota,
Fourth Division; and (iv) agrees that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
-5-
<PAGE>
14. Waiver of Jury Trial. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES
--------------------
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the Guarantor
the date first written above.
HENDERSON ELECTRIC CO., INC.
By /s/ Frank R. Clark
----------------------------
Frank R. Clark
Its Assistant Secretary
Address: c/o Nationwide Electric, Inc.
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
Attn: Frank R. Clark
STATE OF MINNESOTA )
)
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 22nd day of
December, 1998 by Frank R. Clark, the Assistant Secretary of HENDERSON ELECTRIC
CO., INC., a Delaware corporation, on behalf of the corporation.
/s/ Angela Mary Zmuda
---------------------------
Notary Public
[SEAL]
-6-
<PAGE>
EXHIBIT 10.24
GUARANTY BY CORPORATION
(EAGLE ELECTRIC HOLDINGS, INC.)
Minneapolis, Minnesota
December 22, 1998
This Guaranty, dated as of December 22, 1998, is made by EAGLE
ELECTRIC HOLDINGS, INC., a Delaware corporation (the "Guarantor") for the
benefit of Norwest Bank Minnesota, National Association, a national banking
association as agent (in such capacity, the "Agent") for the Banks, as defined
in the Credit Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to extending such credit to the Borrower, the Banks
have required the execution and delivery of this Guaranty, a Security Agreement
and a Collateral Pledge Agreement of even date herewith.
ACCORDINGLY, the Guarantor, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Definitions. All terms defined in the Credit Agreement that are
-----------
not otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. Guaranty. The Guarantor hereby absolutely and unconditionally to
--------
the Agent and the Banks the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of (i) the
Obligations and (ii) each and every other sum now or hereafter owing to a Bank
by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to a Bank
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by a Bank, in each case whether now existing or
hereafter arising, whether arising directly in a transaction or event involving
a Bank or acquired by a Bank from another by purchase or assignment or as
collateral security, whether owed by the Borrower as drawer, maker, endorser,
accommodation party, guarantor, principal, surety or as a member of any
partnership, syndicate, association or group or in any other capacity, whether
absolute or contingent, direct or indirect, primary or secondary, sole, joint,
several or joint and several, secured or unsecured, due or not due, contractual,
tortious or statutory, liquidated or unliquidated, arising by agreement or
imposed by law or otherwise (all of said sums being hereinafter called the
"Indebtedness").
<PAGE>
3. Guarantor's Representations and Warranties. The Guarantor
------------------------------------------
represents and warrants to the Agent and the Banks that (i) the Guarantor is a
corporation, duly organized and existing in good standing and has full power and
authority to make and deliver this Guaranty; (ii) the execution, delivery and
performance of this Guaranty by the Guarantor have been duly authorized by all
necessary action of its board of directors and shareholders and do not and will
not violate the provisions of, or constitute a default under, any presently
applicable law or its articles of incorporation or bylaws or any agreement
presently binding on it; (iii) this Guaranty has been duly executed and
delivered by the authorized officer of the Guarantor and constitutes its lawful,
binding and legally enforceable obligation; and (iv) the authorization,
execution, delivery and performance of this Guaranty do not require notification
to, registration with, or consent or approval by, any federal, state or local
regulatory body or administrative agency. The Guarantor further represents and
warrants to Agent and the Banks that the Guarantor has a direct and substantial
economic interest in the Borrower and expects to derive substantial benefits
therefrom and from any loans, credit transactions, financial accommodations,
discounts, purchases of property and other transactions and events resulting in
the creation of the Indebtedness guarantied hereby, and that this Guaranty is
given for a business purpose. The Guarantor agrees to rely exclusively on the
right to revoke this Guaranty prospectively as to future transactions, in
accordance with paragraph 4, if at any time, in the opinion of the board of
directors of the Guarantor or its officers, the benefits then being received by
the Guarantor in connection with this Guaranty are not sufficient to warrant the
continuance of this Guaranty as to the future Indebtedness of the Borrower.
Accordingly, so long as this Guaranty is not revoked prospectively in accordance
with paragraph 4, the Banks or the Agent may rely conclusively on a continuing
warranty, hereby made, that the Guarantor continues to be benefitted by this
Guaranty and the Banks or the Agent shall have no duty to inquire into or
confirm the receipt of any such benefits, and this Guaranty shall be effective
and enforceable by the Banks or the Agent without regard to the receipt, nature
or value of any such benefits.
4. Unconditional Nature. No act or thing need occur to establish the
--------------------
Guarantor's liability hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or modify, reduce, limit or release the Guarantor's liability
hereunder. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
Guarantor, whether or not all of the Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Agent, and such revocation shall not be effective as to
the amount of Indebtedness existing or committed for at the time of actual
receipt of such notice by the Agent, or as to any renewals, extensions,
refinancings or refundings thereof.
5. Disolution or Insolvency of Guarantor. The dissolution or
-------------------------------------
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Agent and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however defined), then the
Agent and the Banks shall have the right to declare immediately due and payable,
and the Guarantor will forthwith pay to the Agent, the full amount of all of the
Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily
commences or there is commenced
-2-
<PAGE>
involuntarily against the Guarantor a case under the United States Bankruptcy
Code, the full amount of all Indebtedness, whether due and payable or unmatured,
shall be immediately due and payable without demand or notice thereof.
6. Subrogation, etc. The Guarantor hereby waives all rights that the
-----------------
Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrower or from any property of the Borrower any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrower or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the
--------------------
Agent and the Banks for all costs, expenses and attorneys' fees paid or incurred
by the Agent and the Banks in endeavoring to collect and enforce the
Indebtedness and in enforcing this Guaranty.
8. Banks' Rights. The Agent and the Banks shall not be obligated by
-------------
reason of their acceptance of this Guaranty to engage in any transactions with
or for the Borrower. Whether or not any existing relationship between the
Guarantor and the Borrower has been changed or ended and whether or not this
Guaranty has been revoked, the Agent and the Banks may enter into transactions
resulting in the creation or continuance of the Indebtedness and may otherwise
agree, consent to or suffer the creation or continuance of any of the
Indebtedness, without any consent or approval by the Guarantor and without any
prior or subsequent notice to the Guarantor. The Guarantor's liability shall not
be affected or impaired by any of the following acts or things (which the Agent
and the Banks are expressly authorized to do, omit or suffer from time to time,
both before and after revocation of this Guaranty, without consent or approval
by or notice to the Guarantor): (i) any acceptance of collateral security,
guarantors, accommodation parties or sureties for any or all of the
Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities, if any, or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any
-3-
<PAGE>
of the Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of any payments or credits upon the Indebtedness; and (x) any
election by the Agent and the Banks under Section 1111(b) of the United States
Bankruptcy Code. The Guarantor waives any and all defenses and discharges
available to a surety, guarantor or accommodation co-obligor.
9. Waivers by Guarantor. The Guarantor waives any and all defenses,
--------------------
claims, setoffs and discharges of the Borrower, or any other obligor, pertaining
to the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Agent or the Banks any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrower or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Agent or the Banks to the Borrower or any other such
person, whether or not on account of a related transaction. The Guarantor
expressly agrees that the Guarantor shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing the Indebtedness, whether or not the liability of the Borrower or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision. The liability of the Guarantor shall not be affected or impaired by
any voluntary or involuntary liquidation, dissolution, sale or other disposition
of all or substantially all of the assets, marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of, or other
similar event or proceeding affecting, the Borrower or any of its assets. The
Guarantor will not assert, plead or enforce against the Agent or the Banks any
claim, defense or setoff available to the Guarantor against the Borrower. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Agent
and the Banks shall not be required first to resort for payment of the
Indebtedness to the Borrower or other persons, or their properties, or first to
enforce, realize upon or exhaust any collateral security for the Indebtedness,
before enforcing this Guaranty.
10. If Payments Set Aside, etc. If any payment applied by the Agent
--------------------------
or the Banks to the Indebtedness is thereafter set aside, recovered, rescinded
or required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrower or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. No Duties Owed by Banks. The Guarantor acknowledges and agrees
-----------------------
that the Agent and the Banks (i) have not made any representations or warranties
with respect to, (ii) do not assume any responsibility to the Guarantor for, and
(iii) have no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrower or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Agent or the Banks continue to make such determinations.
-4-
<PAGE>
12. Additional Obligation of Guarantor. The Guarantor's liability
----------------------------------
under this Guaranty is in addition to and shall be cumulative with all other
liabilities of the Guarantor to the Agent or any Bank as guarantor, surety,
endorser, accommodation co-obligor or otherwise of any of the Indebtedness or
obligation of the Borrower, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
13. Miscellaneous. This Guaranty shall be effective upon delivery to
-------------
the Agent, without further act, condition or acceptance by the Agent or the
Banks, shall be binding upon the Guarantor and the successors and assigns of the
Guarantor and shall inure to the benefit of the Agent and the Banks and its
participants, successors and assigns. Any invalidity or unenforceability of any
provision or application of this Guaranty shall not affect other lawful
provisions and application thereof, and to this end the provisions of this
Guaranty are declared to be severable. This Guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by a writing
signed by the Guarantor and the Agent. This Guaranty shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of Minnesota. The Guarantor hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this Guaranty; (ii) waives any
argument that venue in any such forum is not convenient, (iii) agrees that any
litigation initiated by the Agent or the Banks or the Guarantor in connection
with this Guaranty shall be venued in either the District Court of Hennepin
County, Minnesota, or the United States District Court, District of Minnesota,
Fourth Division; and (iv) agrees that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
-5-
<PAGE>
14. Waiver of Jury Trial. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES
--------------------
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the Guarantor
the date first written above.
EAGLE ELECTRIC HOLDINGS, INC.
By /s/ Frank R. Clark
------------------------
Frank R. Clark
Its Assistant Secretary
Address: c/o Nationwide Electric, Inc.
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
Attn: Frank R. Clark
STATE OF MINNESOTA )
)
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 22nd day of
December, 1998 by Frank R. Clark, the Assistant Secretary of EAGLE ELECTRIC
HOLDINGS, INC., a Delaware corporation, on behalf of the corporation.
Angela Mary Zmuda
------------------------
Notary Public
[SEAL]
-6-
<PAGE>
EXHIBIT 10.25
GUARANTY BY CORPORATION
(EAGLE ELECTRIC HOLDINGS, INC.)
Minneapolis, Minnesota
December 22, 1998
This Guaranty, dated as of December 22, 1998, is made by EAGLE
ELECTRIC HOLDINGS, INC., a Minnesota corporation (the "Guarantor") for the
benefit of Norwest Bank Minnesota, National Association, a national banking
association as agent (in such capacity, the "Agent") for the Banks, as defined
in the Credit Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to extending such credit to the Borrower, the Banks
have required the execution and delivery of this Guaranty and a Security
Agreement of even date herewith.
ACCORDINGLY, the Guarantor, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Definitions. All terms defined in the Credit Agreement that are
-----------
not otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. Guaranty. The Guarantor hereby absolutely and unconditionally to
--------
the Agent and the Banks the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of (i) the
Obligations and (ii) each and every other sum now or hereafter owing to a Bank
by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to a Bank
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by a Bank, in each case whether now existing or
hereafter arising, whether arising directly in a transaction or event involving
a Bank or acquired by a Bank from another by purchase or assignment or as
collateral security, whether owed by the Borrower as drawer, maker, endorser,
accommodation party, guarantor, principal, surety or as a member of any
partnership, syndicate, association or group or in any other capacity, whether
absolute or contingent, direct or indirect, primary or secondary, sole, joint,
several or joint and several, secured or unsecured, due or not due, contractual,
tortious or statutory, liquidated or unliquidated, arising by agreement or
imposed by law or otherwise (all of said sums being hereinafter called the
"Indebtedness").
3. Guarantor's Representations and Warranties. The Guarantor
------------------------------------------
represents and warrants to the Agent and the Banks that (i) the Guarantor is a
corporation, duly organized
<PAGE>
and existing in good standing and has full power and authority to make and
deliver this Guaranty; (ii) the execution, delivery and performance of this
Guaranty by the Guarantor have been duly authorized by all necessary action of
its board of directors and shareholders and do not and will not violate the
provisions of, or constitute a default under, any presently applicable law or
its articles of incorporation or bylaws or any agreement presently binding on
it; (iii) this Guaranty has been duly executed and delivered by the authorized
officer of the Guarantor and constitutes its lawful, binding and legally
enforceable obligation; and (iv) the authorization, execution, delivery and
performance of this Guaranty do not require notification to, registration with,
or consent or approval by, any federal, state or local regulatory body or
administrative agency. The Guarantor further represents and warrants to Agent
and the Banks that the Guarantor has a direct and substantial economic interest
in the Borrower and expects to derive substantial benefits therefrom and from
any loans, credit transactions, financial accommodations, discounts, purchases
of property and other transactions and events resulting in the creation of the
Indebtedness guarantied hereby, and that this Guaranty is given for a business
purpose. The Guarantor agrees to rely exclusively on the right to revoke this
Guaranty prospectively as to future transactions, in accordance with paragraph
4, if at any time, in the opinion of the board of directors of the Guarantor or
its officers, the benefits then being received by the Guarantor in connection
with this Guaranty are not sufficient to warrant the continuance of this
Guaranty as to the future Indebtedness of the Borrower. Accordingly, so long as
this Guaranty is not revoked prospectively in accordance with paragraph 4, the
Banks or the Agent may rely conclusively on a continuing warranty, hereby made,
that the Guarantor continues to be benefitted by this Guaranty and the Banks or
the Agent shall have no duty to inquire into or confirm the receipt of any such
benefits, and this Guaranty shall be effective and enforceable by the Banks or
the Agent without regard to the receipt, nature or value of any such benefits.
4. Unconditional Nature. No act or thing need occur to establish the
--------------------
Guarantor's liability hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or modify, reduce, limit or release the Guarantor's liability
hereunder. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
Guarantor, whether or not all of the Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Agent, and such revocation shall not be effective as to
the amount of Indebtedness existing or committed for at the time of actual
receipt of such notice by the Agent, or as to any renewals, extensions,
refinancings or refundings thereof.
5. Disolution or Insolvency of Guarantor. The dissolution or
-------------------------------------
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Agent and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however defined), then the
Agent and the Banks shall have the right to declare immediately due and payable,
and the Guarantor will forthwith pay to the Agent, the full amount of all of the
Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily
commences or there is commenced involuntarily against the Guarantor a case under
the United States Bankruptcy Code, the full
-2-
<PAGE>
amount of all Indebtedness, whether due and payable or unmatured, shall be
immediately due and payable without demand or notice thereof.
6. Subrogation, etc. The Guarantor hereby waives all rights that the
-----------------
Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrower or from any property of the Borrower any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrower or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the
--------------------
Agent and the Banks for all costs, expenses and attorneys' fees paid or incurred
by the Agent and the Banks in endeavoring to collect and enforce the
Indebtedness and in enforcing this Guaranty.
8. Banks' Rights. The Agent and the Banks shall not be obligated by
-------------
reason of their acceptance of this Guaranty to engage in any transactions with
or for the Borrower. Whether or not any existing relationship between the
Guarantor and the Borrower has been changed or ended and whether or not this
Guaranty has been revoked, the Agent and the Banks may enter into transactions
resulting in the creation or continuance of the Indebtedness and may otherwise
agree, consent to or suffer the creation or continuance of any of the
Indebtedness, without any consent or approval by the Guarantor and without any
prior or subsequent notice to the Guarantor. The Guarantor's liability shall not
be affected or impaired by any of the following acts or things (which the Agent
and the Banks are expressly authorized to do, omit or suffer from time to time,
both before and after revocation of this Guaranty, without consent or approval
by or notice to the Guarantor): (i) any acceptance of collateral security,
guarantors, accommodation parties or sureties for any or all of the
Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities, if any, or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any of the
Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of
-3-
<PAGE>
any payments or credits upon the Indebtedness; and (x) any election by the Agent
and the Banks under Section 1111(b) of the United States Bankruptcy Code. The
Guarantor waives any and all defenses and discharges available to a surety,
guarantor or accommodation co-obligor.
9. Waivers by Guarantor. The Guarantor waives any and all defenses,
--------------------
claims, setoffs and discharges of the Borrower, or any other obligor, pertaining
to the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Agent or the Banks any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrower or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Agent or the Banks to the Borrower or any other such
person, whether or not on account of a related transaction. The Guarantor
expressly agrees that the Guarantor shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing the Indebtedness, whether or not the liability of the Borrower or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision. The liability of the Guarantor shall not be affected or impaired by
any voluntary or involuntary liquidation, dissolution, sale or other disposition
of all or substantially all of the assets, marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of, or other
similar event or proceeding affecting, the Borrower or any of its assets. The
Guarantor will not assert, plead or enforce against the Agent or the Banks any
claim, defense or setoff available to the Guarantor against the Borrower. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Agent
and the Banks shall not be required first to resort for payment of the
Indebtedness to the Borrower or other persons, or their properties, or first to
enforce, realize upon or exhaust any collateral security for the Indebtedness,
before enforcing this Guaranty.
10. If Payments Set Aside, etc. If any payment applied by the Agent
--------------------------
or the Banks to the Indebtedness is thereafter set aside, recovered, rescinded
or required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrower or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. No Duties Owed by Banks. The Guarantor acknowledges and agrees
-----------------------
that the Agent and the Banks (i) have not made any representations or warranties
with respect to, (ii) do not assume any responsibility to the Guarantor for, and
(iii) have no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrower or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Agent or the Banks continue to make such determinations.
-4-
<PAGE>
12. Additional Obligation of Guarantor. The Guarantor's liability
----------------------------------
under this Guaranty is in addition to and shall be cumulative with all other
liabilities of the Guarantor to the Agent or any Bank as guarantor, surety,
endorser, accommodation co-obligor or otherwise of any of the Indebtedness or
obligation of the Borrower, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
13. Miscellaneous. This Guaranty shall be effective upon delivery to
-------------
the Agent, without further act, condition or acceptance by the Agent or the
Banks, shall be binding upon the Guarantor and the successors and assigns of the
Guarantor and shall inure to the benefit of the Agent and the Banks and its
participants, successors and assigns. Any invalidity or unenforceability of any
provision or application of this Guaranty shall not affect other lawful
provisions and application thereof, and to this end the provisions of this
Guaranty are declared to be severable. This Guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by a writing
signed by the Guarantor and the Agent. This Guaranty shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of Minnesota. The Guarantor hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this Guaranty; (ii) waives any
argument that venue in any such forum is not convenient, (iii) agrees that any
litigation initiated by the Agent or the Banks or the Guarantor in connection
with this Guaranty shall be venued in either the District Court of Hennepin
County, Minnesota, or the United States District Court, District of Minnesota,
Fourth Division; and (iv) agrees that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
-5-
<PAGE>
14. Waiver of Jury Trial. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES
--------------------
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
Guarantor the date first written above.
EAGLE ELECTRIC HOLDINGS, INC.
By /s/ Frank R. Clark
-------------------------
Frank R. Clark
Its Assistant Secretary
Address: c/o Nationwide Electric, Inc.
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
Attn: Frank R. Clark
STATE OF MINNESOTA )
)
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 22nd day of
December, 1998 by Frank R. Clark, the Secretary of EAGLE ELECTRIC HOLDINGS,
INC., a Minnesota corporation, on behalf of the corporation.
/s/ Angela Mary Zmuda
---------------------------------
Notary Public
[SEAL]
-6-
<PAGE>
EXHIBIT 10.26
GUARANTY BY CORPORATION
(EAGLE ELECTRICAL SYSTEMS, INC.)
Minneapolis, Minnesota
December 22, 1998
This Guaranty, dated as of December 22, 1998, is made by EAGLE
ELECTRICAL SYSTEMS, an Ohio corporation (the "Guarantor") for the benefit of
Norwest Bank Minnesota, National Association, a national banking association as
agent (in such capacity, the "Agent") for the Banks, as defined in the Credit
Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to extending such credit to the Borrower, the Banks
have required the execution and delivery of this Guaranty and a Security
Agreement of even date herewith.
ACCORDINGLY, the Guarantor, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Definitions. All terms defined in the Credit Agreement that are
-----------
not otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. Guaranty. The Guarantor hereby absolutely and unconditionally to
--------
the Agent and the Banks the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of (i) the
Obligations and (ii) each and every other sum now or hereafter owing to a Bank
by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to a Bank
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by a Bank, in each case whether now existing or
hereafter arising, whether arising directly in a transaction or event involving
a Bank or acquired by a Bank from another by purchase or assignment or as
collateral security, whether owed by the Borrower as drawer, maker, endorser,
accommodation party, guarantor, principal, surety or as a member of any
partnership, syndicate, association or group or in any other capacity, whether
absolute or contingent, direct or indirect, primary or secondary, sole, joint,
several or joint and several, secured or unsecured, due or not due, contractual,
tortious or statutory, liquidated or unliquidated, arising by agreement or
imposed by law or otherwise (all of said sums being hereinafter called the
"Indebtedness").
3. Guarantor's Representations and Warranties. The Guarantor
------------------------------------------
represents and warrants to the Agent and the Banks that (i) the Guarantor is a
corporation, duly organized
<PAGE>
and existing in good standing and has full power and authority to make and
deliver this Guaranty; (ii) the execution, delivery and performance of this
Guaranty by the Guarantor have been duly authorized by all necessary action of
its board of directors and shareholders and do not and will not violate the
provisions of, or constitute a default under, any presently applicable law or
its articles of incorporation or bylaws or any agreement presently binding on
it; (iii) this Guaranty has been duly executed and delivered by the authorized
officer of the Guarantor and constitutes its lawful, binding and legally
enforceable obligation; and (iv) the authorization, execution, delivery and
performance of this Guaranty do not require notification to, registration with,
or consent or approval by, any federal, state or local regulatory body or
administrative agency. The Guarantor further represents and warrants to Agent
and the Banks that the Guarantor has a direct and substantial economic interest
in the Borrower and expects to derive substantial benefits therefrom and from
any loans, credit transactions, financial accommodations, discounts, purchases
of property and other transactions and events resulting in the creation of the
Indebtedness guarantied hereby, and that this Guaranty is given for a business
purpose. The Guarantor agrees to rely exclusively on the right to revoke this
Guaranty prospectively as to future transactions, in accordance with paragraph
4, if at any time, in the opinion of the board of directors of the Guarantor or
its officers, the benefits then being received by the Guarantor in connection
with this Guaranty are not sufficient to warrant the continuance of this
Guaranty as to the future Indebtedness of the Borrower. Accordingly, so long as
this Guaranty is not revoked prospectively in accordance with paragraph 4, the
Banks or the Agent may rely conclusively on a continuing warranty, hereby made,
that the Guarantor continues to be benefitted by this Guaranty and the Banks or
the Agent shall have no duty to inquire into or confirm the receipt of any such
benefits, and this Guaranty shall be effective and enforceable by the Banks or
the Agent without regard to the receipt, nature or value of any such benefits.
4. Unconditional Nature. No act or thing need occur to establish the
--------------------
Guarantor's liability hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or modify, reduce, limit or release the Guarantor's liability
hereunder. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
Guarantor, whether or not all of the Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Agent, and such revocation shall not be effective as to
the amount of Indebtedness existing or committed for at the time of actual
receipt of such notice by the Agent, or as to any renewals, extensions,
refinancings or refundings thereof.
5. Disolution or Insolvency of Guarantor. The dissolution or
-------------------------------------
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Agent and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however defined), then the
Agent and the Banks shall have the right to declare immediately due and payable,
and the Guarantor will forthwith pay to the Agent, the full amount of all of the
Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily
commences or there is commenced involuntarily against the Guarantor a case under
the United States Bankruptcy Code, the full
-2-
<PAGE>
amount of all Indebtedness, whether due and payable or unmatured, shall be
immediately due and payable without demand or notice thereof.
6. Subrogation, etc. The Guarantor hereby waives all rights that the
-----------------
Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrower or from any property of the Borrower any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrower or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the
--------------------
Agent and the Banks for all costs, expenses and attorneys' fees paid or incurred
by the Agent and the Banks in endeavoring to collect and enforce the
Indebtedness and in enforcing this Guaranty.
8. Banks' Rights. The Agent and the Banks shall not be obligated by
-------------
reason of their acceptance of this Guaranty to engage in any transactions with
or for the Borrower. Whether or not any existing relationship between the
Guarantor and the Borrower has been changed or ended and whether or not this
Guaranty has been revoked, the Agent and the Banks may enter into transactions
resulting in the creation or continuance of the Indebtedness and may otherwise
agree, consent to or suffer the creation or continuance of any of the
Indebtedness, without any consent or approval by the Guarantor and without any
prior or subsequent notice to the Guarantor. The Guarantor's liability shall not
be affected or impaired by any of the following acts or things (which the Agent
and the Banks are expressly authorized to do, omit or suffer from time to time,
both before and after revocation of this Guaranty, without consent or approval
by or notice to the Guarantor): (i) any acceptance of collateral security,
guarantors, accommodation parties or sureties for any or all of the
Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities, if any, or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any of the
Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of
-3-
<PAGE>
any payments or credits upon the Indebtedness; and (x) any election by the Agent
and the Banks under Section 1111(b) of the United States Bankruptcy Code. The
Guarantor waives any and all defenses and discharges available to a surety,
guarantor or accommodation co-obligor.
9. Waivers by Guarantor. The Guarantor waives any and all defenses,
--------------------
claims, setoffs and discharges of the Borrower, or any other obligor, pertaining
to the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Agent or the Banks any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrower or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Agent or the Banks to the Borrower or any other such
person, whether or not on account of a related transaction. The Guarantor
expressly agrees that the Guarantor shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing the Indebtedness, whether or not the liability of the Borrower or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision. The liability of the Guarantor shall not be affected or impaired by
any voluntary or involuntary liquidation, dissolution, sale or other disposition
of all or substantially all of the assets, marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of, or other
similar event or proceeding affecting, the Borrower or any of its assets. The
Guarantor will not assert, plead or enforce against the Agent or the Banks any
claim, defense or setoff available to the Guarantor against the Borrower. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Agent
and the Banks shall not be required first to resort for payment of the
Indebtedness to the Borrower or other persons, or their properties, or first to
enforce, realize upon or exhaust any collateral security for the Indebtedness,
before enforcing this Guaranty.
10. If Payments Set Aside, etc. If any payment applied by the Agent
--------------------------
or the Banks to the Indebtedness is thereafter set aside, recovered, rescinded
or required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrower or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. No Duties Owed by Banks. The Guarantor acknowledges and agrees
-----------------------
that the Agent and the Banks (i) have not made any representations or warranties
with respect to, (ii) do not assume any responsibility to the Guarantor for, and
(iii) have no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrower or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Agent or the Banks continue to make such determinations.
-4-
<PAGE>
12. Additional Obligation of Guarantor. The Guarantor's liability
----------------------------------
under this Guaranty is in addition to and shall be cumulative with all other
liabilities of the Guarantor to the Agent or any Bank as guarantor, surety,
endorser, accommodation co-obligor or otherwise of any of the Indebtedness or
obligation of the Borrower, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
13. Miscellaneous. This Guaranty shall be effective upon delivery to
-------------
the Agent, without further act, condition or acceptance by the Agent or the
Banks, shall be binding upon the Guarantor and the successors and assigns of the
Guarantor and shall inure to the benefit of the Agent and the Banks and its
participants, successors and assigns. Any invalidity or unenforceability of any
provision or application of this Guaranty shall not affect other lawful
provisions and application thereof, and to this end the provisions of this
Guaranty are declared to be severable. This Guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by a writing
signed by the Guarantor and the Agent. This Guaranty shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of Minnesota. The Guarantor hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this Guaranty; (ii) waives any
argument that venue in any such forum is not convenient, (iii) agrees that any
litigation initiated by the Agent or the Banks or the Guarantor in connection
with this Guaranty shall be venued in either the District Court of Hennepin
County, Minnesota, or the United States District Court, District of Minnesota,
Fourth Division; and (iv) agrees that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
-5-
<PAGE>
14. Waiver of Jury Trial. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES
--------------------
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
Guarantor the date first written above.
EAGLE ELECTRICAL SYSTEMS, INC.
By /s/ Frank R. Clark
-------------------------------
Frank R. Clark
Its Assistant Secretary
Address: c/o Nationwide Electric, Inc.
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
Attn: Frank R. Clark
STATE OF MINNESOTA )
)
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 22nd day of
December, 1998 by Frank R. Clark, the Assistant Secretary of EAGLE ELECTRICAL
SYSTEMS, INC., an Ohio corporation, on behalf of the corporation.
/s/ Angela Mary Zmuda
---------------------------------
Notary Public
[SEAL]
-6-
<PAGE>
EXHIBIT 10.27
GUARANTY BY CORPORATION
PARSONS ELECTRIC CO.
Minneapolis, Minnesota
December 22, 1998
This Guaranty, dated as of December 22, 1998, is made by Parsons
Electric Co., a Minnesota corporation (the "Guarantor") for the benefit of
Norwest Bank Minnesota, National Association, a national banking association as
agent (in such capacity, the "Agent") for the Banks, as defined in the Credit
Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to extending such credit to the Borrower, the Banks
have required the execution and delivery of this Guaranty, a Security Agreement
and a Collateral Pledge Agreement of even date herewith.
ACCORDINGLY, the Guarantor, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Definitions. All terms defined in the Credit Agreement that are
-----------
not otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. Guaranty. The Guarantor hereby absolutely and unconditionally to
--------
the Agent and the Banks the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of (i) the
Obligations and (ii) each and every other sum now or hereafter owing to a Bank
by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to a Bank
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by a Bank, in each case whether now existing or
hereafter arising, whether arising directly in a transaction or event involving
a Bank or acquired by a Bank from another by purchase or assignment or as
collateral security, whether owed by the Borrower as drawer, maker, endorser,
accommodation party, guarantor, principal, surety or as a member of any
partnership, syndicate, association or group or in any other capacity, whether
absolute or contingent, direct or indirect, primary or secondary, sole, joint,
several or joint and several, secured or unsecured, due or not due, contractual,
tortious or statutory, liquidated or unliquidated, arising by agreement or
imposed by law or otherwise (all of said sums being hereinafter called the
"Indebtedness").
3. Guarantor's Representations and Warranties. The Guarantor
------------------------------------------
represents and warrants to the Agent and the Banks that (i) the Guarantor is a
corporation, duly organized
<PAGE>
and existing in good standing and has full power and authority to make and
deliver this Guaranty; (ii) the execution, delivery and performance of this
Guaranty by the Guarantor have been duly authorized by all necessary action of
its board of directors and shareholders and do not and will not violate the
provisions of, or constitute a default under, any presently applicable law or
its articles of incorporation or bylaws or any agreement presently binding on
it; (iii) this Guaranty has been duly executed and delivered by the authorized
officer of the Guarantor and constitutes its lawful, binding and legally
enforceable obligation; and (iv) the authorization, execution, delivery and
performance of this Guaranty do not require notification to, registration with,
or consent or approval by, any federal, state or local regulatory body or
administrative agency. The Guarantor further represents and warrants to Agent
and the Banks that the Guarantor has a direct and substantial economic interest
in the Borrower and expects to derive substantial benefits therefrom and from
any loans, credit transactions, financial accommodations, discounts, purchases
of property and other transactions and events resulting in the creation of the
Indebtedness guarantied hereby, and that this Guaranty is given for a business
purpose. The Guarantor agrees to rely exclusively on the right to revoke this
Guaranty prospectively as to future transactions, in accordance with paragraph
4, if at any time, in the opinion of the board of directors of the Guarantor or
its officers, the benefits then being received by the Guarantor in connection
with this Guaranty are not sufficient to warrant the continuance of this
Guaranty as to the future Indebtedness of the Borrower. Accordingly, so long as
this Guaranty is not revoked prospectively in accordance with paragraph 4, the
Banks or the Agent may rely conclusively on a continuing warranty, hereby made,
that the Guarantor continues to be benefitted by this Guaranty and the Banks or
the Agent shall have no duty to inquire into or confirm the receipt of any such
benefits, and this Guaranty shall be effective and enforceable by the Banks or
the Agent without regard to the receipt, nature or value of any such benefits.
4. Unconditional Nature. No act or thing need occur to establish the
--------------------
Guarantor's liability hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or modify, reduce, limit or release the Guarantor's liability
hereunder. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
Guarantor, whether or not all of the Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Agent, and such revocation shall not be effective as to
the amount of Indebtedness existing or committed for at the time of actual
receipt of such notice by the Agent, or as to any renewals, extensions,
refinancings or refundings thereof.
5. Disolution or Insolvency of Guarantor. The dissolution or
-------------------------------------
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Agent and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however defined), then the
Agent and the Banks shall have the right to declare immediately due and payable,
and the Guarantor will forthwith pay to the Agent, the full amount of all of the
Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily
commences or there is commenced involuntarily against the Guarantor a case under
the United States Bankruptcy Code, the full
-2-
<PAGE>
amount of all Indebtedness, whether due and payable or unmatured, shall be
immediately due and payable without demand or notice thereof.
6. Subrogation, etc. The Guarantor hereby waives all rights that the
-----------------
Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrower or from any property of the Borrower any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrower or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the
--------------------
Agent and the Banks for all costs, expenses and attorneys' fees paid or incurred
by the Agent and the Banks in endeavoring to collect and enforce the
Indebtedness and in enforcing this Guaranty.
8. Banks' Rights. The Agent and the Banks shall not be obligated by
-------------
reason of their acceptance of this Guaranty to engage in any transactions with
or for the Borrower. Whether or not any existing relationship between the
Guarantor and the Borrower has been changed or ended and whether or not this
Guaranty has been revoked, the Agent and the Banks may enter into transactions
resulting in the creation or continuance of the Indebtedness and may otherwise
agree, consent to or suffer the creation or continuance of any of the
Indebtedness, without any consent or approval by the Guarantor and without any
prior or subsequent notice to the Guarantor. The Guarantor's liability shall not
be affected or impaired by any of the following acts or things (which the Agent
and the Banks are expressly authorized to do, omit or suffer from time to time,
both before and after revocation of this Guaranty, without consent or approval
by or notice to the Guarantor): (i) any acceptance of collateral security,
guarantors, accommodation parties or sureties for any or all of the
Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities, if any, or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any of the
Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of
-3-
<PAGE>
any payments or credits upon the Indebtedness; and (x) any election by the Agent
and the Banks under Section 1111(b) of the United States Bankruptcy Code. The
Guarantor waives any and all defenses and discharges available to a surety,
guarantor or accommodation co-obligor.
9. Waivers by Guarantor. The Guarantor waives any and all defenses,
--------------------
claims, setoffs and discharges of the Borrower, or any other obligor, pertaining
to the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Agent or the Banks any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrower or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Agent or the Banks to the Borrower or any other such
person, whether or not on account of a related transaction. The Guarantor
expressly agrees that the Guarantor shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing the Indebtedness, whether or not the liability of the Borrower or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision. The liability of the Guarantor shall not be affected or impaired by
any voluntary or involuntary liquidation, dissolution, sale or other disposition
of all or substantially all of the assets, marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of, or other
similar event or proceeding affecting, the Borrower or any of its assets. The
Guarantor will not assert, plead or enforce against the Agent or the Banks any
claim, defense or setoff available to the Guarantor against the Borrower. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Agent
and the Banks shall not be required first to resort for payment of the
Indebtedness to the Borrower or other persons, or their properties, or first to
enforce, realize upon or exhaust any collateral security for the Indebtedness,
before enforcing this Guaranty.
10. If Payments Set Aside, etc. If any payment applied by the Agent
--------------------------
or the Banks to the Indebtedness is thereafter set aside, recovered, rescinded
or required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrower or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. No Duties Owed by Banks. The Guarantor acknowledges and agrees
-----------------------
that the Agent and the Banks (i) have not made any representations or warranties
with respect to, (ii) do not assume any responsibility to the Guarantor for, and
(iii) have no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrower or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Agent or the Banks continue to make such determinations.
-4-
<PAGE>
12. Additional Obligation of Guarantor. The Guarantor's liability
----------------------------------
under this Guaranty is in addition to and shall be cumulative with all other
liabilities of the Guarantor to the Agent or any Bank as guarantor, surety,
endorser, accommodation co-obligor or otherwise of any of the Indebtedness or
obligation of the Borrower, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
13. Miscellaneous. This Guaranty shall be effective upon delivery to
-------------
the Agent, without further act, condition or acceptance by the Agent or the
Banks, shall be binding upon the Guarantor and the successors and assigns of the
Guarantor and shall inure to the benefit of the Agent and the Banks and its
participants, successors and assigns. Any invalidity or unenforceability of any
provision or application of this Guaranty shall not affect other lawful
provisions and application thereof, and to this end the provisions of this
Guaranty are declared to be severable. This Guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by a writing
signed by the Guarantor and the Agent. This Guaranty shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of Minnesota. The Guarantor hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this Guaranty; (ii) waives any
argument that venue in any such forum is not convenient, (iii) agrees that any
litigation initiated by the Agent or the Banks or the Guarantor in connection
with this Guaranty shall be venued in either the District Court of Hennepin
County, Minnesota, or the United States District Court, District of Minnesota,
Fourth Division; and (iv) agrees that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
-5-
<PAGE>
14. Waiver of Jury Trial. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES
--------------------
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
Guarantor the date first written above.
PARSONS ELECTRIC CO.
By /s/ Frank R. Clark
-------------------------------
Frank R. Clark
Its Assistant Secretary
Address: c/o Nationwide Electric, Inc.
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
Attn: Frank R. Clark
STATE OF MINNESOTA )
)
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 22nd day of
December, 1998 by Frank R. Clark, the Chief Financial Officer of PARSONS
ELECTRIC CO., a Minnesota corporation, on behalf of the corporation.
/s/ Angela Mary Zmuda
-------------------------------
Notary Public
[SEAL]
-6-
<PAGE>
EXHIBIT 10.28
GUARANTY BY CORPORATION
(PARSONS ELECTRIC HOLDINGS, INC.)
Minneapolis, Minnesota
December 22, 1998
This Guaranty, dated as of December 22, 1998, is made by PARSONS
ELECTRIC HOLDINGS, INC., a Delaware corporation (the "Guarantor") for the
benefit of Norwest Bank Minnesota, National Association, a national banking
association as agent (in such capacity, the "Agent") for the Banks, as defined
in the Credit Agreement described below.
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to extending such credit to the Borrower, the Banks
have required the execution and delivery of this Guaranty, a Security Agreement
and a Collateral Pledge Agreement of even date herewith.
ACCORDINGLY, the Guarantor, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Definitions. All terms defined in the Credit Agreement that are
-----------
not otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. Guaranty. The Guarantor hereby absolutely and unconditionally to
--------
the Agent and the Banks the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of (i) the
Obligations and (ii) each and every other sum now or hereafter owing to a Bank
by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to a Bank
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by a Bank, in each case whether now existing or
hereafter arising, whether arising directly in a transaction or event involving
a Bank or acquired by a Bank from another by purchase or assignment or as
collateral security, whether owed by the Borrower as drawer, maker, endorser,
accommodation party, guarantor, principal, surety or as a member of any
partnership, syndicate, association or group or in any other capacity, whether
absolute or contingent, direct or indirect, primary or secondary, sole, joint,
several or joint and several, secured or unsecured, due or not due, contractual,
tortious or statutory, liquidated or unliquidated, arising by agreement or
imposed by law or otherwise (all of said sums being hereinafter called the
"Indebtedness").
<PAGE>
3. Guarantor's Representations and Warranties. The Guarantor
------------------------------------------
represents and warrants to the Agent and the Banks that (i) the Guarantor is a
corporation, duly organized and existing in good standing and has full power and
authority to make and deliver this Guaranty; (ii) the execution, delivery and
performance of this Guaranty by the Guarantor have been duly authorized by all
necessary action of its board of directors and shareholders and do not and will
not violate the provisions of, or constitute a default under, any presently
applicable law or its articles of incorporation or bylaws or any agreement
presently binding on it; (iii) this Guaranty has been duly executed and
delivered by the authorized officer of the Guarantor and constitutes its lawful,
binding and legally enforceable obligation; and (iv) the authorization,
execution, delivery and performance of this Guaranty do not require notification
to, registration with, or consent or approval by, any federal, state or local
regulatory body or administrative agency. The Guarantor further represents and
warrants to Agent and the Banks that the Guarantor has a direct and substantial
economic interest in the Borrower and expects to derive substantial benefits
therefrom and from any loans, credit transactions, financial accommodations,
discounts, purchases of property and other transactions and events resulting in
the creation of the Indebtedness guarantied hereby, and that this Guaranty is
given for a business purpose. The Guarantor agrees to rely exclusively on the
right to revoke this Guaranty prospectively as to future transactions, in
accordance with paragraph 4, if at any time, in the opinion of the board of
directors of the Guarantor or its officers, the benefits then being received by
the Guarantor in connection with this Guaranty are not sufficient to warrant the
continuance of this Guaranty as to the future Indebtedness of the Borrower.
Accordingly, so long as this Guaranty is not revoked prospectively in accordance
with paragraph 4, the Banks or the Agent may rely conclusively on a continuing
warranty, hereby made, that the Guarantor continues to be benefitted by this
Guaranty and the Banks or the Agent shall have no duty to inquire into or
confirm the receipt of any such benefits, and this Guaranty shall be effective
and enforceable by the Banks or the Agent without regard to the receipt, nature
or value of any such benefits.
4. Unconditional Nature. No act or thing need occur to establish the
--------------------
Guarantor's liability hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or modify, reduce, limit or release the Guarantor's liability
hereunder. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
Guarantor, whether or not all of the Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Agent, and such revocation shall not be effective as to
the amount of Indebtedness existing or committed for at the time of actual
receipt of such notice by the Agent, or as to any renewals, extensions,
refinancings or refundings thereof.
5. Disolution or Insolvency of Guarantor. The dissolution or
-------------------------------------
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Agent and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however defined), then the
Agent and the Banks shall have the right to declare immediately due and payable,
and the Guarantor will forthwith pay to the Agent, the full amount of all of the
Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily
commences or there is commenced
-2-
<PAGE>
involuntarily against the Guarantor a case under the United States Bankruptcy
Code, the full amount of all Indebtedness, whether due and payable or unmatured,
shall be immediately due and payable without demand or notice thereof.
6. Subrogation, etc. The Guarantor hereby waives all rights that the
-----------------
Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrower or from any property of the Borrower any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrower or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the
--------------------
Agent and the Banks for all costs, expenses and attorneys' fees paid or incurred
by the Agent and the Banks in endeavoring to collect and enforce the
Indebtedness and in enforcing this Guaranty.
8. Banks' Rights. The Agent and the Banks shall not be obligated by
-------------
reason of their acceptance of this Guaranty to engage in any transactions with
or for the Borrower. Whether or not any existing relationship between the
Guarantor and the Borrower has been changed or ended and whether or not this
Guaranty has been revoked, the Agent and the Banks may enter into transactions
resulting in the creation or continuance of the Indebtedness and may otherwise
agree, consent to or suffer the creation or continuance of any of the
Indebtedness, without any consent or approval by the Guarantor and without any
prior or subsequent notice to the Guarantor. The Guarantor's liability shall not
be affected or impaired by any of the following acts or things (which the Agent
and the Banks are expressly authorized to do, omit or suffer from time to time,
both before and after revocation of this Guaranty, without consent or approval
by or notice to the Guarantor): (i) any acceptance of collateral security,
guarantors, accommodation parties or sureties for any or all of the
Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities, if any, or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any
-3-
<PAGE>
of the Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of any payments or credits upon the Indebtedness; and (x) any
election by the Agent and the Banks under Section 1111(b) of the United States
Bankruptcy Code. The Guarantor waives any and all defenses and discharges
available to a surety, guarantor or accommodation co-obligor.
9. Waivers by Guarantor. The Guarantor waives any and all defenses,
--------------------
claims, setoffs and discharges of the Borrower, or any other obligor, pertaining
to the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Agent or the Banks any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrower or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Agent or the Banks to the Borrower or any other such
person, whether or not on account of a related transaction. The Guarantor
expressly agrees that the Guarantor shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing the Indebtedness, whether or not the liability of the Borrower or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision. The liability of the Guarantor shall not be affected or impaired by
any voluntary or involuntary liquidation, dissolution, sale or other disposition
of all or substantially all of the assets, marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of, or other
similar event or proceeding affecting, the Borrower or any of its assets. The
Guarantor will not assert, plead or enforce against the Agent or the Banks any
claim, defense or setoff available to the Guarantor against the Borrower. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Agent
and the Banks shall not be required first to resort for payment of the
Indebtedness to the Borrower or other persons, or their properties, or first to
enforce, realize upon or exhaust any collateral security for the Indebtedness,
before enforcing this Guaranty.
10. If Payments Set Aside, etc. If any payment applied by the Agent
--------------------------
or the Banks to the Indebtedness is thereafter set aside, recovered, rescinded
or required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrower or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. No Duties Owed by Banks. The Guarantor acknowledges and agrees
-----------------------
that the Agent and the Banks (i) have not made any representations or warranties
with respect to, (ii) do not assume any responsibility to the Guarantor for, and
(iii) have no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrower or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Agent or the Banks continue to make such determinations.
-4-
<PAGE>
12. Additional Obligation of Guarantor. The Guarantor's liability
----------------------------------
under this Guaranty is in addition to and shall be cumulative with all other
liabilities of the Guarantor to the Agent or any Bank as guarantor, surety,
endorser, accommodation co-obligor or otherwise of any of the Indebtedness or
obligation of the Borrower, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
13. Miscellaneous. This Guaranty shall be effective upon delivery to
-------------
the Agent, without further act, condition or acceptance by the Agent or the
Banks, shall be binding upon the Guarantor and the successors and assigns of the
Guarantor and shall inure to the benefit of the Agent and the Banks and its
participants, successors and assigns. Any invalidity or unenforceability of any
provision or application of this Guaranty shall not affect other lawful
provisions and application thereof, and to this end the provisions of this
Guaranty are declared to be severable. This Guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by a writing
signed by the Guarantor and the Agent. This Guaranty shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of Minnesota. The Guarantor hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this Guaranty; (ii) waives any
argument that venue in any such forum is not convenient, (iii) agrees that any
litigation initiated by the Agent or the Banks or the Guarantor in connection
with this Guaranty shall be venued in either the District Court of Hennepin
County, Minnesota, or the United States District Court, District of Minnesota,
Fourth Division; and (iv) agrees that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
-5-
<PAGE>
14. Waiver of Jury Trial. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES
--------------------
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
Guarantor the date first written above.
PARSONS ELECTRIC HOLDINGS, INC.
By /s/ Frank R. Clark
---------------------------
Frank R. Clark
Its Assistant Secretary
Address: c/o Nationwide Electric, Inc.
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
Attn: Frank R. Clark
STATE OF MINNESOTA )
)
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 22nd day of
December, 1998 by Frank R. Clark, the Assistant Secretary of PARSONS ELECTRIC
HOLDINGS, INC., a Delaware corporation, on behalf of the corporation.
/s/ Angela Mary Zmuda
----------------------------------
Notary Public
[SEAL]
-6-
<PAGE>
EXHIBIT 10.29
COLLATERAL PLEDGE AGREEMENT
Date: December 22, 1998
This Agreement, dated as of December 22, 1998, is made by THE ALLISON
COMPANY, a Georgia corporation (the "Debtor"), for the benefit of NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as agent (in
such capacity, the "Secured Party") for the Banks (as defined in the Credit
Agreement described below).
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to making such advances and extending such financial
accommodations, the Secured Party has required the execution and delivery of the
Debtor's Guaranty and Security Agreement of even date herewith.
As a further condition to making such advances under the Credit
Agreement, the Secured Party and the Banks have required the execution and
delivery of this Agreement by the Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the Credit Agreement that are
-----------
not otherwise defined herein shall have the meanings given them in the Credit
Agreement. In addition, the following terms have the meanings set forth below:
2. Security Interest and Collateral. To secure the payment and
--------------------------------
performance of each and every debt, liability and obligation of every type and
description which the Borrower or the Debtor may now or at any time hereafter
owe to the Secured Party and the Banks (whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether it is or
may be direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or joint, several or joint and
several; all such debts, liabilities and obligations being herein collectively
referred to as the "Obligations"), the Debtor hereby grants the Secured Party a
security interest (herein called the "Security Interest") in all shares of stock
in Allison-Smith Company, a Georgia corporation, together with all rights in
connection with such property (herein called the "Collateral").
<PAGE>
3. Representations, Warranties and Covenants. The Debtor represents,
-----------------------------------------
warrants and covenants that:
(a) The Debtor will duly endorse, in blank, each and every instrument
constituting Collateral by signing on said instrument or by signing a
separate document of assignment or transfer, if required by the Secured
Party.
(b) The Debtor is the owner of the Collateral free and clear of all
liens, encumbrances, security interests and restrictions, except the
Security Interest and any restrictive legend appearing on any instrument
constituting Collateral.
(c) The Debtor will keep the Collateral free and clear of all liens,
encumbrances and security interests, except the Security Interest.
(d) The Debtor will pay, when due, all taxes and other governmental
charges levied or assessed upon or against any Collateral.
(e) At any time, upon request by the Secured Party, the Debtor will
deliver to the Secured Party all notices, financial statements, reports or
other communications received by the Debtor as an owner or holder of the
Collateral.
(f) The Debtor will upon receipt deliver to the Secured Party in
pledge as additional Collateral all securities distributed on account of
the Collateral such as stock dividends and securities resulting from stock
splits, reorganizations and recapitalizations.
4. Rights of the Secured Party. The Debtor agrees that the Secured
---------------------------
Party may at any time, whether before or after the occurrence of an Event of
Default and without notice or demand of any kind, (i) notify the obligor on or
issuer of any Collateral to make payment to the Secured Party of any amounts due
or distributable thereon; (ii) in the Debtor's name or the Secured Party's name
enforce collection of any Collateral by suit or otherwise, or surrender, release
or exchange all or any part of it, or compromise, extend or renew for any period
any obligation evidenced by the Collateral; (iii) receive all proceeds of the
Collateral; and (iv) hold any increase or profits received from the Collateral
as additional security for the Obligations, except that any money received from
the Collateral shall, at the Secured Party's option, be applied in reduction of
the Obligations, in such order of application as the Secured Party may
determine, or be remitted to the Debtor.
5. Events of Default. Each of the following occurrences shall
-----------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) the Debtor shall fail to pay any or all of the Obligations when
due or (if payable on demand) on demand, or shall fail to observe or perform any
covenant or agreement herein binding on it; (ii) any representation or warranty
by the Debtor set forth in this Agreement or made to the Secured Party in any
financial statements or reports submitted to the Secured Party by or on behalf
of
-2-
<PAGE>
the Debtor shall prove materially false or misleading; (iii) an Event of
Default, as defined in that certain Credit Agreement of even date herewith by
and between Parsons Electric Co. and the Secured Party (as the same may
hereafter be amended from time to time), shall occur.
6. Remedies upon Event of Default. Upon the occurrence of an Event of
------------------------------
Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights or remedies: (i) declare all unmatured Obligations
to be immediately due and payable, and the same shall thereupon be immediately
due and payable, without presentment or other notice or demand; (ii) exercise
all voting and other rights as a holder of the Collateral; (iii) exercise and
enforce any or all rights and remedies available upon default to a secured party
under the Uniform Commercial Code as in effect from time to time in the state of
Minnesota, including the right to offer and sell the Collateral privately to
purchasers who will agree to take the Collateral for investment and not with a
view to distribution and who will agree to the imposition of restrictive legends
on the certificates representing the Collateral, and the right to arrange for a
sale which would otherwise qualify as exempt from registration under the
Securities Act of 1933; and if notice to the Debtor of any intended disposition
of the Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given at least 10 calendar days prior to the date of intended disposition or
other action; (iv) exercise or enforce any or all other rights or remedies
available to the Secured Party by law or agreement against the Collateral,
against the Debtor or against any other person or property.
7. Miscellaneous. Any disposition of the Collateral in the manner
-------------
provided in Section 6 shall be deemed commercially reasonable. This Agreement
can be waived, modified, amended, terminated or discharged, and the Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. A waiver signed by the Secured Party shall be effective only in the
specific instance and for the specific purpose given. Mere delay or failure to
act shall not preclude the exercise or enforcement of any of the Secured Party's
rights or remedies. All rights and remedies of the Secured Party shall be
cumulative and may be exercised singularly or concurrently, at the Secured
Party's option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. All notices to be given to the Debtor shall be deemed sufficiently given
if delivered or mailed by registered or certified mail, postage prepaid, or by
telecopier to the Debtor at its address or telecopier number, as the case may
be, set forth above or at the most recent address or telecopier number shown on
the Secured Party's records. The Secured Party's duty of care with respect to
Collateral in its possession (as imposed by law) shall be deemed fulfilled if
the Secured Party exercises reasonable care in physically safekeeping such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and the Secured Party need not otherwise preserve,
protect, insure or care for any Collateral. The Secured Party shall not be
obligated to preserve any rights the Debtor may have against prior parties, to
exercise at all or in any particular manner any voting rights which may be
available with respect to any Collateral, to
-3-
<PAGE>
realize on the Collateral at all or in any particular manner or order, or to
apply any cash proceeds of Collateral in any particular order of application.
The Debtor will reimburse the Secured Party for all expenses (including
reasonable attorneys' fees and legal expenses) incurred by the Secured Party in
the protection, defense or enforcement of the Security Interest, including
expenses incurred in any litigation or bankruptcy or insolvency proceedings.
This Agreement shall be binding upon and inure to the benefit of the Debtor and
the Secured Party and their respective heirs, representatives, successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. If any provision or application of this Agreement is held unlawful or
unenforceable in any respect, such illegality or unenforceability shall not
affect other provisions or applications which can be given effect, and this
Agreement shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations. This Agreement shall be governed by the internal
laws (other than conflict laws) of the state of Minnesota and, unless the
context otherwise requires, all terms used herein which are defined in Articles
1 and 9 of the Uniform Commercial Code, as in effect in Minnesota, shall have
the meanings therein stated. Each party consents to the personal jurisdiction of
the state and federal courts located in the State of Minnesota in connection
with any controversy related to this Agreement, waives any argument that venue
in any such forum is not convenient, and agrees that any litigation initiated by
any of them in connection with this Agreement shall be venued in either the
District Court of Hennepin County, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division.
-4-
<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
NORWEST BANK MINNESOTA, THE ALLISON COMPANY
NATIONAL ASSOCIATION, as Agent
By /s/ Laura Schmaltz Oberst By /s/ Frank R. Clark
----------------------------- -----------------------------
Laura Schmaltz Oberst Frank R. Clark
Its Vice President Its Assistant Secretary
Address: Address:
Norwest Center c/o Nationwide Electric, Inc.
Sixth Street and Marquette Avenue 2800 Metropolitan Centre
Minneapolis, Minnesota 55479-0091 333 South Seventh Street
Minneapolis, MN 55402
Employer identification number: Attn: Frank R. Clark
41-1592157
Employer identification number:
58-1898258
-5-
<PAGE>
EXHIBIT 10.30
COLLATERAL PLEDGE AGREEMENT
Date: December 22, 1998
This Agreement, dated as of December 22, 1998, is made by EAGLE
ELECTRIC HOLDINGS, INC., a Delaware corporation (the "Debtor"), for the benefit
of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association,
as agent (in such capacity, the "Secured Party") for the Banks (as defined in
the Credit Agreement described below).
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to making such advances and extending such financial
accommodations, the Secured Party has required the execution and delivery of the
Debtor's Guaranty and Security Agreement of even date herewith.
As a further condition to making such advances under the Credit
Agreement, the Secured Party and the Banks have required the execution and
delivery of this Agreement by the Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the Credit Agreement that are not
-----------
otherwise defined herein shall have the meanings given them in the Credit
Agreement. In addition, the following terms have the meanings set forth below:
2. Security Interest and Collateral. To secure the payment and
--------------------------------
performance of each and every debt, liability and obligation of every type and
description which the Borrower or the Debtor may now or at any time hereafter
owe to the Secured Party and the Banks (whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether it is or
may be direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or joint, several or joint and
several; all such debts, liabilities and obligations being herein collectively
referred to as the "Obligations"), the Debtor hereby grants the Secured Party a
security interest (herein called the "Security Interest") in all shares of stock
in Eagle Electric Systems, Inc., an Ohio corporation, together with all rights
in connection with such property (herein called the "Collateral").
<PAGE>
3. Representations, Warranties and Covenants. The Debtor represents,
-----------------------------------------
warrants and covenants that:
(a) The Debtor will duly endorse, in blank, each and every instrument
constituting Collateral by signing on said instrument or by signing a
separate document of assignment or transfer, if required by the Secured
Party.
(b) The Debtor is the owner of the Collateral free and clear of all
liens, encumbrances, security interests and restrictions, except the
Security Interest and any restrictive legend appearing on any instrument
constituting Collateral.
(c) The Debtor will keep the Collateral free and clear of all liens,
encumbrances and security interests, except the Security Interest.
(d) The Debtor will pay, when due, all taxes and other governmental
charges levied or assessed upon or against any Collateral.
(e) At any time, upon request by the Secured Party, the Debtor will
deliver to the Secured Party all notices, financial statements, reports or
other communications received by the Debtor as an owner or holder of the
Collateral.
(f) The Debtor will upon receipt deliver to the Secured Party in
pledge as additional Collateral all securities distributed on account of
the Collateral such as stock dividends and securities resulting from stock
splits, reorganizations and recapitalizations.
4. Rights of the Secured Party. The Debtor agrees that the Secured
---------------------------
Party may at any time, whether before or after the occurrence of an Event of
Default and without notice or demand of any kind, (i) notify the obligor on or
issuer of any Collateral to make payment to the Secured Party of any amounts due
or distributable thereon; (ii) in the Debtor's name or the Secured Party's name
enforce collection of any Collateral by suit or otherwise, or surrender, release
or exchange all or any part of it, or compromise, extend or renew for any period
any obligation evidenced by the Collateral; (iii) receive all proceeds of the
Collateral; and (iv) hold any increase or profits received from the Collateral
as additional security for the Obligations, except that any money received from
the Collateral shall, at the Secured Party's option, be applied in reduction of
the Obligations, in such order of application as the Secured Party may
determine, or be remitted to the Debtor.
5. Events of Default. Each of the following occurrences shall
-----------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) the Debtor shall fail to pay any or all of the Obligations when
due or (if payable on demand) on demand, or shall fail to observe or perform any
covenant or agreement herein binding on it; (ii) any representation or warranty
by the Debtor set forth in this Agreement or made to the Secured Party in any
financial statements or reports submitted to the Secured Party by or on behalf
of
-2-
<PAGE>
the Debtor shall prove materially false or misleading; (iii) an Event of
Default, as defined in that certain Credit Agreement of even date herewith by
and between Parsons Electric Co. and the Secured Party (as the same may
hereafter be amended from time to time), shall occur.
6. Remedies upon Event of Default. Upon the occurrence of an Event of
------------------------------
Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights or remedies: (i) declare all unmatured Obligations
to be immediately due and payable, and the same shall thereupon be immediately
due and payable, without presentment or other notice or demand; (ii) exercise
all voting and other rights as a holder of the Collateral; (iii) exercise and
enforce any or all rights and remedies available upon default to a secured party
under the Uniform Commercial Code as in effect from time to time in the state of
Minnesota, including the right to offer and sell the Collateral privately to
purchasers who will agree to take the Collateral for investment and not with a
view to distribution and who will agree to the imposition of restrictive legends
on the certificates representing the Collateral, and the right to arrange for a
sale which would otherwise qualify as exempt from registration under the
Securities Act of 1933; and if notice to the Debtor of any intended disposition
of the Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given at least 10 calendar days prior to the date of intended disposition or
other action; (iv) exercise or enforce any or all other rights or remedies
available to the Secured Party by law or agreement against the Collateral,
against the Debtor or against any other person or property.
7. Miscellaneous. Any disposition of the Collateral in the manner
-------------
provided in Section 6 shall be deemed commercially reasonable. This Agreement
can be waived, modified, amended, terminated or discharged, and the Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. A waiver signed by the Secured Party shall be effective only in the
specific instance and for the specific purpose given. Mere delay or failure to
act shall not preclude the exercise or enforcement of any of the Secured Party's
rights or remedies. All rights and remedies of the Secured Party shall be
cumulative and may be exercised singularly or concurrently, at the Secured
Party's option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. All notices to be given to the Debtor shall be deemed sufficiently given
if delivered or mailed by registered or certified mail, postage prepaid, or by
telecopier to the Debtor at its address or telecopier number, as the case may
be, set forth above or at the most recent address or telecopier number shown on
the Secured Party's records. The Secured Party's duty of care with respect to
Collateral in its possession (as imposed by law) shall be deemed fulfilled if
the Secured Party exercises reasonable care in physically safekeeping such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and the Secured Party need not otherwise preserve,
protect, insure or care for any Collateral. The Secured Party shall not be
obligated to preserve any rights the Debtor may have against prior parties, to
exercise at all or in any particular manner any voting rights which may be
available with respect to any Collateral, to
-3-
<PAGE>
realize on the Collateral at all or in any particular manner or order, or to
apply any cash proceeds of Collateral in any particular order of application.
The Debtor will reimburse the Secured Party for all expenses (including
reasonable attorneys' fees and legal expenses) incurred by the Secured Party in
the protection, defense or enforcement of the Security Interest, including
expenses incurred in any litigation or bankruptcy or insolvency proceedings.
This Agreement shall be binding upon and inure to the benefit of the Debtor and
the Secured Party and their respective heirs, representatives, successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. If any provision or application of this Agreement is held unlawful or
unenforceable in any respect, such illegality or unenforceability shall not
affect other provisions or applications which can be given effect, and this
Agreement shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations. This Agreement shall be governed by the internal
laws (other than conflict laws) of the state of Minnesota and, unless the
context otherwise requires, all terms used herein which are defined in Articles
1 and 9 of the Uniform Commercial Code, as in effect in Minnesota, shall have
the meanings therein stated. Each party consents to the personal jurisdiction of
the state and federal courts located in the State of Minnesota in connection
with any controversy related to this Agreement, waives any argument that venue
in any such forum is not convenient, and agrees that any litigation initiated by
any of them in connection with this Agreement shall be venued in either the
District Court of Hennepin County, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division.
-4-
<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
<TABLE>
<CAPTION>
NORWEST BANK MINNESOTA, NATIONAL EAGLE ELECTRIC HOLDINGS, INC.
ASSOCIATION, as Agent
<S> <C>
By /s/ Laura Schmaltz Oberst By /s/ Frank R. Clark
-------------------------------- --------------------------------
Laura Schmaltz Oberst Frank R. Clark
Its Vice President Its Assistant Secretary
Address: Address:
Norwest Center c/o Nationwide Electric, Inc.
Sixth Street and Marquette Avenue 2800 Metropolitan Centre
Minneapolis, Minnesota 55479-0091 333 South Seventh Street
Minneapolis, MN 55402
Employer identification number: 41-1592157 Attn: Frank R. Clark
Employer identification number: 41-1924688
</TABLE>
-5-
<PAGE>
EXHIBIT 10.31
COLLATERAL PLEDGE AGREEMENT
Date: December 22, 1998
This Agreement, dated as of December 22, 1998, is made by PARSON'S
ELECTRIC HOLDINGS, INC., a Delaware corporation (the "Debtor"), for the benefit
of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association,
as agent (in such capacity, the "Secured Party") for the Banks (as defined in
the Credit Agreement described below).
Pursuant to a Credit Agreement of even date herewith (such agreement,
together with all amendments, modifications and restatements thereof, being
herein called the "Credit Agreement"), the Banks have agreed to make advances
and extend other financial accommodations to Nationwide Electric, Inc., a
Delaware corporation (the "Borrower").
As a condition to making such advances and extending such financial
accommodations, the Secured Party has required the execution and delivery of the
Debtor's Guaranty and Security Agreement of even date herewith.
As a further condition to making such advances under the Credit
Agreement, the Secured Party and the Banks have required the execution and
delivery of this Agreement by the Debtor.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the Credit Agreement that are
-----------
not otherwise defined herein shall have the meanings given them in the Credit
Agreement. In addition, the following terms have the meanings set forth below:
2. Security Interest and Collateral. To secure the payment and
--------------------------------
performance of each and every debt, liability and obligation of every type and
description which the Borrower or the Debtor may now or at any time hereafter
owe to the Secured Party and the Banks (whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether it is or
may be direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or joint, several or joint and
several; all such debts, liabilities and obligations being herein collectively
referred to as the "Obligations"), the Debtor hereby grants the Secured Party a
security interest (herein called the "Security Interest") in all shares of stock
in each of The Allison Company, a Georgia corporation and Henderson Electric
Co., Inc., a Delaware corporation, together with all rights in connection with
such property (herein called the "Collateral").
<PAGE>
3. Representations, Warranties and Covenants. The Debtor represents,
-----------------------------------------
warrants and covenants that:
(a) The Debtor will duly endorse, in blank, each and every instrument
constituting Collateral by signing on said instrument or by signing a
separate document of assignment or transfer, if required by the Secured
Party.
(b) The Debtor is the owner of the Collateral free and clear of all
liens, encumbrances, security interests and restrictions, except the
Security Interest and any restrictive legend appearing on any instrument
constituting Collateral.
(c) The Debtor will keep the Collateral free and clear of all liens,
encumbrances and security interests, except the Security Interest.
(d) The Debtor will pay, when due, all taxes and other governmental
charges levied or assessed upon or against any Collateral.
(e) At any time, upon request by the Secured Party, the Debtor will
deliver to the Secured Party all notices, financial statements, reports or
other communications received by the Debtor as an owner or holder of the
Collateral.
(f) The Debtor will upon receipt deliver to the Secured Party in
pledge as additional Collateral all securities distributed on account of
the Collateral such as stock dividends and securities resulting from stock
splits, reorganizations and recapitalizations.
4. Rights of the Secured Party. The Debtor agrees that the Secured
---------------------------
Party may at any time, whether before or after the occurrence of an Event of
Default and without notice or demand of any kind, (i) notify the obligor on or
issuer of any Collateral to make payment to the Secured Party of any amounts due
or distributable thereon; (ii) in the Debtor's name or the Secured Party's name
enforce collection of any Collateral by suit or otherwise, or surrender, release
or exchange all or any part of it, or compromise, extend or renew for any period
any obligation evidenced by the Collateral; (iii) receive all proceeds of the
Collateral; and (iv) hold any increase or profits received from the Collateral
as additional security for the Obligations, except that any money received from
the Collateral shall, at the Secured Party's option, be applied in reduction of
the Obligations, in such order of application as the Secured Party may
determine, or be remitted to the Debtor.
5. Events of Default. Each of the following occurrences shall
-----------------
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) the Debtor shall fail to pay any or all of the Obligations when
due or (if payable on demand) on demand, or shall fail to observe or perform any
covenant or agreement herein binding on it; (ii) any representation or warranty
by the Debtor set forth in this Agreement or made to the Secured Party in any
financial statements or reports submitted to the Secured Party by or on behalf
of
-2-
<PAGE>
the Debtor shall prove materially false or misleading; (iii) an Event of
Default, as defined in that certain Credit Agreement of even date herewith by
and between Parsons Electric Co. and the Secured Party (as the same may
hereafter be amended from time to time), shall occur.
6. Remedies upon Event of Default. Upon the occurrence of an Event of
------------------------------
Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights or remedies: (i) declare all unmatured Obligations
to be immediately due and payable, and the same shall thereupon be immediately
due and payable, without presentment or other notice or demand; (ii) exercise
all voting and other rights as a holder of the Collateral; (iii) exercise and
enforce any or all rights and remedies available upon default to a secured party
under the Uniform Commercial Code as in effect from time to time in the state of
Minnesota, including the right to offer and sell the Collateral privately to
purchasers who will agree to take the Collateral for investment and not with a
view to distribution and who will agree to the imposition of restrictive legends
on the certificates representing the Collateral, and the right to arrange for a
sale which would otherwise qualify as exempt from registration under the
Securities Act of 1933; and if notice to the Debtor of any intended disposition
of the Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given at least 10 calendar days prior to the date of intended disposition or
other action; (iv) exercise or enforce any or all other rights or remedies
available to the Secured Party by law or agreement against the Collateral,
against the Debtor or against any other person or property.
7. Miscellaneous. Any disposition of the Collateral in the manner
-------------
provided in Section 6 shall be deemed commercially reasonable. This Agreement
can be waived, modified, amended, terminated or discharged, and the Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. A waiver signed by the Secured Party shall be effective only in the
specific instance and for the specific purpose given. Mere delay or failure to
act shall not preclude the exercise or enforcement of any of the Secured Party's
rights or remedies. All rights and remedies of the Secured Party shall be
cumulative and may be exercised singularly or concurrently, at the Secured
Party's option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. All notices to be given to the Debtor shall be deemed sufficiently given
if delivered or mailed by registered or certified mail, postage prepaid, or by
telecopier to the Debtor at its address or telecopier number, as the case may
be, set forth above or at the most recent address or telecopier number shown on
the Secured Party's records. The Secured Party's duty of care with respect to
Collateral in its possession (as imposed by law) shall be deemed fulfilled if
the Secured Party exercises reasonable care in physically safekeeping such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and the Secured Party need not otherwise preserve,
protect, insure or care for any Collateral. The Secured Party shall not be
obligated to preserve any rights the Debtor may have against prior parties, to
exercise at all or in any particular manner any voting rights which may be
available with respect to any Collateral, to
-3-
<PAGE>
realize on the Collateral at all or in any particular manner or order, or to
apply any cash proceeds of Collateral in any particular order of application.
The Debtor will reimburse the Secured Party for all expenses (including
reasonable attorneys' fees and legal expenses) incurred by the Secured Party in
the protection, defense or enforcement of the Security Interest, including
expenses incurred in any litigation or bankruptcy or insolvency proceedings.
This Agreement shall be binding upon and inure to the benefit of the Debtor and
the Secured Party and their respective heirs, representatives, successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. If any provision or application of this Agreement is held unlawful or
unenforceable in any respect, such illegality or unenforceability shall not
affect other provisions or applications which can be given effect, and this
Agreement shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations. This Agreement shall be governed by the internal
laws (other than conflict laws) of the state of Minnesota and, unless the
context otherwise requires, all terms used herein which are defined in Articles
1 and 9 of the Uniform Commercial Code, as in effect in Minnesota, shall have
the meanings therein stated. Each party consents to the personal jurisdiction of
the state and federal courts located in the State of Minnesota in connection
with any controversy related to this Agreement, waives any argument that venue
in any such forum is not convenient, and agrees that any litigation initiated by
any of them in connection with this Agreement shall be venued in either the
District Court of Hennepin County, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division.
-4-
<PAGE>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
NORWEST BANK MINNESOTA, PARSON'S ELECTRIC HOLDINGS, INC.
NATIONAL ASSOCIATION, as Agent
By /s/ Laura Schmaltz Oberst By /s/ Frank R. Clark
----------------------------- -----------------------------
Laura Schmaltz Oberst Frank R. Clark
Its Vice President Its Assistant Secretary
Address: Address:
Norwest Center c/o Nationwide Electric, Inc.
Sixth Street and Marquette Avenue 2800 Metropolitan Centre
Minneapolis, Minnesota 55479-0091 333 South Seventh Street
Minneapolis, MN 55402
Employer identification number: Attn: Frank R. Clark
41-1592157
Employer identification number:
41-1924687
-5-
<PAGE>
Exhibit 10.32
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment, dated as of January 28, 1999 is made by and
among NATIONWIDE ELECTRIC, INC., a Delaware corporation ("Borrower"), the banks
or financial institutions listed on the signature pages hereof (individually
referred to as a "Bank" or collectively as the "Banks"), and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as agent for
the Banks (in such capacity, the "Agent").
Recitals
--------
The Borrower, the Agent and the Banks have entered into a Credit
Agreement dated as of December 22, 1998 (the "Credit Agreement").
The Borrower has requested that an amendment be made to the Credit
Agreement, which the Agent and the Banks are willing to make pursuant to the
terms and conditions set forth herein.
Accordingly, the Borrower, the Agent and the Banks hereby agree as
follows:
1. Year 2000. Section 5.8 of the Credit Agreement is hereby amended
by deleting the date "March 31, 1999" in line 7 and replacing it with the date
"November 1, 1999".
2. No Other Changes. Except as explicitly amended by this First
Amendment, all of the terms and conditions of the Credit Agreement shall remain
in full force and effect and shall apply to any advance or letter of credit
thereunder.
3. Conditions Precedent. This Amendment shall be effective when the
Agent and the Banks shall have received an executed original hereof and an
executed original of the Acknowledgment and Agreement of Guarantors attached
hereto.
4. Representations and Warranties. The Borrower hereby represents
and warrants to the Agent and the Banks as follows:
(a) The Borrower has all requisite power and authority to execute
this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and
constitutes the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
(b) All of the representations and warranties contained in Article IV
of the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except to the extent that such representations
and warranties relate solely to an earlier date.
<PAGE>
5. References. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
6. No Waiver. The execution of this Amendment and acceptance of any
documents related hereto shall not be deemed to be a waiver of any Default or
Event of Default under the Credit Agreement or breach, default or event of
default under any Security Document or other document held by the Agent and the
Banks, whether or not known to the Agent and the Banks and whether or not
existing on the date of this Amendment.
7. Costs and Expenses. The Borrower hereby reaffirms its agreement
under the Credit Agreement to pay all expenses, including the reasonable fees
and expenses of legal counsel for the Agent and Norwest, whether paid to outside
counsel or allocated to the Bank by in-house counsel, incurred in connection
with the negotiation, preparation, amendment and enforcement of the Loan
Documents, and the collection or attempted collection of the Obligations.
8. Miscellaneous. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed as of the day and year first above written.
NATIONWIDE ELECTRIC, INC. NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Agent
By /s/ Frank R. Clark
----------------------
Frank Clark
Its Chief Financial Officer By /s/ Laura Schmaltz Oberst
--------------------------------
Laura Schmaltz Oberst
Its Vice President
BANK ONE KENTUCKY, N.A. NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Bank
By /s/ Earl A. Dorsey
------------------------
Its Senior Vice President
-----------------------
By /s/ Laura Schmaltz Oberst
--------------------------------
Laura Schmaltz Oberst
Its Vice President
2
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
The undersigned, each a guarantor of the indebtedness of Nationwide
Electric, Inc. (the "Borrower") to Norwest Bank Minnesota National Association
(the "Agent") pursuant to a separate Guaranty each dated as of December 22, 1998
(each, a "Guaranty"), hereby (i) acknowledges receipt of the foregoing First
Amendment; (ii) consents to the terms and execution thereof; (iii) reaffirms
his/its obligations to the Agent pursuant to the terms of his Guaranty; and (iv)
acknowledges that the Agent may amend, restate, extend, renew or otherwise
modify the Credit Agreement and any indebtedness or agreement of the Borrower,
or enter into any agreement or extend additional or other credit accommodations,
without notifying or obtaining the consent of the undersigned and without
impairing the liability of the undersigned under his/its Guaranty for all of the
Borrower's present and future indebtedness to the Agent.
THE ALLISON COMPANY ALLISON SMITH COMPANY
By /s/ Frank R. Clark
---------------------------- By /s/ Frank R. Clark
Frank Clark ----------------------------
Its Assistant Secretary Frank Clark
Its Assistant Secretary
HENDERSON ELECTRIC CO., INC. EAGLE ELECTRIC HOLDINGS, INC.
[DE]
By /s/ Frank R. Clark By /s/ Frank R. Clark
---------------------------- ----------------------------
Frank Clark Frank Clark
Its Assistant Secretary Its Assistant Secretary
EAGLE ELECTRIC HOLDINGS, INC. EAGLE ELECTRIC SYSTEMS, INC.
[MN]
By /s/ Frank R. Clark By /s/ Frank R. Clark
---------------------------- ----------------------------
Frank Clark Frank Clark
Its Secretary Its Assistant Secretary
PARSONS ELECTRIC CO. PARSONS ELECTRIC HOLDINGS, INC.
By /s/ Frank R. Clark By /s/ Frank R. Clark
---------------------------- ----------------------------
Frank Clark Frank Clark
Its Chief Financial Officer Its Assistant Secretary
3
<PAGE>
EXHIBIT 21.1
NATIONWIDE ELECTRIC, INC. SUBSIDIARIES
The registrant is the parent. The subsidiaries of the registrant are as follows:
<TABLE>
<CAPTION>
Percentage
of Voting
Securities
Jurisdiction Owned by Its
Incorporation or Immediate
Name Organization Parent
- ---- ---------------- ------------
<S> <C> <C>
Parsons Electric Holdings, Inc. Delaware 100
Eagle Electric Holdings, Inc. Delaware 100
Eagle Electric Holdings, Inc. Minnesota 100
Eagle Electrical Systems, Inc. Ohio 100
Parsons Electric Co. Minnesota 100
The Allison Company Georgia 100
Allison-Smith Company Georgia 100
Henderson Electric Co., Inc. Delaware 100
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-57013 of Nationwide Electric, Inc. of our report dated June 12, 1998
related to the consolidated 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. 3 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. 3 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
February 1, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
Amendment #3 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
February 1, 1999
