Filed Pursuant to Rule 424(b)(3)
Registration No. 333-68226
$135,000,000
[ENCOMPASS SERVICES CORP. LOGO]
Offer to Exchange
10 1/2% Exchange Senior Subordinated Notes due
2009 for any and all outstanding 10 1/2% Senior
Subordinated Notes due 2009 issued on June 28, 2001
----------------
This prospectus, and accompanying letter of transmittal, relate to our proposed
exchange offer. We are offering to exchange up to $135,000,000 aggregate
principal amount of new 10 1/2% exchange senior subordinated notes due 2009,
which we call the "exchange notes," which will be freely transferable, for any
and all outstanding 10 1/2% senior subordinated notes due 2009 issued in a
private offering on June 28, 2001, which we call the "original notes," and
which have transfer restrictions. The notes are identical to the 10 1/2% senior
subordinated notes due 2009 that we issued in 1999, and which we refer to in
this prospectus as the "existing 1999 notes." The exchange offer does not apply
to the existing 1999 notes. We expect the exchange notes to bear the same CUSIP
number as the existing 1999 notes and to be interchangeable with the existing
1999 notes.
In this prospectus we sometimes refer to the exchange notes and the original
notes collectively as the notes.
. The exchange offer expires at 5:00 p.m., New York City time, on January
8, 2002, unless extended.
. The terms of the exchange notes are substantially identical to the terms
of the original notes, except that the exchange notes will be freely
transferable and issued free of any covenants regarding exchange and
registration rights.
. All original notes that are validly tendered and not validly withdrawn
will be exchanged.
. Tenders of original notes may be withdrawn at any time prior to
expiration of the exchange offer.
. We will not receive any proceeds from the exchange offer.
. The exchange of original notes for exchange notes will not be a taxable
event for United States federal income tax purposes.
. Holders of original notes do not have any appraisal or dissenters'
rights in connection with the exchange offer.
. Original notes not exchanged in the exchange offer will remain
outstanding and be entitled to the benefits of the indenture under which
they are issued, but except under certain circumstances, will have no
further exchange or registration rights under the registration rights
agreement discussed in this prospectus.
----------------
Please see "Risk Factors" beginning on page 8 for a discussion of factors you
should consider in connection with the exchange offer.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the exchange notes or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read this entire prospectus,
the accompanying letter of transmittal and related documents and any amendments
or supplements to this prospectus carefully before making your investment
decision.
----------------
The date of this prospectus is December 7, 2001.
TABLE OF CONTENTS
Page
----
Summary.................................................................... 1
Risk Factors............................................................... 8
The Exchange Offer......................................................... 15
Use of Proceeds............................................................ 28
Capitalization............................................................. 29
Selected Historical Financial Information.................................. 30
Business................................................................... 32
Management................................................................. 42
Principal Shareholders..................................................... 47
Description of the Credit Facility......................................... 49
Description of the Notes................................................... 51
Book-Entry, Settlement and Clearance....................................... 90
Material United States Federal Income Tax Considerations................... 94
Validity of the Exchange Notes............................................. 98
Experts.................................................................... 98
Where You Can Find More Information........................................ 99
Forward-Looking Statements................................................. 100
Annex A-Letter of Transmittal.............................................. A-1
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You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorized anyone to provide you with
different information. This prospectus may only be used where it is legal to
sell the notes. You should not assume that the information in or incorporated
by reference in this prospectus is accurate as of any date other than the date
on the front cover of those documents. Our business, financial condition,
results of operations and prospects may have changed since those dates.
i
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information that is important to you.
This prospectus includes or incorporates by reference information about the
notes, the exchange offer, our business and our financial and operating data.
Before making an investment decision, we encourage you to read the entire
prospectus carefully, including the risks discussed under the "Risks Factors"
section and our financial statements and the footnotes to those statements,
which are incorporated by reference into this prospectus.
We are a Texas corporation formed to build a national company providing
mechanical and electrical services in the commercial, industrial and
residential markets. On February 22, 2000, the shareholders of Group
Maintenance America Corp., known as "GroupMAC," and Building One Services
Corporation, known as "Building One," approved the merger of the two companies.
In connection with the merger, GroupMAC changed its name to Encompass Services
Corporation. The address of our principal executive offices is 3 Greenway
Plaza, Suite 2000, Houston, Texas 77046, and our telephone number at this
address is (713) 860-0100.
We are now one of the largest providers of facilities services in the United
States. We provide electrical, mechanical and cleaning systems services to
commercial, industrial and residential customers nationwide, including
construction, installation and maintenance. Through our network of subsidiary
business units, we have over 31,000 employees, with operations in over 250
locations, serving customers in all 50 states and in each of the 100 largest
cities in the United States. For the twelve months ended September 30, 2001, we
generated revenues from continuing operations of $4.1 billion and EBITDA of
$236.5 million. At September 30, 2001, our backlog of work was approximately
$1.7 billion. We expect that we will complete a substantial portion of this
backlog by September 30, 2002.
1
The Exchange Offer
Registration Rights
Agreement.................. We sold $135 million in aggregate principal
amount of original notes to qualified
institutional buyers as defined in Rule 144A
under the Securities Act through initial
purchasers led by J.P. Morgan Securities Inc. We
entered into a registration rights agreement
dated as of June 28, 2001 with the initial
purchasers which grants the holders of the
original notes exchange and registration rights.
The exchange offer made hereby is intended to
satisfy such exchange rights.
The Exchange Offer.......... $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of
original notes. As of the date hereof, $135
million aggregate principal amount of the
original notes are outstanding. We will issue
exchange notes to holders on the earliest
practicable date following the expiration date.
Resales of the Exchange
Notes...................... Based on an interpretation by the staff of the
SEC set forth in no-action letters issued to
third parties, we believe that, except as
described below, the exchange notes issued
pursuant to the exchange offer may be offered for
resale, resold and otherwise transferred by a
holder thereof, other than any such holder that
is an "affiliate" of ours within the meaning of
Rule 405 under the Securities Act, without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such exchange notes are acquired in
the ordinary course of such holder's business and
that such holder has no arrangement or
understanding with any person to participate in
the distribution of such exchange notes.
Each broker-dealer that receives exchange notes
pursuant to the exchange offer in exchange for
original notes that such broker-dealer acquired
for its own account as a result of market-making
activities or other trading activities, other
than original notes acquired directly from us or
our affiliates, must acknowledge that it will
deliver a prospectus in connection with any
resale of such exchange notes. The letter of
transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act.
If we receive certain notices in the letter of
transmittal, this prospectus, as it may be
amended or supplemented from time to time, may be
used for the period described below by a broker-
dealer in connection with resales of exchange
notes received in exchange for original notes
where such original notes were acquired by such
broker-
2
dealer as a result of market-making activities or
other trading activities and not acquired
directly from us. We have agreed that, if we
receive certain notices in the letter of
transmittal, for a period of 180 days after the
date on which the registration statement becomes
effective, we will make this prospectus available
to any such broker-dealer for use in connection
with any such resale.
The letter of transmittal requires broker-dealers
tendering original notes in the exchange offer to
indicate whether such broker-dealer acquired the
original notes for its own account as a result of
market-making activities or other trading
activities, other than original notes acquired
directly from us or any of our affiliates. If no
broker-dealer indicates that the original notes
were so acquired, we have no obligation under the
registration rights agreement to maintain the
effectiveness of the registration statement past
the consummation of the exchange offer or to
allow the use of this prospectus for such
resales. See "The Exchange Offer--Registration
Rights" and "--Resale of the Exchange Notes; Plan
of Distribution."
Expiration Date............. The exchange offer expires at 5:00 p.m., New York
City time, on January 8, 2002, unless we extend
the exchange offer in our sole discretion, in
which case the term "expiration date" means the
latest date and time to which the exchange offer
is extended.
Conditions to the Exchange
Offer...................... The exchange offer is subject to certain
conditions which we may waive. See "The Exchange
Offer--Conditions to the Exchange Offer."
Procedures for Tendering
the Original Notes......... Each holder of original notes wishing to accept
the exchange offer must complete, sign and date
the accompanying letter of transmittal in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
letter of transmittal together with the original
notes and any other required documentation to the
exchange agent identified below under "Exchange
Agent" at the address set forth herein. By
executing the letter of transmittal, a holder
will make certain representations to us. See "The
Exchange Offer--Registration Rights" and "--
Procedures for Tendering Original Notes."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose original notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender
3
should contact the registered holder promptly and
instruct the registered holder to tender on such
beneficial owner's behalf. See "The Exchange
Offer--Procedures for Tendering Original Notes."
Guaranteed Delivery
Procedures................. Holders of original notes who wish to tender
their original notes when those securities are
not immediately available or who cannot deliver
their original notes, the letter of transmittal
or any other documents required by the letter of
transmittal to the exchange agent prior to the
expiration date must tender their original notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Procedures for
Tendering Original Notes--Guaranteed Delivery."
Withdrawal Rights........... Tenders of original notes pursuant to the
exchange offer may be withdrawn at any time prior
to the expiration date.
Acceptance of Original
Notes and Delivery of
Exchange Notes............. We will accept for exchange any and all original
notes that are properly tendered in the exchange
offer, and not withdrawn, prior to the expiration
date. The exchange notes issued pursuant to the
exchange offer will be issued on the earliest
practicable date following our acceptance for
exchange of original notes. See "The Exchange
Offer--Terms of the Exchange Offer."
Exchange Agent.............. The Bank of New York is serving as exchange agent
in connection with the exchange offer.
Federal Income Tax
Considerations............. We believe the exchange of original notes for
exchange notes pursuant to the exchange offer
will not be treated as a taxable exchange for
federal income tax purposes. See "Material United
States Federal Income Tax Considerations."
4
Summary Financial Information
The summary financial information for the years ended December 31, 1998,
1999 and 2000 has been derived from our audited consolidated financial
statements and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our audited
consolidated financial statements and notes thereto incorporated by reference
into this prospectus. As discussed in notes 1 and 3 to our audited consolidated
financial statements, the financial results for periods prior to the merger on
February 22, 2000 reflect the historical results of Building One.
The summary financial information for the nine months ended September 30,
2000 and 2001 has been derived from our unaudited consolidated condensed
financial statements, which in the opinion of management, include all
adjustments, consisting only of usual recurring adjustments, necessary for the
fair presentation of that data for such periods. Financial information for the
twelve months ended September 30, 2001 has been compiled from our audited
consolidated financial statements and our unaudited consolidated condensed
financial statements incorporated by reference into this prospectus. The income
statement data for the nine months ended September 30, 2000 and 2001 should not
be regarded as indicative of what may be expected for a full year. The "As
Adjusted" information presented below gives effect to the completion of the
offering of the original notes and the application of the proceeds from the
sale of the original notes.
Segment data for revenues and operating earnings for the years ended
December 31, 1998, 1999 and 2000 and for the nine months ended September 30,
2000 have been restated to conform to the presentation for the nine months
ended September 30, 2001 reflecting: (1) the discontinuance of the Global
Technologies Group, (2) movement during 2001 of business units from one segment
to another for management reporting and evaluation purposes and (3) allocation
of costs related to group and regional management and administrative support to
the results of their respective segments.
Nine Months Ended Twelve Months
Years Ended December 31, September 30, Ended
------------------------------- ---------------------- September 30,
1998 1999 2000 2000 2001 2001
-------- ---------- ---------- ---------- ---------- -------------
(Dollars in thousands)
Income Statement Data:
Revenues................ $809,601 $1,772,584 $3,982,266 $2,859,151 $2,972,988 $4,096,103
Gross profit............ 173,376 353,467 707,196 500,818 480,538 686,916
Selling, general and
administrative
expenses............... 99,807 203,962 441,757 311,604 338,733 468,886
Provision for doubtful
accounts............... 732 766 6,988 4,159 14,336 17,165
Amortization of goodwill
and other intangible
assets................. 7,653 16,004 33,339 24,164 27,690 36,865
Merger and related
charges (a)............ -- -- 7,800 7,800 -- --
Costs to exit certain
activities and related
costs (b).............. -- -- 12,200 12,200 -- --
Restructuring and
recapitalization
charges (c)............ -- 8,020 -- -- -- --
-------- ---------- ---------- ---------- ---------- ----------
Income from operations.. 65,184 124,715 205,112 140,891 99,779 164,000
Interest income
(expense), net......... 18,319 (29,875) (87,242) (63,159) (62,413) (86,496)
Other income (expense),
net.................... 80 249 (530) (618) (664) (576)
-------- ---------- ---------- ---------- ---------- ----------
Income from continuing
operations before
income tax provision... 83,583 95,089 117,340 77,114 36,702 76,928
Income tax provision.... 36,120 42,027 57,652 38,285 26,085 45,452
-------- ---------- ---------- ---------- ---------- ----------
Income from continuing
operations............. 47,463 53,062 59,688 38,829 10,617 31,476
Income (loss) from
discontinued
operations, net of
tax.................... -- -- 3,665 3,090 (10,943) (10,368)
Loss on disposal of
discontinued
operations, net of
tax.................... -- -- -- -- (23,055) (23,055)
-------- ---------- ---------- ---------- ---------- ----------
(continued on next page)
5
Nine Months Ended Twelve Months
Years Ended December 31, September 30, Ended
-------------------------------- ---------------------- September 30,
1998 1999 2000 2000 2001 2001
-------- ---------- ---------- ---------- ---------- -------------
(Dollars in thousands)
Income (loss) before
extraordinary loss..... 47,463 53,062 63,353 41,919 (23,381) (1,947)
Extraordinary loss on
debt settlement, net of
tax.................... -- -- (8,057) (8,057) -- --
-------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... 47,463 53,062 55,296 33,862 (23,381) (1,947)
Less convertible
preferred stock
dividends.............. -- -- (16,568) (11,639) (15,322) (20,251)
-------- ---------- ---------- ---------- ---------- ----------
Net income (loss)
available to common
shareholders........... $ 47,463 $ 53,062 $ 38,728 $ 22,223 $ (38,703) $ (22,198)
======== ========== ========== ========== ========== ==========
Other Financial Data and
Ratios:
Revenues:
Electrical
Technologies.......... $540,868 $1,110,881 $1,780,756 $1,279,437 $1,258,783 $1,760,102
Mechanical Services.... 61,846 257,006 1,396,910 989,620 1,065,914 1,473,204
Industrial Services.... 47,370 164,842 264,148 189,004 191,045 266,189
Residential Services... -- -- 294,388 213,483 256,876 337,781
Cleaning Systems....... 159,912 245,790 265,212 197,231 216,485 284,466
Eliminations........... (395) (5,935) (19,148) (9,624) (16,115) (25,639)
-------- ---------- ---------- ---------- ---------- ----------
Total Revenues......... $809,601 $1,772,584 $3,982,266 $2,859,151 $2,972,988 $4,096,103
======== ========== ========== ========== ========== ==========
Segment Operating
Earnings (d):
Electrical
Technologies.......... $ 55,301 $ 110,357 $ 123,769 $ 88,435 $ 56,499 $ 91,833
Mechanical Services.... 4,408 19,560 83,013 60,503 37,120 59,630
Industrial Services.... 4,433 5,382 14,822 9,440 10,379 15,761
Residential Services... -- -- 30,863 23,867 22,057 29,053
Cleaning Systems....... 11,436 18,674 16,596 11,788 11,867 16,675
Corporate.............. (2,741) (5,234) (10,612) (8,978) (10,453) (12,087)
-------- ---------- ---------- ---------- ---------- ----------
Total Segment Operating
Earnings.............. $ 72,837 $ 148,739 $ 258,451 $ 185,055 $ 127,469 $ 200,865
======== ========== ========== ========== ========== ==========
EBITDA (e).............. $ 78,426 $ 164,717 $ 289,596 $ 207,716 $ 154,615 $ 236,495
Depreciation and
amortization........... 13,242 31,982 64,484 46,825 54,836 72,495
As Adjusted
Twelve Months
Ended September 30,
2001
-------------------
Ratio of EBITDA to interest expense......................... 2.59
Ratio of total debt to EBITDA............................... 3.77
Ratio of earnings to fixed charges (f)...................... 1.67
As of
September 30,
2001
--------------
(Dollars in
thousands)
Balance Sheet Data:
Cash and cash equivalents...................................... $ 3,407
Working capital................................................ 408,138
Total assets................................................... 2,490,804
Total debt, net of discount.................................... 883,660
Mandatorily redeemable convertible preferred stock............. 284,331
Shareholders' equity........................................... 707,717
- -------
(a) Represents expenses related to severance, office closing costs and other
related costs associated with the merger. See note 3 to our audited
consolidated financial statements incorporated by reference into this
prospectus.
(b) Represents charges associated with the shutdown of demolition and site
preparation operations, relocation of the headquarters of the Cleaning
Systems Group and other costs resulting from the merger. See note 3 to our
audited consolidated financial statements incorporated by reference into
this prospectus.
(c) Represents restructuring and recapitalization charges associated with
Building One's tender offer for its stock in May 1999 and relocation of
Building One's corporate headquarters. See note 12 to our audited
consolidated financial statements incorporated by reference into this
prospectus.
(continued on next page)
6
(d) Segment operating earnings are based on income from operations before
amortization of goodwill and other intangible assets, unallocated corporate
expenses, merger and related charges, costs to exit certain activities and
related costs and restructuring and recapitalization charges.
(e) EBITDA is income from operations plus depreciation and amortization, merger
and related charges, costs to exit certain activities and related costs and
restructuring and recapitalization charges. EBITDA is presented to provide
additional information concerning our ability to meet future debt service
obligations and capital expenditure and working capital requirements.
EBITDA is not a measure of financial performance under generally accepted
accounting principles and should not be considered as an alternative to
either income from operations as an indicator of our operating performance
or cash flows from operations as an indicator of our liquidity. Because
other companies do not calculate EBITDA identically, this presentation may
not be comparable to similarly titled measures of other companies.
(f) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before income tax provision
and extraordinary items, plus fixed charges. Fixed charges consist of
interest expense on debt and amortization of debt issuance costs and
discounts, plus that portion of rental expense that is deemed to be
representative of an interest factor.
7
RISK FACTORS
You should carefully consider the following factors and other information
presented or incorporated by reference in this prospectus before deciding to
invest in the exchange notes.
Our substantial debt could adversely affect our financial health, make us
more vulnerable to adverse economic conditions and prevent us from fulfilling
our obligations under the notes.
We have a significant amount of debt. As of September 30, 2001, before
deducting unamortized discounts, we had outstanding $891.0 million of
consolidated debt (of which approximately $551.9 million was senior debt) and
our total consolidated debt, as a percentage of capitalization, was 47%. We may
incur additional debt in the future. However, we will be limited in the amount
we can incur by our existing and future debt agreements.
Our high level of debt could have important consequences to holders of
notes, such as:
. limiting our ability to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service
requirements or other purposes;
. limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
make principal payments and fund debt service requirements;
. placing us at a competitive disadvantage compared to competitors with
less debt;
. increasing our vulnerability to adverse economic and industry conditions;
and
. increasing our vulnerability to interest rate increases because
borrowings under our credit facility are primarily at variable interest
rates.
Our ability to pay interest on the notes and to satisfy our other debt
obligations will depend upon, among other things, our future operating
performance and our ability to refinance debt when necessary. Each of these
factors is to a large extent dependent on economic, financial, competitive and
other factors beyond our control. If, in the future, we cannot generate
sufficient cash from operations to make scheduled payments on the notes or to
meet our other obligations, we will need to refinance some or all of our debt,
obtain additional financing or sell assets. We cannot assure you that our
business will generate cash flow, or that we will be able to obtain funding,
sufficient to satisfy our debt service requirements.
Downturns in the construction industry could adversely affect our financial
condition and results of operations.
A substantial portion of our business involves installation of mechanical
and electrical systems in newly constructed residential, commercial and
industrial facilities. Our revenues from new installation services in the
residential market are dependent upon the level of housing starts in the areas
in which we operate. The housing industry is cyclical, and our revenues from
new residential installation will be affected by the factors that affect the
housing industry. These factors include changes in employment and income
levels, the availability and cost of financing for new home buyers and general
economic conditions. The level of new commercial and industrial installation
services is also affected by changes in economic conditions and interest rates.
General downturns in housing starts or new commercial and industrial
construction in the areas in which we operate could have a material adverse
effect on our
8
business, including our financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Cyclicality" included in our annual report on Form
10-K incorporated by reference into this prospectus.
Some of our customers in the telecommunications industry have suffered
severe capital problems which have affected the collectibility of some of our
receivables.
Included in our customer base are a number of companies involved in the
telecommunications industry, including fiber-optic network companies, wireless
phone companies and high-speed Internet providers. During 2001, many companies
in the telecommunications sector, including some of our customers, have
experienced a dramatic reduction in the amount of new capital available to
them, upon which certain of them are reliant to successfully achieve their
business plans. Consequently, we have experienced slower payment from certain
customers, several of which have filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. We provided allowances of $18.0 million and $5.0 million
in the second and third quarters of 2001, respectively, to reserve certain
accounts receivable from customers in the telecommunications industry to
management's best estimates of their ultimate collectibility. Of these
amounts, $9.0 million recorded in the second quarter relates to continuing
operations and the remainder relates to the discontinued operations of the
Global Technologies Group. As additional information becomes available, and to
the extent the financial condition of these or other customers in the
telecommunications sector continues to deteriorate in the future, we may find
it necessary to record additional charges to earnings to further increase our
allowance for doubtful accounts.
Our profitability will be affected by prolonged unfavorable weather or
seasonal variations.
Our business tends to be affected adversely by moderate weather patterns.
Comparatively warm winters and cool summers reduce the demand for our
maintenance, repair and replacement services. Additionally, our new
installation business is affected adversely by extremely cold weather and
large amounts of rain. Prolonged unfavorable weather conditions or seasonal
variations may cause unpredictable fluctuations in operating results.
Any delay or inability to integrate acquired businesses could adversely
affect our financial health.
We have grown by acquiring other companies in our industry. Our future
success is dependent on our ability to integrate our past and any future
acquisitions into one enterprise with a common operating plan. We must also
monitor the performance of our acquired companies. Many of these acquired
companies must change their past operating systems such as accounting,
employment, purchasing and marketing. We may not be successful in our efforts
to integrate acquired companies or monitor their performance. If we are unable
to do so, or if we experience delays or unusual expenses in doing so, it could
have a material adverse effect on our business, financial condition and
results of operations.
We face competition from owner-operated companies and large public
companies and utilities for the services we provide.
The facilities services industry is very competitive with few barriers to
entry. It is served by small, owner-operated private companies, by larger
companies operating nationwide, including unregulated affiliates of electric
and gas public utilities and heating, ventilating and air conditioning
equipment manufacturers and by property management companies and real estate
investment trusts which offer facilities services for the properties they own
or manage. Some of the smaller competitors have lower overhead cost structures
and may be able to provide their services at lower rates than we can. Some of
the larger competitors have greater
9
financial resources, name recognition or other competitive advantages.
Consequently, we will encounter significant competition in our efforts to
achieve our growth objectives.
Our business may suffer if we do not retain our management.
We depend on our executive officers, senior management and key operations
managers. Our business could be adversely affected if these persons do not
continue in their roles and we are unable to attract and retain qualified
replacements. We do not maintain key-man insurance on these individuals.
Shortages of a skilled labor force, union disruptions or unfavorable union
negotiations may adversely affect our profitability and our planned internal
growth.
Our ability to provide high-quality mechanical and electrical services on a
timely basis requires an adequate supply of skilled technicians. Many companies
in our industry are currently experiencing shortages of qualified technicians.
We cannot assure you that we will be able to maintain an adequately skilled
labor force or that our labor expenses will not increase. A shortage of skilled
labor would require us to curtail our planned internal growth or may require us
to use less-skilled labor which could adversely affect our ability to perform
work.
Although fewer than 15% of our employees are members of unions, many sectors
of the facilities services industry involve unionized employees. Expanded
unionization of our workforce could increase our costs. Union activity at our
company may be disruptive to our business and may increase our costs. To the
extent any of our union contracts expire or we acquire businesses that are
unionized, we may be required to renegotiate union contracts in an environment
of increasing wage rates. We may not be able to renegotiate union contracts on
terms favorable to us or without experiencing a work stoppage.
Many of our contracts may be terminated on short notice.
Many of our contracts have termination clauses permitting the customer to
cancel the contract on 30 to 90 days' notice. While we maintain long-standing
relationships with many of our customers, we may not be able to keep customers
from exercising their rights to terminate their contracts prior to the contract
expiration date.
Fixed price contracts with our customers could expose us to losses if our
estimates of project costs are too low.
A substantial portion of our mechanical and electrical installation
contracts are "fixed price" contracts. The terms of these contracts require us
to guarantee the price of the services we provide and assume the risk that our
costs to perform the services and provide the materials will be greater than
anticipated. Our profitability in this market is therefore dependent on our
ability to accurately predict the costs associated with our services. These
costs may be affected by a variety of factors, some of which may be beyond our
control. If we are unable to accurately predict the costs of fixed price
contracts, certain projects could have lower margins than anticipated, which
could have a material adverse effect on our business.
Apollo and its affiliates are able to exert substantial influence over the
election of our directors and matters submitted to our shareholders, as well as
over our business operations, and may soon have the right to appoint a majority
of our board of directors.
As the holder of the convertible preferred stock, Apollo has the right to
vote together with the holders of our common stock on all matters submitted to
our shareholders for a vote. Apollo currently has the right to select three
members of our board of directors.
So long as Apollo beneficially owns at least 25% of the shares of our common
stock underlying the convertible preferred stock originally acquired, Apollo
will have the right to
10
purchase for cash any shares of common stock or any security that converts into
common stock that we offer in a private placement and the right to preclude us
and our subsidiaries from entering into various types of transactions or make
certain changes in our capital structure or management without the consent of
Apollo. For example, we may not, without Apollo's consent, acquire a business
or assets with an aggregate value in excess of 2.0% of our total assets,
dispose of a business or assets with an aggregate value in excess of 2.5% of
our total assets or create or acquire an interest in a subsidiary other than a
wholly owned subsidiary, subject to certain exceptions. Apollo also has the
right to approve the incurrence or refinancing of indebtedness that would
result in us not meeting a 4 to 1 consolidated leverage ratio and to approve
capital expenditures exceeding $10 million individually or 1.75% of budgeted
annual revenues in the aggregate. Apollo has the right to appoint a majority of
our board of directors if there is a material and intentional breach of the
terms of the convertible preferred stock or the investor's rights agreement or
subscription and exchange agreement to which we and Apollo are parties, there
is a payment default under outstanding indebtedness, or there are certain
bankruptcy events, until the noncompliance is cured. Some events of
noncompliance may not be curable.
We are currently in compliance with the terms of the various agreements with
Apollo; however, we believe there is a substantial probability that we will
violate the consolidated leverage ratio in the fourth quarter of 2001 or the
first half of 2002. Absent a consent from Apollo, this violation will give
Apollo the right to appoint a majority of our board of directors. A violation
of the consolidated leverage ratio alone will not trigger a right of
acceleration of our obligations under any of our debt or preferred stock
instruments.
We may not be able to finance future needs to adapt our business plans to
changes because of restrictions placed on us by our lenders and noteholders.
The operating and financial restrictions and covenants in our bank credit
agreement, as most recently amended on November 9, 2001, which we refer to as
the "credit facility" in this prospectus, and the indenture governing the notes
limit our ability to finance future operations or capital needs, to respond to
changes in our business or competitive activities, or to engage in other
business activities. A breach of any of these restrictions or covenants could
cause a default under our credit facility and the notes and in some cases
acceleration of debt under other instruments that contain cross-default or
cross-acceleration provisions. A significant portion of our debt may then
become immediately due and payable. We are not certain whether we would have,
or be able to obtain, sufficient funds to make these accelerated payments,
including payments on the notes.
The notes and the guarantees rank behind all of our and the guarantors'
existing and future senior debt.
The notes will be subordinate to all of our existing and future senior debt.
The guarantees will be subordinated to all of the guarantors' existing and
future senior debt. We may incur additional senior debt under the terms of our
credit facility. As of October 31, 2001, we would have had $146.1 million of
committed availability under our amended credit facility, subject to the terms
and conditions thereof. In the event of our bankruptcy, liquidation or
dissolution, our assets would be available to pay obligations on the notes only
after all payments have been made on our senior debt. Similarly, in the event
of a bankruptcy, liquidation or dissolution of any guarantor, its assets would
be available to pay obligations on the guarantee only after all payments had
been made on its senior debt. In addition, no cash payments may be made with
respect to the notes during the continuance of a payment default with respect
to senior debt. Furthermore, under certain circumstances, no cash payments with
respect to the notes may be made for a period of up to 179 days (during each
period of 360 days) if a nonpayment default
11
exists with respect to designated senior debt. We cannot assure you that
sufficient assets will remain to make any payments to you or other holders of
the notes. In addition, certain events of default under our credit facility
would prohibit us from making any payments on the notes. Because of the
operation of the subordination provisions of the notes and the guarantees,
which require that holders of the notes turn over or direct payments otherwise
due on the notes to holders of senior debt until such lenders are paid in full,
upon any of our or the guarantors' bankruptcy, liquidation or dissolution, you
may receive less ratably in respect of the notes than our or our subsidiaries'
creditors, including unsecured trade creditors in respect to their claims.
Your right to enforce remedies is limited by the rights of holders of
secured debt.
In addition to being subordinate to all of our senior debt, the notes will
not be secured by any of our assets. Our obligations under our credit facility
are secured by all of our inventory and accounts receivable and those of our
subsidiary guarantors and a pledge of the capital stock of each guarantor. If
we became insolvent or are liquidated, or if payment under our credit facility
is accelerated, the lenders under our credit facility would be entitled to
exercise the remedies available to a secured lender under applicable law.
Therefore, our bank lenders or other secured creditors will have a claim on our
assets before the holders of these notes.
We may be prevented from financing, or may not have the ability to raise
funds necessary to finance, the change of control offer required by the
indenture.
Upon certain change of control events, each holder of notes outstanding
under the indenture may require us to repurchase all or a portion of our notes
at a purchase price equal to 101% of the principal amount thereof, plus accrued
interest. Our ability to repurchase the notes upon a change of control event is
prohibited by the terms of our credit facility. Future agreements may contain a
similar provision. Upon a change of control event, we may be required
immediately to repay the outstanding principal, any accrued interest on and any
other amounts owed by us under our credit facility. We cannot assure you that
we would be able to repay amounts outstanding under our credit facility. Any
requirement to offer to purchase any outstanding notes as well as the existing
1999 notes may result in us having to refinance our outstanding debt or obtain
necessary consents under our other debt agreements to repurchase the notes,
which we may not be able to do. In such case, our failure to purchase notes
following a change of control would constitute an event of default under the
indenture which would, in turn, constitute a default under our credit facility.
In such circumstances, the subordination provisions in the indenture would
likely restrict payments to the holders of the notes. In addition, even if we
were able to refinance such debt, such financing may be on terms unfavorable to
us.
The Internal Revenue Service may assert that the notes have been issued with
original issue discount.
There was a delayed closing scheduled in connection with the offering of
original notes in June 2001, and we made a special payment to each purchaser of
the original notes in consideration for such delayed closing. We have taken the
position that the notes were not issued with original issue discount, and each
original purchaser of the notes delivered an agreement to treat the receipt of
the payment as ordinary income for tax purposes. However, we cannot assure you
that the Internal Revenue Service ("IRS") will not successfully assert a
contrary position. If the IRS were to successfully assert that the payment of
the delayed draw special payment represented a reduction in the issue price of
the notes, the notes would be deemed to have been issued with original issue
discount equal to the excess of (a) the stated principal amount of the notes
over (b) the initial offering price (reduced by the amount of the delayed draw
special payment). In such event, the holders of the notes would be required to
include the amount of original issue discount in gross income over the term of
the notes based
12
on a constant yield method. This means that the holders would be required to
include amounts in gross income without a contemporaneous receipt of cash.
Moreover, the notes would not be fungible for federal income tax purposes with
our existing 1999 notes even after the completion of the exchange offer. Since
the exchange notes will have the same CUSIP number as the existing 1999 notes
and will trade interchangeably, the IRS may assume that any exchange note
(including an existing 1999 note) was received for an original note absent a
showing to the contrary. Purchasers of such notes would be required to report
original issue discount as indicated above. We have not obtained and do not
intend to obtain any ruling from the IRS or any opinion of counsel on this
matter. Investors are strongly urged to consult their own tax advisors
regarding the determination of the issue price of the notes and the federal,
state, local and foreign tax consequences of holding or disposing of a debt
security issued with original issue discount.
We rely on our subsidiaries for our operating funds and our subsidiaries
have no obligation to supply us with any funds.
We conduct our operations through subsidiaries and are dependent upon our
subsidiaries for the funds we need to operate. We will be dependent on the
transfer of funds from our subsidiaries to make the payments due under the
notes. Each of our subsidiaries is a distinct legal entity and has no
obligation, contingent or otherwise, to transfer funds to us. Our ability to
pay the notes, and the ability of our subsidiaries to transfer funds to us,
could be restricted by the terms of subsequent financings.
Federal and state statutes allow courts, under specific circumstances, to
void guarantees and require noteholders to return payments received from
guarantors.
Creditors of any business are protected by fraudulent conveyance laws which
differ among various jurisdictions, and these laws may apply to the issuance
of the guarantees by our subsidiaries. A guarantee may be voided by a court,
or subordinated to the claims of other creditors, if
. that guarantee was incurred by a subsidiary with actual intent to hinder,
delay or defraud any present or future creditor of the subsidiary, or
. that subsidiary did not receive fair consideration--or reasonably
equivalent value--for issuing its guarantee, and the subsidiary
- was insolvent,
- was rendered insolvent by reason of issuing the guarantee,
- was engaged or about to engage in a business or transaction for which
the remaining assets of the subsidiary constituted unreasonably small
capital, or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay as they matured.
If a guarantee of a subsidiary was voided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the notes would be solely
our creditors and creditors of our other subsidiaries that have guaranteed the
notes. The notes then would be effectively subordinated to all obligations of
that subsidiary. To the extent that the claims of the holders of the notes
against any subsidiary were subordinated in favor of other creditors of such
subsidiary, such other creditors would be entitled to be paid in full before
any payment could be made on the notes. If one or more of the guarantees is
voided or subordinated, we cannot assure you that after providing for all
prior claims, there would be sufficient assets remaining to satisfy the claims
of holders of the notes.
Based upon financial and other information, we believe that the notes and
the guarantees are being incurred for proper purposes and in good faith and
that we are and each subsidiary
13
is solvent and will continue to be solvent after this offering is completed,
will have sufficient capital for carrying on its business after such issuance
and will be able to pay its debts as they mature. We cannot assure you,
however, that a court reviewing these matters would agree with us. A legal
challenge to a guarantee on fraudulent conveyance grounds may focus on the
benefits, if any, realized by the subsidiary as a result of our issuance of the
notes.
There is no public market for the notes and you cannot be sure an active
trading market for the notes will develop.
The original notes have not been registered under the Securities Act, and
may not be resold by purchasers thereof unless the original notes are
subsequently registered or an exemption from the registration requirements of
the Securities Act is available. There can be no assurance, even following
registration or exchange of the original notes for exchange notes, that an
active trading market for the original notes or the exchange notes will exist.
At the time of the private placement of the original notes, the initial
purchasers advised us that they intended to make a market in the original notes
and, if issued, the exchange notes. However, the initial purchasers are not
obligated to make a market in the original notes or the exchange notes, and any
such market-making may be discontinued at any time at the sole discretion of
the initial purchasers. No assurance can be given as to the liquidity of or
trading market for the original notes or the exchange notes.
The liquidity of any market for the notes will depend upon the number of
holders of the notes, our performance, the market for similar securities, the
interest of securities dealers in making a market in the notes and other
factors.
The market value of your original notes may be lower if you do not exchange
your original notes or fail to properly tender your original notes for
exchange.
Consequences of Failure to Exchange. To the extent that original notes are
tendered and accepted for exchange pursuant to the exchange offer, the trading
market for original notes that remain outstanding may be significantly more
limited, which might adversely affect the liquidity of the original notes not
tendered for exchange. The extent of the market and the availability of price
quotations for original notes would depend upon a number of factors, including
the number of holders of original notes remaining at such time and the interest
in maintaining a market in such original notes on the part of securities firms.
An issue of securities with a smaller outstanding market value available for
trading (the "float") may command a lower price than would a comparable issue
of securities with a greater float. Therefore, the market price for original
notes that are not exchanged in the exchange offer may be affected adversely to
the extent that the amount of original notes exchanged pursuant to the exchange
offer reduces the float. The reduced float also may tend to make the trading
price of the original notes that are not exchanged more volatile.
Consequences of Failure to Properly Tender. Issuance of the exchange notes
in exchange for the original notes pursuant to the exchange offer will be made
following the prior satisfaction, or waiver, of the conditions set forth in
"The Exchange Offer--Conditions to the Exchange Offer" and only after timely
receipt by the exchange agent of such original notes, a properly completed and
duly executed letter of transmittal and all other required documents.
Therefore, holders of original notes desiring to tender such original notes in
exchange for exchange notes should allow sufficient time to ensure timely
delivery of all required documentation. Neither we, the exchange agent nor any
other person is under any duty to give notification of defects or
irregularities with respect to the tenders of original notes for exchange.
Original notes that may be tendered in the exchange offer but which are not
validly tendered will, following the consummation of the exchange offer, remain
outstanding and will continue to be subject to the same transfer restrictions
currently applicable to the original notes.
14
THE EXCHANGE OFFER
Registration Rights
At the closing of the offering of the original notes, we entered into the
registration rights agreement with the initial purchasers pursuant to which we
agreed, for the benefit of the holders of the original notes, at our cost,
. within 60 days after the date of the original issuance of the original
notes, to file an exchange offer registration statement with the SEC
with respect to the exchange offer for the exchange notes, and
. to use our reasonable efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act within 180
days after the date of original issuance of the original notes.
Upon the exchange offer registration statement being declared effective, we
agreed to offer the exchange notes in exchange for surrender of the original
notes. We agreed to keep the exchange offer open for not less than 20 business
days (or longer if required by applicable law) after the date notice of the
exchange offer is mailed to the holders of the original notes.
For each original note surrendered to us pursuant to the exchange offer, the
holder of such original note will receive an exchange note having a principal
amount equal to that of the surrendered original note. Interest on each
exchange note will accrue from the last interest payment date on which interest
was paid on the original note surrendered in exchange therefor or, if no
interest has been paid on such original note, from the date of its original
issue. The registration rights agreement also provides an agreement to include
in the prospectus for the exchange offer certain information necessary to allow
a broker-dealer who holds original notes that were acquired for its own account
as a result of market-making activities or other ordinary course trading
activities (other than original notes acquired directly from us or one of our
affiliates) to exchange such original notes pursuant to the exchange offer and
to satisfy the prospectus delivery requirements in connection with resales of
exchange notes received by such broker-dealer in the exchange offer. We agreed
to maintain the effectiveness of the registration statement for these purposes
for 90 days after the consummation of the exchange offer.
The preceding agreement is needed because any broker-dealer who acquires
original notes for its own account as a result of market-making activities or
other trading activities is required to deliver a prospectus meeting the
requirements of the Securities Act. This prospectus covers the offer and sale
of the exchange notes pursuant to the exchange offer made hereby and the resale
of exchange notes received in the exchange offer by any broker-dealer who held
original notes of the same series acquired for its own account as a result of
market-making activities or other trading activities other than original notes
acquired directly from us or one of our affiliates.
Under existing interpretations of the staff of the SEC contained in several
no-action letters to third parties, the exchange notes would in general be
freely tradeable after the exchange offer without further registration under
the Securities Act. However, any purchaser of original notes who is an
"affiliate" of ours or who intends to participate in the exchange offer for the
purpose of distributing the related exchange notes (1) will not be able to rely
on the interpretation of the staff of the SEC, (2) will not be able to tender
its original notes in the exchange offer and (3) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the original notes unless such sale or
transfer is made pursuant to an exemption from such requirements.
15
Each holder of the original notes (other than certain specified holders) who
wishes to exchange original notes for exchange notes in the exchange offer will
be required to make certain representations, including that (1) it is not an
affiliate of ours, (2) any exchange notes to be received by it were acquired in
the ordinary course of its business and (3) at the time of commencement of the
exchange offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the exchange notes.
In the event that any changes in law or the applicable interpretations of
the staff of the SEC do not permit us to effect the exchange offer, or if for
any other reason the exchange offer is not consummated within 210 days of the
date of issuance and sale of the original notes, or the exchange offer is not
available to the initial purchaser based upon an opinion of counsel, we will,
at our cost,
. as promptly as practicable, file a shelf registration statement (which
may be an amendment of the registration statement of which this
prospectus is a part) covering resales of the original notes,
. use all reasonable efforts to cause the shelf registration statement to
be declared effective under the Securities Act, and
. use all reasonable efforts to keep effective the shelf registration
statement until two years after its effective date, or, if Rule 144(k)
under the Securities Act is amended to provide a shorter restricted
period, such shorter period, or until all original notes have been sold.
We will, in the event of the filing of a shelf registration statement, (1)
provide to each holder of the original notes copies of the prospectus which is
a part of the shelf registration statement, (2) notify each such holder when
the shelf registration statement for the original notes has become effective,
and (3) take certain other actions as are required to permit unrestricted
resales of the original notes. A holder of original notes that sells such
original notes pursuant to the shelf registration statement generally will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the registration rights agreement which are
applicable to such holder, including certain indemnification obligations. In
addition, each holder of the original notes will be required to deliver
information to be used in connection with the shelf registration statement and
to provide comments on the shelf registration statement within the time periods
set forth in the registration rights agreement in order to have their original
notes included in the shelf registration statement and to benefit from the
provisions regarding additional interest set forth in the following paragraph.
We will pay additional interest on the original notes upon the occurrence of
any of the following events:
. If the exchange offer registration statement or shelf registration
statement is not filed within 60 days following the date of original
issuance of the original notes, then commencing on the 61st day after
the date of original issuance of the original notes, additional interest
shall accrue on the original notes over and above the otherwise
applicable interest rate at a rate of .25% per year;
. if an exchange offer registration statement is filed and is not declared
effective within 210 days following the date of original issuance of the
original notes or a shelf registration statement is not declared
effective within 120 days after the shelf filing date, then commencing
on either the 211th day after the date of original issuance of the
original notes or the 121st day after the shelf filing date, additional
interest shall
16
accrue on the original notes over and above the otherwise applicable
interest rate at a rate of .25% per year; or
. if the shelf registration statement has been declared effective but such
shelf registration statement ceases to be effective at any time for a
period of 60 days;
(1) prior to the expiration of the second anniversary of the
closing date, or, if Rule 144(k) is amended to provide a shorter
restrictive period, such shorter period, and
(2) while any registrable securities are outstanding, then
additional interest shall accrue on the original notes over and above
the otherwise applicable interest rate at a rate of .25% per year
commencing on the day such shelf registration statement ceases to be
effective.
The foregoing circumstances under which we may be required to pay
additional interest are not cumulative. In no event will the additional
interest rate on the original notes exceed 1.0% per year. Further, any
additional interest will cease to accrue when all of the events described
above have been cured or upon the expiration of the second anniversary of the
date of original issuance of the original notes, or, if Rule 144(k) is amended
to provide a shorter restrictive period, the shorter period. For purposes of
clarifying the foregoing provisions, the registration rights agreement states
that additional interest shall not accrue at any time that there are no
registrable securities outstanding. The receipt of additional interest will be
the sole monetary remedy available to a holder if we fail to meet these
obligations.
This summary of the material provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the registration rights
agreement, a copy of which is filed as an exhibit to the registration
statement of which this prospectus is a part.
Except as set forth above, after consummation of the exchange offer,
holders of original notes which are the subject of the exchange offer have no
registration or exchange rights under the registration rights agreement. See
"--Consequences of Failure to Exchange," and "--Resale of the Exchange Notes;
Plan of Distribution."
Consequences of Failure to Exchange
The original notes which are not exchanged for exchange notes pursuant to
the exchange offer and are not included in a resale prospectus which, if
required, will be filed as part of an amendment to the registration statement
of which this prospectus is a part, will remain restricted securities and
subject to restrictions on transfer. Accordingly, such original notes may only
be resold
(1) to us, upon redemption thereof or otherwise,
(2) so long as the original notes are eligible for resale pursuant to
Rule 144A, to a person whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities
Act, purchasing for its own account or for the account of the qualified
institutional buyer to whom notice is given that the resale, pledge or
other transfer is being made in reliance on Rule 144A,
(3) in an offshore transaction in accordance with Regulation S under the
Securities Act,
17
(4) pursuant to an exemption from registration in accordance with Rule
144, if available, under the Securities Act,
(5) in reliance on another exemption from the registration requirements
of the Securities Act, or
(6) pursuant to an effective registration statement under the Securities
Act.
In all of the situations discussed above, the resale must be in accordance
with any applicable securities laws of any state of the United States and
subject to certain requirements of the registrar or co-registrar being met,
including receipt by the registrar or co-registrar of a certification and, in
the case of (3), (4) and (5) above, an opinion of counsel reasonably acceptable
to us and the registrar.
To the extent original notes are tendered and accepted in the exchange
offer, the principal amount of outstanding original notes will decrease with a
resulting decrease in the liquidity in the market therefor. Accordingly, the
liquidity of the market of the original notes could be adversely affected. See
"Risk Factors--Consequences to Non-Tendering Holders of Original Notes."
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, a copy of which is attached to this
prospectus as Annex A, we will accept any and all original notes validly
tendered and not withdrawn prior to the expiration date. We will issue $1,000
principal amount of exchange notes in exchange for each $1,000 principal amount
of original notes accepted in the exchange offer. Holders may tender some or
all of their original notes pursuant to the exchange offer. However, original
notes may be tendered only in integral multiples of $1,000 principal amount.
The form and terms of the exchange notes are the same as the form and terms
of the original notes, except that
. the exchange notes will have been registered under the Securities Act
and will not bear legends restricting their transfer pursuant to the
Securities Act, and
. except as otherwise described above, holders of the exchange notes will
not be entitled to the rights of holders of original notes under the
registration rights agreement.
The exchange notes will evidence the same debt as the original notes which
they replace, and will be issued under, and be entitled to the benefits of, the
indenture which governs all of the notes.
Solely for reasons of administration and for no other purpose, we have fixed
the close of business on December 7, 2001 as the record date for the exchange
offer for purposes of determining the persons to whom this prospectus and the
letter of transmittal will be mailed initially. Only a registered holder of
original notes or such holder's legal representative or attorney-in-fact as
reflected on the records of the trustee under the indenture may participate in
the exchange offer. There will be no fixed record date for determining
registered holders of the original notes entitled to participate in the
exchange offer.
Holders of the original notes do not have any appraisal or dissenters'
rights under Delaware law or the indenture in connection with the exchange
offer. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the SEC thereunder.
18
We shall be deemed to have accepted validly tendered original notes when, as
and if we have given oral or written notice thereof to the exchange agent. The
exchange agent will act as agent for the tendering holders of the original
notes for the purposes of receiving the exchange notes. The exchange notes
delivered pursuant to the exchange offer will be issued on the earliest
practicable date following our acceptance for exchange of original notes.
If any tendered original notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted original notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the expiration date.
Holders who tender original notes in the exchange offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of the
original notes pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "--Fees and Expenses."
Expiration Date; Extension; Amendments
The term "expiration date" with respect to the exchange offer, shall mean
5:00 p.m., New York City time, on January 8, 2002, unless we, in our sole
discretion, extend the exchange offer, in which case the term "Expiration Date"
shall mean the latest date and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will make a public announcement
thereof, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date of the exchange offer.
We reserve the right, in our sole discretion,
. to delay accepting any original notes,
. to extend the exchange offer,
. if any of the conditions set forth below under "--Conditions to the
Exchange Offer" have not been satisfied, to terminate the exchange
offer, or
. to amend the terms of the exchange offer in any manner.
We may effect any such delay, extension or termination by giving oral or
written notice thereof to the exchange agent.
Except as specified in the second paragraph under this heading, any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by a public announcement thereof. If the exchange offer
is amended in a manner determined by us to constitute a material change, we
will promptly disclose such amendment by means of a prospectus supplement that
will be distributed to the registered holders of the original notes. The
exchange offer will then be extended for a period of five to 10 business days,
as required by law, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the exchange offer would
otherwise expire during such five to 10 business day period.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, termination or amendment of the exchange
offer, we shall not have an
19
obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release thereof to the Dow Jones
News Service.
Procedures for Tendering Original Notes
Tenders of Original Notes. The tender by a holder of original notes pursuant
to any of the procedures set forth below will constitute the tendering holder's
acceptance of the terms and conditions of the exchange offer. Our acceptance
for exchange of original notes tendered pursuant to any of the procedures
described below will constitute a binding agreement between such tendering
holder and us in accordance with the terms and subject to the conditions of the
exchange offer. Only holders are authorized to tender their original notes. The
procedures by which original notes may be tendered by beneficial owners that
are not holders will depend upon the manner in which the original notes are
held.
DTC has authorized DTC participants that are beneficial owners of original
notes through DTC to tender their original notes as if they were holders. To
effect a tender, DTC participants should either (1) complete and sign the
letter of transmittal or a facsimile thereof, have the signature thereon
guaranteed if required by Instruction 1 of the letter of transmittal, and mail
or deliver the letter of transmittal or such facsimile pursuant to the
procedures for book-entry transfer set forth below under "--Book-Entry Delivery
Procedures," or (2) transmit their acceptance to DTC through the DTC Automated
Tender Offer Program ("ATOP"), for which the transaction will be eligible, and
follow the procedures for book-entry transfer, set forth below under "--Book-
Entry Delivery Procedures."
Tender of Original Notes Held in Physical Form. To tender effectively
original notes held in physical form pursuant to the exchange offer,
. a properly completed letter of transmittal applicable to such notes (or
a facsimile thereof) duly executed by the holder thereof, and any other
documents required by the letter of transmittal, must be received by the
exchange agent at one of its addresses set forth below, and tendered
original notes must be received by the exchange agent at such address
(or delivery effected through the deposit of original notes into the
exchange agent's account with DTC and making book-entry delivery as set
forth below) on or prior to the expiration date of the exchange offer,
or
. the tendering holder must comply with the guaranteed delivery procedures
set forth below.
Letters of transmittal or original notes should be sent only to the exchange
agent and should not be sent to us.
Tender of Original Notes Held Through a Custodian. To tender effectively
original notes that are held of record by a custodian bank, depository, broker,
trust company or other nominee, the beneficial owner thereof must instruct such
holder to tender the original notes on the beneficial owner's behalf. A letter
of instructions from the record owner to the beneficial owner may be included
in the materials provided along with this prospectus which may be used by the
beneficial owner in this process to instruct the registered holder of such
owner's original notes to effect the tender.
Tender of Original Notes Held Through DTC. To tender effectively original
notes that are held through DTC, DTC participants should either
. properly complete and duly execute the letter of transmittal (or a
facsimile thereof), and any other documents required by the letter of
transmittal, and mail or deliver the letter
20
of transmittal or such facsimile pursuant to the procedures for book-
entry transfer set forth below, or
. transmit their acceptance through ATOP, for which the transaction will
be eligible, and DTC will then edit and verify the acceptance and send
an Agent's message to the exchange agent for its acceptance.
Delivery of tendering original notes held through DTC must be made to the
exchange agent pursuant to the book-entry delivery procedures set forth below
or the tendering DTC participant must comply with the guaranteed delivery
procedures set forth below.
The method of delivery of original notes and letters of transmittal, any
required signature guarantees and all other required documents, including
delivery through DTC and any acceptance or Agent's Message, as defined below,
transmitted through ATOP, is at the election and risk of the person tendering
original notes and delivering letters of transmittal. Except as otherwise
provided in the letter of transmittal, delivery will be deemed made only when
actually received by the exchange agent. If delivery is by mail, it is
suggested that the holder use properly insured, registered mail with return
receipt requested, and that the mailing be made sufficiently in advance of the
expiration date to permit delivery to the exchange agent prior to such date.
Except as provided below, unless the original notes being tendered are
deposited with the exchange agent on or prior to the expiration date and
accompanied by a properly completed and duly executed letter of transmittal or
a properly transmitted Agent's Message, we may, at our option, reject such
tender. Exchange of exchange notes for original notes will be made only
against deposit of the tendered original notes and delivery of all other
required documents.
Book-Entry Delivery Procedures. The exchange agent will establish accounts
with respect to the original notes at DTC for purposes of the exchange offer
within two business days after the date of this prospectus, and any financial
institution that is a participant in DTC may make book-entry delivery of the
original notes by causing DTC to transfer such original notes into the
exchange agent's account in accordance with DTC's procedures for such
transfer. However, although delivery of original notes may be effected through
book-entry at DTC, the letter of transmittal (or facsimile thereof), with any
required signature guarantees or an Agent's Message in connection with a book-
entry transfer, and any other required documents, must, in any case, be
transmitted to and received by the exchange agent at one or more of its
addresses set forth in this prospectus on or prior to the expiration date, or
compliance must be made with the guaranteed delivery procedures described
below. Delivery of documents to DTC does not constitute delivery to the
exchange agent. The confirmation of a book-entry transfer into the exchange
agent's account at DTC as described above is referred to herein as a "Book-
Entry Confirmation."
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the exchange agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment
from each participant in DTC tendering the original notes and that such
participant has received the letter of transmittal and agrees to be bound by
the terms of the letter of transmittal and we may enforce such agreement
against such participant.
Signature Guarantees. Signatures on all letters of transmittal must be
guaranteed by a recognized member of the Medallion Signature Guarantee Program
or by any other "eligible guarantor institution," as such term is defined in
Rule 17Ad-15 promulgated under the Exchange Act (each of the foregoing, an
"Eligible Institution"), unless the original notes tendered thereby are
tendered (1) by a registered holder of original notes (or by a participant
21
in DTC whose name appears on a DTC security position listing as the owner of
such original notes) who has not completed either the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter of
transmittal, or (2) for the account of an Eligible Institution. See Instruction
1 of the letters of transmittal. If the original notes are registered in the
name of a person other than the signer of the letter of transmittal or if
original notes not accepted for exchange or not tendered are to be returned to
a person other than the registered holder, then the signatures on the letter of
transmittal accompanying the tendered original notes must be guaranteed by an
Eligible Institution as described above. See Instructions 1 and 5 of the letter
of transmittal.
Guaranteed Delivery. If a holder desires to tender original notes pursuant
to the exchange offer and time will not permit the letter of transmittal,
certificates representing such original notes and all other required documents
to reach the exchange agent, or the procedures for book-entry transfer cannot
be completed, on or prior to the expiration date of the exchange offer, such
original notes may nevertheless be tendered if all the following conditions are
satisfied:
. the tender is made by or through an Eligible Institution;
. a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by us herewith, or an Agent's
Message with respect to guaranteed delivery that is accepted by us, is
received by the exchange agent on or prior to the expiration date, as
provided below; and
. the certificates for the tendered original notes, in proper form for
transfer (or a Book-Entry Confirmation of the transfer of such original
notes into the exchange agent's account at DTC as described above),
together with the letter of transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature
guarantees and any other documents required by the letter of
transmittal or a properly transmitted Agent's Message, are received by
the exchange agent within two business days after the date of execution
of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be sent by hand delivery, telegram,
facsimile transmission or mail to the exchange agent and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, delivery of exchange notes by
the exchange agent for original notes tendered and accepted for exchange
pursuant to the exchange offer will, in all cases, be made only after timely
receipt by the exchange agent of such original notes (or Book-Entry
Confirmation of the transfer of such original notes into the exchange agent's
account at DTC as described above), and the letter of transmittal (or facsimile
thereof) with respect to such original notes, properly completed and duly
executed, with any required signature guarantees and any other documents
required by the letter of transmittal, or a properly transmitted Agent's
Message.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
original notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to
reject any and all original notes not properly tendered or any original notes
our acceptance of which, in the opinion of our counsel, would be unlawful.
We also reserve the right to waive any defects, irregularities or conditions
of tender as to particular original notes. The interpretation of the terms and
conditions of our exchange offer (including the instructions in the letter of
transmittal) by us will be final and binding on all
22
parties. Unless waived, any defects or irregularities in connection with
tenders of original notes must be cured within such time as we shall determine.
Although we intend to notify holders of defects or irregularities with
respect to tenders of original notes through the exchange agent, neither we,
the exchange agent nor any other person is under any duty to give such notice,
nor shall they incur any liability for failure to give such notification.
Tenders of original notes will not be deemed to have been made until such
defects or irregularities have been cured or waived.
Any original notes received by the exchange agent that are not validly
tendered and as to which the defects or irregularities have not been cured or
waived, or if original notes are submitted in a principal amount greater than
the principal amount of original notes being tendered by such tendering holder,
such unaccepted or non-exchanged original notes will either be
. returned by the exchange agent to the tendering holders, or
. in the case of original notes tendered by book-entry transfer into the
exchange agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described below, credited to an
account maintained with such Book-Entry Transfer Facility.
By tendering, each registered holder will represent to us that, among other
things,
. the exchange notes to be acquired by the holder and any beneficial
owner(s) of the original notes in connection with the exchange offer
are being acquired by the holder and any beneficial owner(s) in the
ordinary course of business of the holder and any beneficial owner(s),
. the holder and each beneficial owner are not participating, do not
intend to participate, and have no arrangement or understanding with
any person to participate, in a distribution of the exchange notes,
. the holder and each beneficial owner acknowledge and agree that (x) any
person participating in the exchange offer for the purpose of
distributing the exchange notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with a secondary resale transaction with respect to the exchange notes
acquired by such person and cannot rely on the position of the Staff of
the SEC set forth in no-action letters that are discussed herein under
"--Resale of the Exchange Notes; Plan of Distribution," and (y) any
broker-dealer that receives exchange notes for its own account in
exchange for original notes pursuant to the exchange offer must deliver
a prospectus in connection with any resale of such exchange notes, but
by so acknowledging, the holder shall not be deemed to admit that, by
delivering a prospectus, it is an "underwriter" within the meaning of
the Securities Act,
. neither the holder nor any beneficial owner is an "affiliate," as
defined under Rule 405 of the Securities Act, of ours except as
otherwise disclosed to us in writing, and
. the holder and each beneficial owner understands, that a secondary
resale transaction described in clause (3) above should be covered by
an effective registration statement containing the selling
securityholder information required by Item 507 of Regulation S-K of
the SEC.
Each broker-dealer that receives exchange notes for its own account in
exchange for original notes, where such original notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a
23
prospectus in connection with any resale of such exchange notes. See "--Resale
of the Exchange Notes; Plan of Distribution."
Withdrawal of Tenders
Except as otherwise provided herein, tenders of original notes pursuant to
the exchange offer may be withdrawn, unless therefore accepted for exchange as
provided in the exchange offer, at any time prior to the expiration date of the
exchange offer.
To be effective, a written or facsimile transmission of a notice of
withdrawal must be received by the exchange agent at its address set forth
herein prior to the expiration date of the exchange offer. Any such notice of
withdrawal must
. specify the name of the person having deposited the original notes to be
withdrawn,
. identify the original notes to be withdrawn, including the certificate
number or numbers of the particular certificates evidencing the original
notes (unless such original notes were tendered by book-entry transfer),
and aggregate principal amount of such original notes, and
. be signed by the holder in the same manner as the original signature on
the letter of transmittal (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the
trustee under the indenture register the transfer of the original notes
into the name of the person withdrawing such original notes.
If original notes have been delivered pursuant to the procedures for book-
entry transfer set forth in "--Procedures for Tendering Original Notes--Book-
Entry Delivery Procedures," any notice of withdrawal must specify the name and
number of the account at the appropriate book-entry transfer facility to be
credited with such withdrawn original notes and must otherwise comply with such
book-entry transfer facility's procedures.
If the original notes to be withdrawn have been delivered or otherwise
identified to the exchange agent, a signed notice of withdrawal meeting the
requirements discussed above is effective immediately upon written or facsimile
notice of withdrawal even if physical release is not yet effected. A withdrawal
of original notes can only be accomplished in accordance with these procedures.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us in our sole discretion, which
determination shall be final and binding on all parties. No withdrawal of
original notes will be deemed to have been properly made until all defects or
irregularities have been cured or expressly waived. Neither we, the exchange
agent nor any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or revocation, nor shall
we or they incur any liability for failure to give any such notification. Any
original notes so withdrawn will be deemed not to have been validly tendered
for purposes of the exchange offer and no exchange notes will be issued with
respect thereto unless the original notes so withdrawn are retendered. Properly
withdrawn original notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering Original Notes" at any time
prior to the expiration date of the exchange offer.
Any original notes which have been tendered but which are not accepted for
exchange due to the rejection of the tender due to uncured defects or the prior
termination of the exchange offer, or which have been validly withdrawn, will
be returned to the holder thereof unless
24
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date of the exchange offer or, if so requested in the
notice of withdrawal, promptly after receipt by us of notice of withdrawal
without cost to such holder.
Conditions to the Exchange Offer
The exchange offer shall not be subject to any conditions, other than that
(1) the SEC has issued an order or orders declaring the indenture
governing the notes qualified under the Trust Indenture Act of 1939,
(2) the exchange offer, or the making of any exchange by a holder, does
not violate applicable law or any applicable interpretation of the staff of
the SEC,
(3) no action or proceeding shall have been instituted or threatened in
any court or by or before any governmental agency with respect to the
exchange offer, which, in our judgement, might impair our ability to
proceed with the exchange offer,
(4) there shall not have been adopted or enacted any law, statute, rule
or regulation which, in our judgement, would materially impair our ability
to proceed with the exchange offer, or
(5) there shall not have occurred any material change in the financial
markets in the United States or any outbreak of hostilities or escalation
thereof or other calamity or crisis the effect of which on the financial
markets of the United States, in our judgement, would materially impair our
ability to proceed with the exchange offer.
If we determine in our sole discretion that any of the conditions to the
exchange offer are not satisfied, we may
(1) refuse to accept any original notes and return all tendered original
notes to the tendering holders,
(2) extend the exchange offer and retain all original notes tendered
prior to the expiration date, subject, however, to the rights of holders to
withdraw such original notes (see "--Withdrawal of Original Tenders"), or
(3) waive such unsatisfied conditions with respect to the exchange offer
and accept all validly tendered original notes which have not been
withdrawn.
If such waiver constitutes a material change to the exchange offer, we will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and will extend the exchange offer for a
period of five to 10 business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders, if the exchange
offer would otherwise expire during such five to 10 business day period.
25
Exchange Agent
The Bank of New York, the trustee under the indenture governing the notes,
has been appointed as exchange agent for the exchange offer. Questions and
requests for assistance, requests for additional copies of this prospectus or
of the letter of transmittal and requests for Notices of Guaranteed Delivery
and other documents should be directed to the exchange agent addressed as
follows:
By Mail:
The Bank of New York
Reorganization Department
15 Broad Street--16th Floor
New York, NY 10005
Attn: Carolle Montreuil
By Facsimile:
(212) 235-2261
Confirm by
Telephone:
(212) 235-2354
By Hand:
The Bank of New York
Reorganization Department
15 Broad Street--16th Floor
New York, NY 10005
Attn: Carolle Montreuil
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telecopy, telephone or in person by officers and regular employees
of the partnership, the general partner and its affiliates.
No dealer-manager has been retained in connection with the exchange offer
and no payments will be made to brokers, dealers or others soliciting
acceptance of the exchange offer. However, reasonable and customary fees will
be paid to the exchange agent for its services and it will be reimbursed for
its reasonable out-of-pocket expenses in connection therewith.
We estimate that our out-of-pocket expenses for the exchange offer will be
approximately $300,000. Such expenses include fees and expenses of the exchange
agent and the trustee under the indenture, accounting and legal fees and
printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of the
original notes pursuant to the exchange offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the original notes pursuant
to the exchange offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the letter of transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
Accounting Treatment
The exchange notes will be recorded at the carrying value of the original
notes and no gain or loss for accounting purposes will be recognized. The
expenses of the exchange offer will be amortized over the term of the exchange
notes.
26
Resale of the Exchange Notes; Plan of Distribution
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for original
notes where such original notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of 90
days after the expiration date of the exchange offer, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until March 7, 2002 (90 days
after the date of this prospectus), all dealers effecting transactions in the
exchange notes, whether or not participating in this distribution, may be
required to deliver a prospectus. This requirement is in addition to the
obligation of dealers to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
We will not receive any proceeds from any sale of exchange notes by broker-
dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions
. in the over-the-counter market,
. in negotiated transactions,
. through the writing of options on the exchange notes or a combination
of such methods of resale,
. at market prices prevailing at the time of resale,
. at prices related to such prevailing market prices, or
. at negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such exchange
notes.
Any broker-dealer that resells exchange notes that were received by it for
its own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of exchange notes and any commission on concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that, by acknowledging that it will
deliver a prospectus and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 90 days after the expiration date of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to
the exchange offer (including the expenses of one counsel for the holders of
the notes approved in writing by the holders of a majority in aggregate
principal amount of the notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the notes (including any
broker-dealers) required to use this prospectus in connection with their resale
of exchange notes as described above against certain liabilities, including
liabilities under the Securities Act.
27
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds from the
issuance of the exchange notes offered by this prospectus. In consideration for
issuing the exchange notes as contemplated in this prospectus, we will receive
in exchange original notes in like principal amount, the form and terms of
which are the same as the form and terms of the exchange notes, except as
otherwise described in this prospectus under "The Exchange Offer--Terms of the
Exchange Offer." The original notes surrendered in exchange for the exchange
notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the exchange notes will not result in any increase in our
indebtedness.
28
CAPITALIZATION
The following table sets forth our summary capitalization as of September
30, 2001, which reflects the issuance of the original notes and the application
of the proceeds from the sale of the original notes. This table should be read
in conjunction with our financial statements and notes thereto incorporated by
reference into this prospectus.
As of
September 30,
2001
--------------
(dollars in
thousands)
Cash and cash equivalents...................................... $ 3,407
==========
Total debt:
Revolving credit agreement--credit facility (1).............. $ 158,000
Term loans--credit facility.................................. 294,750
Institutional term loan--credit facility..................... 98,500
Existing 1999 notes (2)...................................... 200,000
Original notes (2)........................................... 135,000
Junior subordinated notes.................................... 4,113
Other borrowings............................................. 638
----------
Total debt................................................... 891,001
Mandatorily redeemable convertible preferred stock............. 284,331
Shareholders' equity........................................... 707,717
----------
Total capitalization......................................... $1,883,049
==========
- --------
(1) As of October 31, 2001, we would have had $146.1 million of committed
availability under our amended credit facility, subject to the terms and
conditions thereof. See "Description of the Credit Facility."
(2) Before deducting the unamortized portion of debt discounts.
29
SELECTED HISTORICAL FINANCIAL INFORMATION
Except as discussed below, the following selected historical financial
information has been derived from our audited consolidated financial statements
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in our Forms 10-K and
10-Q and our audited consolidated financial statements and notes thereto
incorporated by reference into this prospectus. As discussed in notes 1 and 3
to our audited consolidated financial statements incorporated by reference into
this prospectus, the financial results for periods prior to the merger on
February 22, 2000 reflect the historical results of Building One. Since
Building One was formed in late 1997, the financial data for 1997 and 1996
presented below reflect only the operating results of three businesses acquired
by Building One in 1998 under the pooling-of-interests method of accounting.
The balance sheet data as of December 31, 1996 have been derived from the
unaudited financial statements of such acquired businesses.
Interim results for the nine months ended September 30, 2001 and 2000, are
unaudited and not necessarily indicative of results that can be expected in
future periods. In the opinion of our management, the unaudited data for the
nine months ended September 30, 2001 and 2000 includes all adjustments,
consisting only of normal recurring adjustments, necessary to fairly present
the data for such periods.
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------------------- ----------------------
1996 1997 1998 1999 2000 2000 2001
------- ------- -------- ---------- ---------- ---------- ----------
(dollars in thousands)
Income Statement Data:
Revenues................ $63,202 $70,101 $809,601 $1,772,584 $3,982,266 $2,859,151 $2,972,988
Gross profit............ 9,538 11,244 173,376 353,467 707,196 500,818 480,538
Selling, general and
administrative
expenses............... 8,787 11,771 99,807 203,962 441,757 311,604 338,733
Provision for doubtful
accounts............... 16 5 732 766 6,988 4,159 14,336
Amortization of goodwill
and other intangible
assets................. -- -- 7,653 16,004 33,339 24,164 27,690
Merger and related
charges (a)............ -- -- -- -- 7,800 7,800 --
Costs to exit certain
activities and related
costs (b).............. -- -- -- -- 12,200 12,200 --
Restructuring and
recapitalization
charges (c)............ -- -- -- 8,020 -- -- --
------- ------- -------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. 735 (532) 65,184 124,715 205,112 140,891 99,779
Interest income
(expense), net......... (224) 1,848 18,319 (29,875) (87,242) (63,159) (62,413)
Other income (expense),
net.................... (83) 221 80 249 (530) (618) (664)
------- ------- -------- ---------- ---------- ---------- ----------
Income from continuing
operations before
income tax provision... 428 1,537 83,583 95,089 117,340 77,114 36,702
Income tax provision.... 13 94 36,120 42,027 57,652 38,285 26,085
------- ------- -------- ---------- ---------- ---------- ----------
Income from continuing
operations............. 415 1,443 47,463 53,062 59,688 38,829 10,617
Income (loss) from
discontinued
operations, net of
tax.................... -- -- -- -- 3,665 3,090 (10,943)
Loss on disposal of
discontinued
operations, net of
tax.................... -- -- -- -- -- -- (23,055)
------- ------- -------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary loss..... 415 1,443 47,463 53,062 63,353 41,919 (23,381)
Extraordinary loss, net
of tax................. -- -- -- -- (8,057) (8,057) --
------- ------- -------- ---------- ---------- ---------- ----------
Net income (loss)....... 415 1,443 47,463 53,062 55,296 33,862 (23,381)
Less convertible
preferred stock
dividends.............. -- -- -- -- (16,568) (11,639) (15,322)
------- ------- -------- ---------- ---------- ---------- ----------
Net income (loss)
available to common
shareholders........... $ 415 $ 1,443 $ 47,463 $ 53,062 $ 38,728 $ 22,223 $ (38,703)
======= ======= ======== ========== ========== ========== ==========
(continued on next page)
30
Nine Months Ended
Years Ended December 31, September 30,
---------------------------------------------------- ----------------------
1996 1997 1998 1999 2000 2000 2001
------ -------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands)
Other Financial Data:
EBITDA (d).............. $1,661 $ 413 $ 78,426 $ 164,717 $ 289,596 $ 207,716 $ 154,615
Depreciation and
amortization........... 926 945 13,242 31,982 64,484 46,825 54,836
Ratio of earnings to
fixed charges (e)...... 2.08x 5.79x 24.30x 3.40x 2.15x 2.03x 1.49x
Balance Sheet Data:
Cash and cash
equivalents............ $ 303 $528,972 $ 213,096 $ 17,085 $ 10,094 $ 1,779 $ 3,407
Working capital......... 67 528,235 307,390 220,431 491,335 501,704 408,138
Total assets............ 9,629 539,159 1,043,922 1,313,754 2,697,882 2,712,681 2,490,804
Total debt, net of
discount............... 3,436 3,232 5,454 600,178 967,411 988,709 883,660
Mandatorily redeemable
convertible preferred
stock.................. -- -- -- -- 269,009 252,623 284,331
Shareholders' equity.... 1,578 529,480 837,537 428,757 763,875 743,658 707,717
- --------
(a) Represents expenses related to severance, office closing costs and other
related costs associated with the merger. See note 3 to our audited
consolidated financial statements incorporated by reference into this
prospectus.
(b) Represents charges associated with the shutdown of demolition and site
preparation operations, relocation of the headquarters of the Cleaning
Systems Group and other costs resulting from the merger. See note 3 to
our audited consolidated financial statements incorporated by reference
into this prospectus.
(c) Represents restructuring and recapitalization charges associated with
Building One's tender offer for its stock in May 1999 and relocation of
Building One's corporate headquarters. See note 12 to our audited
consolidated financial statements incorporated by reference into this
prospectus.
(d) EBITDA is income from operations plus depreciation and amortization,
merger and related charges, costs to exit certain activities and related
costs and restructuring and recapitalization charges. EBITDA is presented
to provide additional information concerning our ability to meet future
debt service obligations and capital expenditure and working capital
requirements. EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered as
an alternative to either income from operations as an indicator of our
operating performance or cash flows from operations as an indicator of
our liquidity. Because other companies do not calculate EBITDA
identically, this presentation may not be comparable to similarly titled
measures of other companies.
(e) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income tax
provision and extraordinary items, plus fixed charges. Fixed charges
consist of interest expense on debt and amortization of debt issuance
costs and discounts, plus that portion of rental expense that is deemed
to be representative of an interest factor.
31
BUSINESS
INDUSTRY OVERVIEW
We compete in the electrical, mechanical, industrial, cleaning systems,
residential and technological segments of the facilities services industry. The
facilities services industry is highly fragmented with a small number of multi-
location regional or national providers and a large number of relatively small,
independent businesses serving discrete, local markets with limited service
offerings.
The electrical, mechanical, industrial and residential services we provide
are a vital part of new construction, repair and renovation projects. Virtually
all domestic construction, repair and remodeling projects generate demand for
these contracting services. According to the 2000-2001 U.S. Markets Overview
published by FMI Corporation, total construction put in place, which includes
improvements, in the United States was estimated to be approximately $800
billion in 2000 and grew at a compounded annual growth rate of 5.4% from 1990
to 2000. FMI projects growth to be 5.8% annually from 2000 through 2005. In
addition to new construction, we believe that the following factors drive
growth in demand for our services and mitigate the effect which economic cycles
have on the new construction industry:
. continuing technological advances and an aging installed base;
. increasing sophistication, complexity and automation in electrical and
mechanical systems;
. increased outsourcing of maintenance services by property owners and
managers; and
. growing demands for systems driven by increasing power requirements,
revised standards for energy efficiency, increased demand for back-up
power, and demand for more energy efficient systems.
According to Marketdata Enterprises, Inc., the commercial building cleaning
and maintenance services industry generated approximately $73 billion in
revenues in 1999 and is highly fragmented with the top six providers accounting
for approximately 5% of the total. Marketdata expects this industry to grow at
a compounded annual growth rate of 6.7% between 1999 and 2004 reaching $101
billion in 2004.
COMPETITIVE STRENGTHS
We believe that the following competitive strengths will enable us to
enhance our growth and profitability.
Leading market position in a highly fragmented industry. We believe that we
are one of the largest providers of facilities services in the United States.
The majority of companies that we compete with are much smaller and only
operate on a local or regional basis. We believe our size provides us enhanced
infrastructure, brand recognition and increased purchasing power. Additionally,
we believe the scale of our operations enables us to provide services to
national customers and undertake large, complex projects which many of our
competitors do not have the resources to complete on a comparable timeline.
Diversified revenue mix with broad geographic scope. We operate over 250
locations serving customers in all 50 states and, in 2000, provided facilities
services to over 12,000 customers covering over 40 different end-uses. No
customer accounted for more than 3% of our fiscal 2000 revenues. We believe
that our diversified customer base, broad geographic presence and comprehensive
service offerings provide a high degree of stability to our revenues and cash
32
flow and will enable us to grow quickly and better meet our customers' needs.
Such diversification reduces our vulnerability to financial weakness of
particular customers, industries or geographic regions. Our national network
and comprehensive service offerings allow us to effectively service national
and regional customers who are increasingly purchasing facilities services on a
consolidated basis.
Multiple services. We believe that there is a strong desire among our
customers to consolidate and simplify their vendor relationships by contracting
with one company to provide multiple services. Our comprehensive service
offerings in selected markets allow us to offer bundled service packages to our
customers who are increasingly purchasing facility services on a consolidated
basis. Additionally, we believe that our size allows us to provide bundled
service packages more effectively than our competitors who are less integrated
across operating segments in many of our key markets and offer only limited
service offerings. Customers such as Cisco Systems, DaimlerChrysler, Dow
Chemical, Microsoft, The Boeing Company and Valero Energy Corp. currently use
us to perform multiple services.
Premier operating capabilities. We believe our operating capabilities are
among the best in the industry. Our technical and engineering expertise,
materials management practices and human resource utilization provide us
significant competitive advantages. For example, our technical and engineering
expertise allows us to participate in "design-build" projects where we work
with the client to develop optimal specifications and configurations of systems
and then perform the installation, which frequently leads to after-market
service opportunities. Our national scope and size offers us the opportunity to
prefabricate significant portions of an installation project at an alternative
site and drop-ship materials in specific sequences, thereby optimizing
materials management and minimizing the amount of time specialized employees
spend on the job site.
Experienced management team and strong financial sponsor. Our management
team possesses diverse professional backgrounds, including experience in the
facilities services industry, integration of large multi-location organizations
and relevant public company experience. Our regional and local management has
extensive experience in the facilities services industry and a valuable
familiarity with the customers and markets they serve. Through
a $256 million investment, Apollo Management, L.P., called Apollo, through its
affiliates, beneficially owns approximately 25% of our common stock on a fully-
converted basis. Apollo is a New York-based investment firm specializing in
acquisitions that involve management participation including, among others,
Allied Waste Industries, Inc., United Rentals, Inc. and Rent-A-Center, Inc.
GROWTH STRATEGY
We believe that the following primary components of our growth strategy will
position us as the premier single-source provider of total facilities solutions
in the United States:
Capitalize on growing end markets. We intend to continue to focus on end
markets that are poised for strong growth including:
. After-market services. Opportunities for higher-margin maintenance,
repair and replacement are being driven by increased outsourcing, higher
systems complexity and an aging installed base;
. Energy and power. Opportunities for power plant, distributed generation
and energy management systems and programs are being driven by utility
deregulation, demand for reliable power and more energy efficient
solutions; and
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. Network services. Opportunities for local and wide area network computer
systems and data centers are being driven by growing demand for bandwidth
and connectivity.
Grow national and regional accounts. We intend to use our superior national
network to increase our sales to regional and national multi-site customers. We
believe that there is a strong desire among large multi-site customers to
consolidate and simplify their vendor relationships by contracting with a
single provider to service multiple locations and for one company to provide
multiple services. We have created a separate unit to target national and
regional account opportunities. National and large regional accounts accounted
for approximately $400 million of our revenues in 2000.
Drive growth through strong operating locations. Our goal is for each of our
business units to be number one or two in the markets they serve. We intend to
help our business units achieve this goal by doing the following:
. incentivizing profitable growth by emphasizing profit margins and working
capital management;
. sharing best practices to improve operating efficiency;
. leveraging central technology, sales and purchasing functions; and
. targeting higher-margin after market services.
Consider strategic acquisition opportunities. From 1997 to 1999, Building
One and GroupMAC grew principally through acquisitions. Since 1999, other than
the merger of Building One and GroupMAC, we completed only one acquisition
while we focused internally on integrating systems, consolidating operating
units, implementing a branding strategy and aligning incentives. Under
appropriate circumstances, and subject to certain limitations under our credit
facility, we will selectively pursue strategic acquisitions to complement our
local service offerings and enhance our national network.
BUSINESS GROUPS
Electrical Technologies Group
The Electrical Technologies Group designs, installs, maintains and upgrades
the electrical systems of commercial and industrial facilities, such as
manufacturing and processing facilities, data centers and server rooms,
mission-critical facilities, power generation facilities, hospitals and other
critical care facilities, colleges and universities, hotels, commercial office
buildings, sports facilities and retail stores including process controls,
lighting, power, lifesafety systems, industrial machine wiring, electrical
switchgear and cable tray systems, and energy management systems. Services
include the design, installation, upgrade, maintenance and repair of low energy
systems known as "LES," including voice and data cabling, high speed data
network infrastructure systems, fiber optics, video, security and sound. LES is
the fastest growing segment of the electrical construction business. In
addition, the Electrical Technologies Group provides predictive/preventative
maintenance and emergency repairs of electrical systems and associated parts.
The customers of the Electrical Technologies Group include general
contractors, facility owners, facility managers, developers, utilities, energy
service companies, property managers, engineers, consultants and architects.
The Electrical Technologies Group is seeking to expand the services it
provides to building owners, contractors and operators through a national sales
marketing effort focusing on entities that are responsible for installing,
operating or maintaining the electrical systems of
34
buildings located throughout the United States. Some of the Electrical
Technologies Group's customers include Agilent Technologies, AT&T, Chase Bank,
Cingular, DaimlerChrysler, DHL, Sun Microsystems, The Beck Group, The Boeing
Company, Turner Construction, Valero Energy Corp. and Williams Energy.
Mechanical Services Group
The Mechanical Services Group designs, installs, maintains, repairs and
replaces the heating, ventilating and air conditioning, commonly called "HVAC,"
plumbing, control and monitoring, and process piping systems in commercial and
industrial facilities such as manufacturing and processing facilities, data
centers and server rooms, mission-critical facilities, hospitals and other
critical care facilities, colleges and universities, hotels, commercial office
buildings, sports facilities, retail stores, restaurants, supermarkets, and
convenience stores. The services provided include both maintenance, repair and
replacement services, or "MRR" services, and new installation services for
products such as compressor-bearing HVAC equipment, boilers, chillers, central
plants, process piping and control systems. The MRR work includes preventive
maintenance (periodic checkups, cleaning and filter change-outs), emergency
repairs and the replacement (in conjunction with the retrofitting or remodeling
of a commercial building, or as a result of an emergency request) of HVAC
systems and associated parts, plumbing fixtures, pipes, water feed and sewer
lines, water heaters, softeners, filters and controls.
The customers of the Mechanical Services Group include general contractors,
facility owners, facility managers, developers, utilities, energy service
companies, property managers, engineers, consultants and architects.
The Mechanical Services Group is seeking to expand the services it provides
to building owners, contractors and operators through a national sales
marketing effort focusing on entities that are responsible for installing,
operating or maintaining the mechanical systems of buildings located throughout
the United States. Some of the Mechanical Services Group's customers include
AT&T, Cisco Systems, MCI WorldCom, Novellus Systems, Owens Corning, Pacific
Bell, Qwest Communications International, Texas Instruments and Turner
Construction.
Industrial Services Group
The Industrial Services Group designs, builds, installs, maintains, repairs,
replaces and monitors the electrical systems, controls and process piping
systems in industrial facilities such as refineries, petrochemical plants,
manufacturing and processing facilities, power generation facilities and
chemical plants. The services provided include both MRR services and new
installation services. The MRR work includes preventive maintenance, emergency
repairs and the replacement of cable, wire, conduit and cable tray as well as
pipe, valves, fittings, filters and controls. The Industrial Services Group
also provides complete millwright services installations, circuit breaker
maintenance, instrumentation calibration, commissioning, generator start-up and
testing, and piping and structural steel fabrication and erection.
The customers of the Industrial Group include general contractors, facility
owners, facility managers, developers, utilities, energy service companies,
property managers, engineers, consultants and architects.
The Industrial Services Group is seeking to expand the services it provides
to building owners and operators through a national sales marketing effort
focusing on entities that are responsible for operating the mechanical and
electrical systems of industrial facilities located throughout the United
States. Some of the Industrial Services Group's customers include
35
Alstom (ABB), DaimlerChrysler, Hershey Foods, Phillip Morris, Milliken and
Company and Valero Energy Corp.
Residential Services Group
Through our Residential Services Group, we provide mechanical and other
contracting services to homebuilders and homeowners from 38 locations. Although
most of the Residential Services Group's locations perform MRR services, five
of the business units emphasize new construction work and represented 69% of
the Residential Services Group's revenues in fiscal 2000.
The Residential Services Group installs HVAC and plumbing systems in homes,
apartment and condominium complexes and small commercial buildings. It also
provides maintenance services for these systems, such as inspections, cleaning,
repair and replacement of HVAC systems and associated parts; repair and
replacement of bathroom fixtures, water filters and water heaters; and
cleaning, repair and replacement of pipes, sewer lines and residential sanitary
systems. In connection with its MRR services, the Residential Services Group
sells a wide range of HVAC, plumbing and other equipment, including complete
HVAC systems and a variety of parts and components.
The Residential Services Group markets its residential new installation
contracting services to local, regional and national homebuilders, including
U.S. Home Corporation, Ryland Homes, Perry Homes, Ryan Homes, Pulte Home
Corporation, Centex Corporation, and Beazer Homes Corporation. The Residential
Services Group targets its growth in the residential new installation market in
those areas of the United States that have growth rates above the national
average. Through strong existing relationships with major national
homebuilders, the Residential Services Group is marketing its capabilities to
provide consistent, reliable installation services on a regional basis.
The Residential Services Group's customers for residential MRR services
consist primarily of homeowners. The Residential Services Group advertises its
maintenance and repair services in the yellow pages, on billboards, on
television and radio, and through direct mail. It also relies upon customized
service offerings to attract and retain customers.
Cleaning Systems Group
The Cleaning Systems Group offers cleaning and maintenance management
services nationwide. Encompass believes that the Cleaning Systems Group is the
largest provider of cleaning and maintenance management services to the retail
sector in the United States based on revenues. Among other services, the
Cleaning Systems Group (1) cleans and maintains floors, carpets, windows,
walls, structures, sidewalks and parking lots, (2) strips and refinishes
floors, (3) manages chemical supplies and equipment and (4) sanitizes restrooms
and other areas.
If requested by a customer, the Cleaning Systems Group selects, manages and
integrates services provided by its business units and third parties to
customers and often monitors third party services to ensure the quality of the
service performed. The Cleaning Systems Group also relieves its customers from
the burden of finding and monitoring the contractor or in-house labor providing
services.
The customers of the Cleaning Systems Group include retail chain stores,
supermarket chains, office buildings, industrial plants, banks, department
stores, warehouses, educational and health facilities, restaurants, and airport
terminals throughout the United States. The Cleaning Systems Group often
provides services to a customer under a contractual arrangement on a regional
or national basis. Some of the Cleaning Systems Group's customers include
Kmart, MCI WorldCom, Safeway, Target, TJX Corporation, Wachovia Banks and Wal-
Mart.
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OPERATIONS
In providing after-market services, we use specialized systems to log
service orders, schedule service calls, identify and ready the necessary parts
and equipment, track the work order, provide information for communication with
the service technicians and customers, and prepare accurate invoices. Service
histories and specific product information are generally accessible to the
dispatcher in a database that may be searched by customer name or address.
After-market service calls are initiated when a customer requests emergency
repair service or we call the client to schedule periodic service agreement
maintenance. Service technicians are scheduled for the call or routed to the
customer's business or residence by the dispatcher via a scheduling board or
daily work sheet (for non-emergency service) or through cellular telephone,
pager or radio. Service personnel work out of our 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 or residence, interviews the customer, diagnoses the problem,
presents the solution, obtains agreement from the customer and performs the
work. We offer service contracts whereby the customer pays an annual or
semiannual fee for periodic diagnostic and preventive services. The customers
under service contracts receive priority service and specific discounts from
standard prices for repair and replacement services. A portion of our service
work is done to satisfy manufacturers' equipment warranties. For such services,
we are generally compensated by the manufacturer responsible for the defective
equipment under warranty.
Commercial construction projects begin with a design request 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 pre-agreed phases and progress billings are rendered to the owner
for payment, less a retainage. Actual field work (ordering of equipment and
materials, fabrication or assembly of certain components, delivery of materials
to the job sites, scheduling of work crews with the necessary skills, and
inspection and quality control) is coordinated in these same phases. We have
established a policy to review and approve any new installation project by a
business unit that exceeds 5% of the business unit's prior year annual revenues
or that is scheduled to exceed one year in duration. We will generally perform
new installation work using personnel who work for one of the Electrical
Technologies or Mechanical Services Group's 199 locations. However, we may
subcontract with other contractors to perform work in locations where we do not
have a facility or in instances where our backlog requires additional
resources.
Through our Industrial Services Group, we perform in-plant services and
capital construction projects to selected industrial customers. This work
typically includes management, labor, material and equipment for supplemental
maintenance, turnarounds and capital construction projects. The work is
scheduled and executed in accordance with the site-specific requirements.
Contract terms are either lump sum or rates negotiated annually. Payment is on
work completed against milestones. We may self perform the work or subcontract
with other contractors depending on the scope of services required as well as
availability of an existing trained work force.
Residential service technicians may carry a Customer Assurance Pricing
manual which specifies the labor, equipment and parts required to fulfill
certain tasks and the associated flat rate prices for those tasks. This manual
is custom generated for each business unit from a database containing over
15,000 different repair operations and is regularly updated for price changes.
This "flat rate pricing" strategy allows us to monitor margins and labor
productivity at the point of sale, while increasing the level of customer
satisfaction by demonstrating greater fairness and objectivity in pricing.
Payment for maintenance, repair and replacement services
37
not covered by a warranty or service contract is generally requested in cash,
check or credit card at the service location.
The Cleaning Systems Group assigns regional contract managers to each
customer. The contract managers determine whether to perform the work
internally or to utilize the Cleaning Systems Group's existing network of 425
cleaning companies to subcontract duties. Each of the Cleaning Systems Group's
three major divisions (retail, commercial and industrial) use the subcontractor
network whenever possible because of the proven benefits (reliability, quality,
consistency and customer preference) of using the local workforce. The Cleaning
Systems Group's Quality Measurement System measures the quality of cleaning and
customer support efforts. In addition, the group runs a "24/7" call center,
meaning 24 hours a day, seven days a week, to handle any emergency cleaning
requests and has a national computer network to respond quickly and
appropriately to customer requests.
SOURCES OF SUPPLY
The raw materials and components we use include HVAC system components,
ductwork, steel sheet metal, copper tubing and piping, electrical cabling,
switchgear, panels and generators, fiber optic cable and related hardware
(routers, hubs, switches). These raw materials and components are generally
available from a variety of domestic or foreign suppliers at competitive
prices. Delivery times are typically short for most raw materials and standard
components, but during periods of peak demand, may extend to a month or more.
Chillers for large applications typically have the longest delivery time and
generally have lead times of up to three to four months. The major components
of HVAC systems are condensing units, air handling units and chillers that are
manufactured primarily by Trane Air Conditioning Company, Carrier Corporation,
and York Heating and Air Conditioning Company. The major suppliers of control
systems are Honeywell Inc., Johnson Controls, Inc. and Andover Control
Corporation. The major suppliers of electrical components include Siemens,
General Electric and Stewart/Stevenson. We are not materially dependent on any
of these outside sources.
EMPLOYEES
Through our various business units, we currently have over 31,000 full and
part-time employees. In the course of performing installation work, we may
utilize the services of subcontractors. As of September 30, 2001, approximately
3,900 employees (in 20 of our business units) were members of unions and work
under collective bargaining agreements. The collective bargaining agreements
have expiration dates between December 31, 2001 and June 2007. We believe that
our relationships with our employees and the employees of our business units
are generally satisfactory.
BACKLOG
At September 30, 2001, December 31, 2000 and September 30, 2000, our backlog
of work was approximately $1.7 billion, $1.7 billion and $1.9 billion,
respectively. Of the September 30, 2001 backlog, approximately $886 million
related to the operations of the Electrical Technologies Group, $665 million
related to the operations of the Mechanical Services Group, $117 million
related to the operations of the Industrial Services Group and $48 million to
the operations of the Residential Services Group. The Cleaning Systems Group
does not record work backlog. We expect that we will complete a substantial
portion of the existing backlog at September 30, 2001 by September 30, 2002.
38
COMPETITION
The facilities services industry is highly competitive. We believe that the
principal competitive factors in the facilities services industry are (1)
timeliness, reliability and quality of services provided, (2) range of services
offered, (3) market share and visibility and (4) price. We believe our strategy
of creating a leading national provider of comprehensive services directly
addresses these factors. Our ability to employ, train and retain highly
motivated field personnel and service technicians to provide quality services
should be enhanced by our ability to utilize professionally managed recruiting
and training programs. In addition, we expect to offer compensation, health and
savings benefits that are more comprehensive than most offered in the industry.
Competitive pricing is possible through purchasing economies and other cost
saving opportunities that exist across each of the service lines offered and
from productivity improvements.
Most of our competitors are small, owner-operated companies that typically
operate in a single market. Certain of these smaller competitors may have lower
overhead cost structures and may be able to provide their services at lower
rates. Moreover, many homeowners have traditionally relied on individual
persons or small repair service firms with whom they have long-established
relationships for a variety of home repairs. There are currently a limited
number of public companies focused on providing services in some of the same
service lines we provide.
In addition, there are a number of national retail chains that sell a
variety of plumbing fixtures and equipment and HVAC equipment for residential
use and offer, either directly or through various subcontractors, installation,
warranty and repair services. Other companies or trade groups engage in
franchising their names and marketing programs in some service lines. In
addition, HVAC equipment manufacturers, the unregulated business segments of
regulated gas and electric utilities and deregulated utilities are entering
into various commercial/industrial or residential service areas. Certain of our
competitors and potential competitors have greater financial resources than we
to finance acquisition and development opportunities, to pay higher prices for
the same opportunities or to develop and support their own
commercial/industrial or residential service operations if they decide to enter
the field.
GOVERNMENTAL REGULATION
Many aspects of our operations are subject to various federal, state and
local laws and regulations, including, among others, (1) permitting and
licensing requirements applicable to contractors in their respective trades,
(2) building, mechanical and electrical codes and zoning ordinances, (3) laws
and regulations relating to consumer protection, including laws and regulations
governing service contracts for residential services, and (4) laws and
regulations relating to worker safety and protection of human health. In
Florida, warranties provided for in our service agreements subject us and such
agreements to some aspects of that state's insurance laws and regulations.
Specifically, we are required to maintain funds on deposit with the Florida
Office of Insurance Commissioner and Treasurer, the amount of which is not
material to our business. We are in compliance with these deposit requirements.
We believe we have all material required permits and licenses to conduct our
operations and are in substantial compliance with applicable regulatory
requirements relating to our operations. Our failure to comply with the
applicable regulations could result in substantial fines or revocation of our
operating permits.
A large number of state and local regulations governing the residential
services trades require various permits and licenses to be held by individuals.
In some cases, a required permit
39
or license held by a single individual may be sufficient to authorize specified
activities for all of our service technicians who work in the geographic area
covered by the permit or license.
ENVIRONMENTAL REGULATION
Our operations are subject to numerous federal, state and local
environmental laws and regulations, including those governing the remediation
of contaminated soil and groundwater, vehicle emissions and the use and
handling of refrigerants. These laws and regulations are administered by the
United States Environmental Protection Agency, the Coast Guard, the Department
of Transportation and various state and local governmental agencies. The
technical requirements of these laws and regulations are becoming increasingly
complex and stringent, and meeting these requirements can be expensive. The
nature of our operations and our ownership or operation of property expose us
to the risk of claims with respect to such matters, and there can be no
assurance that material costs or liabilities will not be incurred in connection
with such claims. Federal and state environmental laws include statutes
intended to allocate the cost of remedying contamination among specifically
identified parties. For example, the federal Comprehensive Environmental
Response, Compensation and Liability Act, commonly known as "CERCLA" or
"Superfund," can impose strict, joint and several liability on past and present
owners or operators of facilities at, from or to which a release of hazardous
substances has occurred, on parties who generated hazardous substances that
were released at such facilities and on parties who arranged for the
transportation of hazardous substances to such facilities. A majority of states
have adopted "Superfund" statutes comparable to, and in some cases more
stringent than, CERCLA. If we were to be found to be a responsible party under
CERCLA or a similar state statute, we could be held liable for all
investigative and remedial costs associated with addressing such contamination,
even though the releases were caused by a prior owner or operator or third
party. In addition, claims alleging personal injury or property damage may be
brought against us as a result of alleged exposure to hazardous substances
resulting from our operations.
Prior to entering into the agreements relating to the acquisition of
businesses, we evaluated the properties owned or leased by those businesses and
in some cases engaged an independent environmental consulting firm to conduct
or review assessments of environmental conditions at certain of those
properties. No material environmental problems were discovered in these
reviews, and we are not otherwise aware of any actual or potential
environmental liabilities that would be material to us. There can be no
assurance that all such liabilities have been identified, that such liabilities
will not occur in the future, that a party could not assert a material claim
against us with respect to such liabilities, or that we would be required or
able to answer for such claim.
Our operations are subject to the Clean Air Act, Title VI of which governs
air emissions and imposes specific requirements on the use and handling of
substances known or suspected to cause or contribute significantly to harmful
effects on the stratospherical ozone layer, such as chlorofluorocarbons and
certain other refrigerants called "CFCs." Clean Air Act regulations require the
certification of service technicians involved in the service or repair of
systems, equipment and appliances containing these refrigerants and also
regulate the containment and recycling of these refrigerants. These
requirements have increased our training expenses and expenditures for
containment and recycling equipment. The Clean Air Act is intended ultimately
to eliminate the use of CFCs in the United States and require alternative
refrigerants to be used in replacement HVAC systems. The implementation of the
Clean Air Act restrictions has also increased the cost of CFCs in recent years
and is expected to continue to increase such costs in the future. As a result,
the number of conversions of existing HVAC systems that use CFCs to systems
using alternative refrigerants is expected to increase.
40
Our operations in certain geographic regions are subject to laws that will,
over the next few years, require specified percentages of vehicles in large
vehicle fleets to use "alternative" fuels, such as compressed natural gas or
propane, and meet reduced emissions standards. We do not anticipate that the
cost of fleet conversion that may be required under current laws will be
material. Future costs of compliance with these laws will be dependent upon the
number of vehicles purchased in the future for use in the covered geographic
regions, as well as the number and size of future business acquisitions in
these regions. We cannot determine to what extent its future operations and
earnings may be affected by new regulations or changes in existing regulations
relating to vehicle emissions.
Capital expenditures related to environmental matters during the fiscal
years ended December 31, 2000, 1999 or 1998 were not material. We do not
currently anticipate any material adverse effect on our business or
consolidated financial position as a result of future compliance with existing
environmental laws and regulations controlling the discharge of materials into
the environment. Future events, however, such as changes in existing laws and
regulations or their interpretation, more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws
and regulations may require us to make additional expenditures which may be
material.
41
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning our directors
and executive officers.
Name Age Position
---- --- --------
J. Patrick Millinor, Jr..... 56 Chairman of the Board; Director
President and Chief Executive Officer;
Joseph M. Ivey.............. 43 Director
Executive Vice President and Chief Operating
Henry P. Holland............ 52 Officer
James C. Cocca.............. 46 Senior Vice President--Operations
Daniel W. Kipp.............. 41 Senior Vice President, Chief Information and
Administrative Officer
Patrick L. McMahon.......... 53 Senior Vice President--Operations
Senior Vice President, Chief Financial
Darren B. Miller............ 41 Officer
Senior Vice President, General Counsel and
Gray H. Muzzy............... 47 Secretary
Ray Naizer.................. 49 Senior Vice President--Operations
James L. Phillips........... 40 Senior Vice President--Operations
Robert Tyler................ 51 Senior Vice President--Operations
L. Scott Biar............... 38 Vice President, Chief Accounting Officer
John Garofalo............... 56 Vice President--Residential Services Group
Keith Kirk.................. 41 Vice President--Purchasing
Todd Matherne............... 47 Vice President, Treasurer
Steven C. Ronilo............ 51 Vice President--Human Resources
Michael Sullivan............ 54 Vice President--Cleaning Systems Group
Andrew Africk............... 35 Director
Vincent W. Eades............ 42 Director
Michael Gross............... 40 Director
Scott Kleinman.............. 28 Director
Donald L. Luke.............. 64 Director
Lucian L. Morrison.......... 64 Director
William M. Mounger, II...... 44 Director
John M. Sullivan............ 65 Director
J. Patrick Millinor, Jr. became Chairman of the Board of Encompass in
February 2000. In October, 2000, Mr. Millinor assumed the status of a non-
executive Chairman. He previously served as Chief Executive Officer of
Encompass from April 1997 to February 2000 and as President from October 1996
to August 1997. He has also been a director of Encompass since October 1996.
From September 1994 to October 1996, Mr. Millinor worked directly for Gordon
Cain, a major stockholder in Encompass, assisting in the formation and
management of Agennix Incorporated and Lexicon Genetics, two biotechnology
companies. He currently serves as a director of Agennix Incorporated, Applied
Veterinary Systems, Inc. and Haelan Health Corporation.
Joseph M. Ivey became President and Chief Executive Officer and a director
of Encompass in February 2000. Prior to the merger, he served as President and
Chief Executive Officer of Building One from February 1999 to February 2000. He
also served as a Director of Building One from October 1998 to February 2000.
From September 1998 to February 1999, Mr. Ivey served as the President of the
Building One mechanical group. Prior to joining Building One, Mr. Ivey served
as the Chairman and Chief Executive Officer of Encompass Mechanical Services
Southeast, Inc. (formerly known as Ivey Mechanical Company, Inc.), a mechanical
services company and wholly-owned subsidiary of Encompass acquired by Building
One in 1998. Mr. Ivey also serves as a Director of 1st M&F Corp., and as a
Trustee of Freed-Hardeman University.
42
Henry P. Holland became Executive Vice President and Chief Operating Officer
of Encompass in October 2000. Previously, he served as President and Chief
Operating Officer of Metamor Worldwide (now PSINet Consulting Solutions) from
June 1999 to June 2000 when the company was sold to PSI Net. Prior to joining
Metamor, Mr. Holland served as Executive Vice President of Landmark Graphics,
the leading supplier of decision-making software and services for the oil and
gas industry, from 1994 to 1999.
James L. Cocca became Senior Vice President--Operations of Encompass in
October 2001. Mr. Cocca was Chief Operating Officer of Encompass' Electrical
Technologies Group from November 2000 to October 2001. He held the position of
President of Schindler Elevator Corporation (formerly Westinghouse Elevator)
from January 1996 to November 2000 with responsibility for North American
Operations.
Daniel W. Kipp became Senior Vice President, Chief Information and
Administrative Officer of Encompass in January 2001. From February 2000 to
January 2001, he served as Senior Vice President, Treasurer and Chief
Information Officer of Encompass. From July 1998 to February 2000, he served as
Senior Vice President and Chief Accounting Officer of Encompass and as Vice
President and Corporate Controller from February 1997 to July 1998. From
February 1994 until February 1997, Mr. Kipp was a sales executive with American
Sterling, a provider of hazard insurance outsourcing services to the mortgage
banking industry.
Patrick L. McMahon became Senior Vice President--Operations of Encompass in
October 2001. Mr. McMahon was Chief Operating Officer--Mechanical Services
Group of Encompass from August 2001 to October 2001. He served as President--
Industrial Services Group of Encompass from February 2000 to August 2001. From
July 1999 to February 2000, he was Executive Vice President and Chief Operating
Officer of the Industrial Business Unit of Building One's Mechanical and
Electrical Group. From October 1998 to July 1999, Mr. McMahon was a management
consultant with respect to outsourcing maintenance operations and served as
President and Chief Operating Officer of Professional Services Group, a
subsidiary of Air & Water Technologies, between May 1995 and October 1998.
Darren B. Miller became Senior Vice President of Encompass in February 2000.
From July 1998 to February 2000, he served as Executive Vice President of
Encompass and from October 1996 until July 1998 as Senior Vice President. He
has also served as Chief Financial Officer of Encompass since October 1996.
From 1989 to 1996, Mr. Miller served in several capacities at Allwaste, Inc.,
an industrial service company, including Vice President, Treasurer and
Controller from 1995 to 1996.
Gray H. Muzzy became Senior Vice President, General Counsel and Secretary of
Encompass in April 2000. From January 1989 to April 2000, Mr. Muzzy was a
partner with the Houston-based law firm of Bracewell & Patterson, L.L.P. Mr.
Muzzy provided legal representation to a variety of industries, including real
estate, oil and gas, software, chemical, banking and insurance.
Ray Naizer became Senior Vice President--Operations of Encompass in October
2001. He was President--Electrical Technologies Group of Encompass from April
2001 to October 2001. Previously, Mr. Naizer served as President of Encompass
Electrical Technologies of Texas, Inc. (formerly Walker Engineering, Inc.), a
wholly-owned subsidiary of Encompass acquired by Building One in 1998, from
December 2000 to March 2001. He previously served as Executive Vice President
of Operations of Encompass Electrical Technologies of Texas, Inc. for more than
five years.
James L. Phillips became Senior Vice President--Operations of Encompass in
October 2001. Previously, Mr. Phillips served as Vice President of Operations
of NetVersant Solutions from May
43
2000 to October 2001. From November 1998 to May 2000, he was Co-Founder and
Executive Vice President of East Coast Concepts, a system integration alliance
partner to GE Capital Corporation.
Robert Tyler became Senior Vice President--Operations of Encompass in
October 2001. He was President--Mechanical Services Group of Encompass from
April 2000 to October 2001. From February 2000 to April 2000, he served as
President--Residential Services Group of Encompass. Previously he served as
Senior Vice President--Residential Services Group of Encompass from June 1998
to February 2000. From February 1994 until June 1998, he was Vice President,
Sales, for Amana Heating and Air Conditioning, a manufacturer of HVAC
equipment.
L. Scott Biar became Vice President and Chief Accounting Officer of
Encompass in August 2000. From June 1998 to June 2000, Mr. Biar was Vice
President and Corporate Controller of Corporate Brand Foods America. He was
Corporate Controller of Weatherford International, Inc., from October 1995 to
June 1998.
John Garofalo became Vice President--Residential Services Group of Encompass
in April 2000. From January 2000 to April 2000, Mr. Garofalo served as Director
of Operations--Residential Services Group of Encompass and from November 1998
to January 2000 as Director of Marketing--Residential Services Group of
Encompass. From January 1998 to November 1998, Mr. Garofalo was Vice President
of Consumer Sales and Service for Airtron, Inc., a wholly-owned subsidiary of
Encompass acquired in 1997.
Keith Kirk became Vice President--Purchasing of Encompass in February 2000.
From October 1998 to February 2000 he served as Vice President--Supplier
Relations of Encompass and as Director--Supplier Relations of Encompass from
October 1997 to October 1998. Prior to joining Encompass, Mr. Kirk was
Director, Supply Management, with Bristol Compressors, an equipment
manufacturer, from 1995 to October 1997.
Todd Matherne became Vice President and Treasurer of Encompass in January
2001. During 2000, he was co-founder and advisor to US Farm and Ranch Supply
Company, Inc. From April 1995 to December 1999, Mr. Matherne served in senior
financial and operations roles with Service Corporation International, most
recently as Senior Vice President, Treasurer and Interim Chief Financial
Officer.
Steven C. Ronilo became Vice President--Human Resources of Encompass in
February 2000. He previously served as Senior Vice President--Human Resources
of Encompass from April 1999 until February 2000. From October 1997 until April
1999, Mr. Ronilo was employed by Amerra Health Services, Inc., a national
health care provider with 384 facilities in 22 states, as Vice President of
Human Resources. From March 1990 until October 1997, he served as Senior Vice
President of Human Resources and Education for Regency Health Services, Inc., a
California-based company with 168 facilities in six states.
Michael Sullivan became Vice President--Cleaning Systems Group of Encompass
in February 2000. From November 1998 to February 2000 he was chairman of the
Building One Service Solutions Group. From 1980 to November 1998, Mr. Sullivan
served as President and Chief Executive Officer of Sullivan Service Company, a
wholly-owned subsidiary of the Company acquired by Building One in 1998.
Andrew Africk became a director of Encompass on February 22, 2000. He was
previously a director of Building One from April 1999 until February 2000. Mr.
Africk has been a principal of Apollo Advisors, L.P. for more than five years
and of Lion Advisors, L.P., a financial advisor to, and representative of,
institutional investors with respect to securities investments. Mr. Africk is
44
also a director of Rare Medium Group, Inc. and several private venture
companies. Mr. Africk is a director designee of the holders of Encompass'
Preferred Stock pursuant to an Investor's Rights Agreement between Encompass
and the holders of Encompass' Preferred Stock.
Vincent W. Eades became a director of Encompass on February 22, 2000. He was
previously a director of Building One from November 1997 until February 2000.
Since February 1998, Mr. Eades has served as the chairman and chief executive
officer of Powerride Motorsports, Inc., a company seeking to consolidate the
motorcycle and leisure sports dealership industry. Between April 1995 and
February 1998, he served as the senior vice president of sales and marketing
for Starbucks Coffee Co., Inc.
Michael Gross became a director of Encompass on February 22, 2000. He was
previously a director of Building One from April 1999 until February 2000. Mr.
Gross is one of the founding principals of Apollo Advisors, L.P., which
together with its affiliates acts as managing general partner of the Apollo
Investment Funds, private securities investment funds. Mr. Gross is also a
director of Allied Waste Industries, Inc., Breuners Home Furnishings
Corporation, Clark Retail Enterprises, Inc., Converse, Inc., Florsheim Group,
Inc., Pacer International, Inc., Rare Medium Group, Inc., Saks Fifth Avenue,
Sylvan Learning Systems, Inc. and United Rentals, Inc. Mr. Gross is a director
designee of the holders of Encompass' Preferred Stock pursuant to an Investor's
Rights Agreement between Encompass and the holders of Encompass' Preferred
Stock.
Scott Kleinman became a director of Encompass on May 25, 2000. He is
currently a principal of Apollo Advisors, L.P. and has been employed by Apollo
Advisors since February 1996. Previously, Mr. Kleinman was employed by Smith
Barney Inc. in its Investment Banking division from July 1994 through January
1996. Mr. Kleinman is also a director of Resolution Performance Products, Inc.
Mr. Kleinman is a director designee of the holders of Encompass' Preferred
Stock pursuant to an Investor's Rights Agreement between Encompass and the
holders of Encompass' Preferred Stock.
Donald L. Luke became a director of Encompass on August 1, 1997. He is
currently the Chief Executive Officer of American Fire Protection Group, Inc.,
a holding company formed by Ridge Capital Partners, a private equity firm. Mr.
Luke previously served as our Executive Vice President and Chief Operating
Officer from February 2000 to August 2000. Prior to the merger of Building One
into GroupMAC in February 2000, he served as President and Chief Operating
Officer of GroupMAC from August 1997. From September 1996 to July 1997, he was
a partner in McFG Capital Ventures, a consolidator in the fastener industry.
From 1995 to September 1996, he served as President, Chief Executive Officer
and Director of Batteries Batteries, Inc. Mr. Luke is also a member of The
Ridge Capital Fund Operations Board and a director of Micro Power
International, a private company affiliated with The Ridge Group.
Lucian L. Morrison became a director of Encompass on November 13, 1997. He
has been engaged as a trustee and consultant with respect to trust, estate,
probate and qualified plan matters since 1992. From 1990 through 1992, he
served as Chief Fiduciary Officer of Northern Trust Bank of Texas and from 1979
until 1990 he served as Chief Executive Officer of Heritage Trust Company.
William M. Mounger, II became a director of Encompass on September 1, 2000.
Mr. Mounger was co-founder, chief executive officer and chairman of the board
of directors of Mercury Communications Company from 1990 to 1998. He was a co-
founder and served as chief executive officer and chairman of the board of
directors of Tritel, Inc. from April 1998 to November 2000. In November 2000,
he became chairman of the board of directors of TeleCorp
45
PCS, Inc., which provides personal communications services in 14 states and
Puerto Rico. Mr. Mounger also serves on the board of the Personal
Communications Industry Association and the Mississippi Advisory Board of
AmSouth Bank.
John M. Sullivan became a director of Encompass on April 16, 1997. He has
been President of Beta Consulting, Inc., which provides management services for
family enterprises, since 1994. From 1992 through 1994, he was an International
Tax Director for General Motors Corporation. Prior to 1992, Mr. Sullivan was a
tax partner with Arthur Andersen LLP. He currently serves as a director of
Atlantic Coast Airlines Holdings, Inc.
46
PRINCIPAL SHAREHOLDERS
Stock Ownership of Management and Directors
The following table sets forth, at March 1, 2001, the number of shares of
our common stock beneficially owned by (1) each of our directors and our then
named executive officers and (2) all then executive officers and directors as a
group.
Beneficial
Ownership
(excluding
options) Stock Percent
Name of Beneficial Owner (1) Options (5) Total of Class
------------------------ ---------- ----------- --------- --------
Andrew Africk................. -- 27,500 (6) 27,500 *
Vincent W. Eades.............. -- 36,284 36,284 *
Michael Gross................. -- 27,500 (6) 27,500 *
Joseph M. Ivey................ 925,638 (2) 226,563 1,152,201 1.8
Chester J. Jachimiec.......... 94,625 (3) 100,680 195,305 *
Scott Kleinman................ -- 5,000 (6) 5,000 *
Donald L. Luke................ 978 60,125 61,103 *
J. Patrick Millinor, Jr....... 162,790 (4) 124,974 287,764 *
Lucian L. Morrison............ 6,017 6,750 12,767 *
William M. Mounger, II........ -- 5,000 5,000 *
Thomas Rosato................. 176,377 19,559 195,936 *
John M. Sullivan.............. 18,937 5,500 24,437 *
Robert Tyler.................. 883 32,000 32,883 *
All executive officers and
directors as a group......... 1,794,113 760,873 2,554,986 3.9
- --------
* Less than one percent.
(1) Except as otherwise noted, each shareholder, director and executive
officer has sole voting and investment power over the shares beneficially
owned as set forth in this column.
(2) Includes 300,438 shares held by Ivey National Corporation (the principal
stockholder of which is Mr. Ivey's father), of which Mr. Ivey disclaims
beneficial ownership beyond his pecuniary interest.
(3) Includes 22,654 shares held by Mr. Jachimiec as trustee of two trusts for
the benefit of his children, of which Mr. Jachimiec disclaims any
beneficial ownership.
(4) Includes 142 shares held by Mr. Millinor's children, of which Mr.
Millinor disclaims any beneficial ownership.
(5) The directors and executive officers had the right to acquire the shares
of common stock reflected in this column within 60 days of March 1, 2001,
through the exercise of stock options or warrants.
(6) Beneficial ownership is disclaimed as to the shares of common stock
beneficially owned by BOSS II, LLC. The director is a principal of Apollo
Advisors, L.P., an affiliate of BOSS II, LLC. See "Ownership of Voting
Securities in Excess of Five Percent by a Beneficial Owner."
47
Ownership of Voting Securities in Excess of Five Percent by a Beneficial Owner
As of April 9, 2001, the entities we knew to be beneficial owners of more
than five percent of any class of our equity securities were:
Total Number Total Number
of Shares of of Shares of
Preferred Stock Common Stock
Name and Address Beneficially % of Beneficially % of
of Beneficial Owner Owned Class Owned Class
------------------- --------------- ----- ------------ -----
Apollo Investment Fund IV, L.P.
(1)............................. 242,946 94.8% 20,013,972 23.3%
c/o Apollo Advisors IV, L.P.
Two Manhattanville Road
Purchase, N.Y. 10577
Apollo Overseas Partners IV, L.P.
(1)............................. 13,245 5.2% 1,090,529 1.3%
c/o Apollo Advisors IV, L.P.
Two Manhattanville Road
Purchase, N.Y. 10577
West Highland Capital, Inc. (2).. 5,285,900 8.2%
300 Drake's Landing Road
Suite 290
Greenbrae, CA 94904
Dimensional Fund Advisors (3).... 3,426,525 5.3%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
- --------
(1) The number of shares of common stock beneficially owned by certain
affiliates of Apollo Management IV, L.P. as of March 31, 2001 consists of
19,817,001 shares of common stock that are issuable upon conversion of the
preferred stock and 1,287,500 shares of common stock that may be purchased
pursuant to warrants issued by Building One and assumed by Encompass in
accordance with the merger agreement between GroupMAC and Building One,
having an exercise price of $16.00 per share. The preferred stock and
warrants were previously held by BOSS II, LLC, which subsequently dissolved
and distributed the preferred stock and the warrants to its members,
resulting in direct beneficial ownership by Apollo Investment Fund IV, L.P.
("AIF") of 242,946 shares of preferred stock and warrants to purchase
1,221,966 shares of common stock and by Apollo Overseas Partners IV, L.P.
("AOP") of 13,245 shares of preferred stock and warrants to purchase 65,534
shares of common stock. The shares of preferred stock will be convertible
by AIF and AOP at $14.00 per share into 18,792,006 and 1,024,995 shares of
common stock, respectively, based upon the face amount of the preferred
stock of $256,191,000 plus accrued dividends of $21,247,017 as of March 31,
2001. The general partner of these entities, Apollo Advisors IV, L.P. is
affiliated with Apollo Management IV, L.P.
(2) Based on a Schedule 13G/A filed on January 30, 2001, West Highland Capital,
Inc. reports shared voting and dispositive power with respect to all such
shares as a result of acting as investment advisor to certain investment
advisory clients. The Schedule 13G/A states that the clients of West
Highland Capital have the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, all such
shares. No single client account of West Highland Capital owns more than 5%
of the shares other than West Highland Partners, L.P., which owns 4,043,741
shares, or 6.2% of the 8.2%. Percentage ownership is calculated based on
the number of shares of common stock outstanding as of April 9, 2001,
rather than January 30, 2001.
(3) Based on a Schedule 13G filed on February 2, 2001, Dimensional Fund
Advisors Inc. ("Dimensional") reports sole voting and dispositive power
with respect to all such shares as a result of acting as investment advisor
to various investment companies. The Schedule 13G states that no one
investment advisory client of Dimensional owns more than 5% of the shares
and disclaims beneficial ownership by Dimensional of all such securities.
Percentage ownership shown is calculated based on the number of shares of
common stock outstanding as of April 9, 2001, rather than February 2, 2001.
48
DESCRIPTION OF THE CREDIT FACILITY
General
Our credit facility, most recently amended as of November 9, 2001, provides
us with a $300 million revolving credit facility (increasing to $350 million
once various debt leverage ratios are achieved) and $400 million of term loans.
The following description summarizes the material provisions of our credit
facility. The following description does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the provisions of
our credit facility, previously filed as an exhibit to our SEC filings.
Amortization; Prepayments
Loans under our credit facility may be prepaid at any time without premium
or penalty, except that prepayments of borrowings on any day other than the
last day of an interest period must be accompanied by a payment of various
costs, expenses or losses, if any, incurred as a result of such prepayment. The
maturity dates for the term loans under our credit facility are February 22,
2006 and May 10, 2007 and the maturity date for loans under the revolving
credit facility is February 22, 2005. The term loans amortize 1% per year. In
addition, the credit facility requires debt prepayment with the net proceeds of
further issuances of debt or equity, or from asset dispositions not in the
ordinary course, in excess of $5 million in any fiscal year (increasing to $15
million once certain debt leverage ratios are achieved).
Security; Guarantees
Borrowings under our credit facility are guaranteed by our domestic
subsidiaries. Our obligations under our credit facility and the obligations
under the guarantees are secured by a priority lien on the accounts receivable
and inventory of our domestic subsidiaries, and by a pledge of the stock of our
domestic subsidiaries and 66% of the stock of any first-tier foreign
subsidiaries.
Interest Rates
Loans under our credit facility bear interest at a rate per annum, at our
option, of either (1) the Alternate Base Rate (which is equal to the greater of
(a) the Federal Funds Effective Rate (as defined in our credit facility) plus
0.5% or (b) the Prime Rate (as defined in our credit facility)), plus a margin
depending on the ratio of our total debt to EBITDA (as defined in our credit
facility), or (2) the Eurodollar Rate (as defined in our credit facility) plus
a margin depending on the ratio of our total debt to EBITDA.
Fees, Expenses and Costs
The terms of our credit facility require us to pay the following fees in
connection with the maintenance of loans under our credit facility: (1)
commitment fees to be paid to the lenders quarterly in arrears with respect to
the unused commitments under our credit facility until such time as such
facility is terminated; and (2) an annual fee in respect of each letter of
credit issued in accordance with our credit facility equal to (y) the greater
of (i) the then effective Eurodollar Margin for Revolving Loans (each as
defined in our credit facility) multiplied by the face value of such letter of
credit or (ii) $500, plus (z) 0.125% per annum multiplied by the face amount of
such letter of credit. In addition, we paid various underwriting and
arrangement fees and closing costs in connection with the origination and
syndication of our credit facility.
We are required to reimburse bank agents for all reasonable out-of-pocket
costs and expenses incurred in the preparation, documentation and
administration of our credit facility and to reimburse the lenders for all
reasonable costs and expenses incurred in connection with
49
the enforcement of their rights in connection with a default or the enforcement
of our credit facility. We must indemnify the agent and the lenders and their
respective officers, directors, employees, and agents against certain costs,
expenses (including fees and reimbursements of counsel) and liabilities arising
out of or relating to the credit facility and the transactions contemplated
thereby. The lenders also are entitled to be reimbursed for certain reserve
requirements and increases to these reserve requirements, changes in the law
and circumstances, and certain taxes.
Covenants
The credit facility contains substantial restrictive covenants limiting our
ability and the ability of our subsidiaries to: (1) incur Indebtedness (as
defined in the credit facility); (2) pay certain debt after default; (3) create
or allow to exist certain liens or other encumbrances; (4) enter into mergers,
consolidations and asset dispositions of all or substantially all of our
properties and assets; (5) make investments; (6) enter into transactions with
related parties other than on an arm's-length basis on terms no less favorable
to us than those available from third parties; (7) amend certain agreements;
(8) make any material change in the nature of the business we conduct; (9) pay
dividends or redeem shares of capital stock; (10) make capital contributions or
capital expenditures; and (11) make acquisitions.
In addition, the credit facility contains covenants that, among other things
and with certain exceptions, require us and our subsidiaries to: (1) maintain
existence, qualification and good standing; (2) comply in all material respects
with all material applicable laws; (3) maintain material properties, rights and
franchises; (4) deliver certain financial and other information; (5) maintain
specified insurance; (6) pay taxes; and (7) notify the lenders of any default
under the Loan Documents or Indenture (as defined in the credit facility) and
of certain other material events.
Under the credit facility, we are required to satisfy certain financial
covenants and tests, including: (1) a minimum fixed charge coverage ratio; (2)
a maximum ratio of senior debt to pro forma EBITDA (as defined in the credit
facility); (3) a maximum ratio of Funded Debt (as defined in the credit
facility) to pro forma EBITDA; (4) a minimum amount of Consolidated Net Worth
(as defined in the credit facility); and (5) a maximum amount of capital
expenditures in each fiscal year.
Events of Default
Events of Default under the credit facility include, subject to certain
applicable notice and grace periods, the following: (1) a default in the
payment when due of any principal, interest, fees or other amount under the
credit facility; (2) a default by us under any debt instrument in excess of
$10,000,000, or the occurrence of any event or condition that enables the
holder of such debt to accelerate the maturity thereof; (3) any material breach
of any representation, warranty or statement in, or failure to perform any duty
or covenant under the credit facility or any of the Loan Documents; (4)
commencement of voluntary or involuntary bankruptcy, insolvency or similar
proceedings by or against us or any Significant Subsidiary (as defined in the
credit facility); (5) any judgement or order in excess of $10,000,000, net of
confirmed insurance, remaining undischarged or unstayed for longer than certain
periods; and (6) a Change of Control (as defined in the credit facility).
50
DESCRIPTION OF THE NOTES
We will issue the notes described in this prospectus under an indenture,
dated as of April 30, 1999, as amended, among ourselves, the Guarantors and The
Bank of New York (formerly IBJ Whitehall Bank & Trust Company), as trustee. The
following is a summary of the material provisions of the indenture. It does not
include all of the provisions of the indenture. We urge you to read the
indenture because it, and not this summary, defines your rights. The terms of
the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939, as amended. A copy
of the indenture and all amendments to the indenture are filed as exhibits to
the registration statement of which this prospectus is a part. You can find
definitions of certain capitalized terms used in this description under "--
Certain Definitions." For purposes of this section, references to "we," "us"
and "our company" include only Encompass Services Corporation and not our
subsidiaries.
The notes are our unsecured obligations, ranking subordinate in right of
payment to all of our Senior Debt.
We will issue the notes in fully registered form in denominations of $1,000
and integral multiples thereof. The trustee will initially act as paying agent
and registrar for the notes. The notes may be presented for registration or
transfer and exchange at the offices of the registrar. We may change any paying
agent and registrar without notice to holders of the notes. We will pay
principal (and premium, if any) on the notes at the trustee's corporate office
in New York, New York. At our option, interest may be paid at the trustee's
corporate trust office or by check mailed to the registered address of Holders.
Any notes that remain outstanding after the completion of the Exchange Offer,
together with the Exchange Notes issued in connection with the Exchange Offer,
will be treated as a single class of securities under the indenture.
Principal, Maturity and Interest
The notes are limited in aggregate principal amount to $400 million, of
which $135 million in aggregate principal amount were issued in a private
offering on June 28, 2001. The notes will mature on May 1, 2009. Notes in the
aggregate principal amount of $200 million, which we refer to as the "existing
1999 notes", were previously issued under the indenture on April 30, 1999.
Additional notes of up to $65 million in aggregate principal amount may be
issued from time to time, subject to the limitations set forth under "--
Certain Covenants -- Limitation on Incurrence of Additional Indebtedness." The
original notes, the exchange notes, the existing 1999 notes and any additional
notes issued later will be considered collectively to be a single class for all
purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase, as described below. However,
the original notes will not trade interchangeably with the existing 1999 notes
in the secondary market until they are exchanged for exchange notes. For the
purposes of this "Description of the Notes," unless the context otherwise
requires, references to the notes include the original notes, the exchange
notes to be issued in exchange for original notes, the existing 1999 notes and
any additional notes issued later.
Interest on the original notes and the exchange notes will accrue at the
rate of 10 1/2% per annum and will be payable semiannually in cash on each May
1 and November 1, commencing on November 1, 2001, to the persons who are
registered holders at the close of business on the April 15 and October 15
immediately preceding the applicable interest payment date. Interest on the
original notes and the exchange notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from June 28,
2001.
The notes will not be entitled to the benefit of any mandatory sinking fund.
51
The initial offering price of the original notes was 98.26%. If a bankruptcy
case is commenced by or against us under applicable bankruptcy law, the claim
of a Holder of the notes with respect to the principal amount thereof may be
limited to an amount equal to the sum of: (1) the initial offering price; and
(2) that portion of the original issue discount that had been amortized as of
any such bankruptcy filing.
Redemption
Optional Redemption. Except as described below, the notes are not redeemable
before May 1, 2004. Thereafter, we may redeem the notes at our option, in whole
or in part, upon not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of the principal amount
thereof) if redeemed during the twelve-month period commencing on May 1 of the
year set forth below:
Year Percentage
---- ----------
2004.............................................................. 105.438%
2005.............................................................. 104.350%
2006.............................................................. 103.263%
2007.............................................................. 102.175%
2008.............................................................. 101.088%
2009.............................................................. 100.000%
In addition, we must pay accrued and unpaid interest on the notes redeemed.
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to May 1, 2002, we may, at our option, use the net cash
proceeds of one or more Equity Offerings (as defined below) to redeem up to 35%
of the principal amount of the notes issued under the indenture at a redemption
price of 110.875% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided that:
(1) at least 65% of the aggregate principal amount of notes issued under
the indenture remains outstanding immediately after any such
redemption; and
(2) we make such redemption not more than 90 days after the consummation
of any such Equity Offering.
"Equity Offering" means a public or private offering of our Qualified
Capital Stock (other than public offerings with respect to our Common Stock on
Form S-8) for which we receive aggregate net cash proceeds of at least $20
million.
Selection and Notice of Redemption
If we choose to redeem less than all of the notes, selection of the notes
for redemption will be made by the trustee either:
. in compliance with the requirements of the principal national
securities exchange, if any, on which the notes are listed; or
. on a pro rata basis, by lot or by such method as the trustee shall deem
fair and appropriate.
No notes of a principal amount of $1,000 or less shall be redeemed in part.
If a partial redemption is made with the net cash proceeds of an Equity
Offering, the trustee will select the notes only on a pro rata basis or on as
nearly a pro rata basis as is practicable (subject to
52
DTC procedures). Notice of redemption will be mailed by first-class mail at
least 30 but not more than 60 days before the redemption date to each holder of
notes to be redeemed at its registered address. On and after the redemption
date, interest will cease to accrue on the notes or portions thereof called for
redemption as long as we have deposited with the paying agent funds in
satisfaction of the applicable redemption price.
Subordination
The payment of all Obligations on or relating to the notes is subordinated
in right of payment to the prior payment in full in cash or Cash Equivalents of
all Obligations on our Senior Debt (including the Obligations with respect to
the Credit Agreement). Notwithstanding the foregoing, payments and
distributions made relating to the notes pursuant to the trust described under
"--Legal Defeasance and Covenant Defeasance" shall not be so subordinated in
right of payment.
The holders of Senior Debt will be entitled to receive payment in full in
cash or Cash Equivalents of all Obligations due in respect of Senior Debt
(including interest after the commencement of any bankruptcy or other like
proceeding at the rate specified in the applicable Senior Debt whether or not
such interest is an allowed claim in any such proceeding) before the holders of
notes will be entitled to receive any payment or distribution of any kind or
character with respect to any Obligations on, or relating to, the notes in the
event of any distribution to our creditors:
. in our liquidation or dissolution;
. in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to us or our property;
. in an assignment for the benefit of creditors; or
. in any marshalling of our assets and liabilities.
We also may not make any payment or distribution of any kind or character
with respect to any Obligations on, or relating to, the notes or acquire any
notes for cash or property or otherwise if:
. a payment default on any Senior Debt occurs and is continuing; or
. any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity and the trustee receives a notice of such default (a "Payment
Blockage Notice") from the Representative of any Designated Senior
Debt.
Payments on and distributions with respect to any Obligations on, or with
respect to, the notes may and shall be resumed:
. in the case of a payment default, upon the date on which such default
is cured or waived; and
. in case of a nonpayment default, the earlier of (x) the date on which
all nonpayment defaults are cured or waived (so long as no other event
of default exists), (y) 180 days after the date on which the applicable
Payment Blockage Notice is received or (z) the date on which the
Trustee receives notice from the Representative for such Designated
Senior Debt rescinding the Payment Blockage Notice, unless the maturity
of any Designated Senior Debt has been accelerated.
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No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of delivery of such initial
Payment Blockage Notice that in either case would give rise to a default
pursuant to any provisions under which a default previously existed or was
continuing shall constitute a new default for this purpose).
We must promptly notify holders of Senior Debt if payment of the notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above in the event of
our bankruptcy, liquidation or reorganization, holders of the notes may recover
less ratably than our creditors who are holders of Senior Debt.
After giving effect to the issuance of the original notes and the use of the
net proceeds therefrom, at September 30, 2001, the aggregate amount of Senior
Debt outstanding was approximately $551.9 million.
Guarantees
The Guarantors will jointly and severally guarantee our obligations under
the indenture and the notes on a senior subordinated basis. Each Guarantee will
be subordinated in right of payment to the prior payment in full in cash or
Cash Equivalents of Guarantor Senior Debt on the same basis as the notes are
subordinated to Senior Debt. The obligations of each Guarantor under its
Guarantee will be limited as necessary to prevent the Guarantee from
constituting a fraudulent conveyance or fraudulent transfer under applicable
law.
Each Guarantor may consolidate with or merge into or sell its assets to us
or another Guarantor that is our Wholly Owned Restricted Subsidiary without
limitation, or with other Persons upon the terms and conditions set forth in
the indenture. See "--Certain Covenants -- Merger, Consolidation and Sale of
Assets." If we sell all of the Capital Stock of a Guarantor and the sale
complies with the provisions set forth in "--Certain Covenants -- Limitation on
Asset Sales," the Guarantor's Guarantee will be released.
Change of Control
Upon the occurrence of a Change of Control, each holder will have the right
to require us to purchase all or a portion of such holder's notes pursuant to
the offer described below (the "Change of Control Offer"), at a purchase price
equal to 101% of the principal amount thereof plus accrued interest to the date
of purchase.
Within 35 days following the date upon which the Change of Control occurred,
we must send, by first class mail, a notice to each holder, with a copy to the
trustee, which notice shall govern the terms of the Change of Control Offer.
Such notice shall state, among other things, the purchase date, which must be
no earlier than 30 days nor later than 60 days from the date such notice is
mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have a note purchased pursuant to a Change of
Control Offer will
54
be required to surrender the note, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the note completed, to the paying agent at
the address specified in the notice prior to the close of business on the third
business day prior to the Change of Control Payment Date.
Prior to the mailing of the notice referred to above, but in any event
within 30 days following any Change of Control, we have agreed to:
. repay in full and terminate all commitments under Indebtedness under
the Credit Agreement and all other Senior Debt the terms of which
require repayment upon a Change of Control or offer to repay in full
and terminate all commitments under all Indebtedness under the Credit
Agreement and all other such Senior Debt and to repay the Indebtedness
owed to each lender which has accepted such offer; or
. obtain the requisite consents under the Credit Agreement and all other
Senior Debt to permit the repurchase of the notes as provided below.
We shall first comply with the covenant in the immediately preceding
sentence before we shall be required to repurchase notes pursuant to the
provisions described below. Our failure to comply with the covenant described
in the immediately preceding paragraph may (with notice and lapse of time)
constitute an Event of Default described in clause (3) but shall not constitute
an Event of Default described in clause (2) under "--Events of Default."
If a Change of Control Offer is made, there can be no assurance that we will
have available funds sufficient to pay the Change of Control purchase price for
all the notes that might be delivered by holders seeking to accept the Change
of Control Offer. If we are required to purchase outstanding notes pursuant to
a Change of Control Offer, we expect that we would seek third party financing
to the extent we do not have available funds to meet our purchase obligations.
However, there can be no assurance that we would be able to obtain such
financing.
Neither our Board of Directors nor the trustee may waive the covenant
relating to a holder's right to redemption upon a Change of Control.
Restrictions in the indenture on our ability and that of our Restricted
Subsidiaries to incur additional Indebtedness, to grant liens on our respective
property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of our company, whether favored or
opposed by our management. Consummation of any such transaction in certain
circumstances may require redemption or repurchase of the notes, and there can
be no assurance that we or the acquiring party will have sufficient financial
resources to effect such redemption or repurchase. Such restrictions and the
restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buyout of our company or any of
our Subsidiaries by our management. While such restrictions cover a wide
variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the indenture may not afford the holders protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of notes
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Change of Control" provisions
of the indenture, we will comply with the applicable securities laws and
regulations and will not be deemed to have breached our obligations under the
"Change of Control" provisions of the indenture.
55
Certain Covenants
The indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. Generally, we will not,
and will not permit any of our Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness). However, if no Default or Event of Default shall have occurred
and be continuing at the time of or as a consequence of the incurrence of any
such Indebtedness, neither we nor any of our Restricted Subsidiaries that is
or, upon such incurrence, becomes a Guarantor may incur Indebtedness
(including, without limitation, Acquired Indebtedness) and any Restricted
Subsidiary that is not and will not, upon such incurrence, become a Guarantor
may incur Acquired Indebtedness, in each case if on the date of the incurrence
of such Indebtedness, after giving effect to the incurrence thereof, our
Consolidated Fixed Charge Coverage Ratio is greater than 2.5 to 1.0.
Limitation on Restricted Payments. We will not, and will not cause or permit
any of our Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in our Qualified Capital Stock) on
or in respect of shares of our Capital Stock to holders of such
Capital Stock;
(2) purchase, redeem or otherwise acquire or retire for value any of our
Capital Stock or any warrants, rights or options to purchase or
acquire shares of any class of our Capital Stock;
(3) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, any of our Indebtedness that is subordinate or junior
in right of payment to the notes; or
(4) make any Investment (other than Permitted Investments) (each of the
foregoing actions set forth in clauses (1), (2), (3) and (4) being
referred to as a "Restricted Payment"),
if, immediately after giving effect to the Restricted Payment,
(A) a Default or an Event of Default shall have occurred and be
continuing; or
(B) we are not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance
with the "Limitation on Incurrence of Additional Indebtedness"
covenant; or
(C) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date
(the amount expended for such purposes, if other than in cash,
being the fair market value of such property as determined
reasonably and in good faith by senior management or, in the
case of any such property in excess of $5 million, by our
board of directors) shall exceed the sum of:
(w) 50% of our cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus
100% of such loss) earned subsequent to the Issue Date and
on or prior to the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single
accounting period); plus
56
(x) 100% of (1) the aggregate net cash proceeds we received from
any Person (other than a Subsidiary of ours) from the
issuance and sale subsequent to the Issue Date and on or
prior to the Reference Date of our Qualified Capital Stock
and (2) the fair market value (as determined in good faith
by senior management or, in the case of a fair market value
in excess of $5 million, by our board of directors) of
shares of our Qualified Capital Stock issued subsequent to
the Issue Date and on or prior to the Reference Date in
connection with Asset Acquisitions and other acquisitions of
property after the Issue Date; plus
(y) without duplication of any amounts included in clause (x)
above, 100% of (1) the aggregate net cash proceeds and (2)
the fair market value of property other than cash (as
determined in good faith by senior management or, in the
case of a fair market value in excess of $5 million, by our
board of directors), in each case of any equity contribution
we receive from a holder of our Capital Stock subsequent to
the Issue Date and on or prior to the Reference Date; plus
(z) without duplication, the sum of:
(1) the aggregate amount returned in cash on or with respect
to Investments (other than Permitted Investments) made
subsequent to the Issue Date whether through interest
payments, principal payments, dividends or other
distributions or payments;
(2) the net cash proceeds we or any of our Restricted
Subsidiaries receive from the disposition of all or any
portion of such Investments (other than to one of our
Subsidiaries); and
(3) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of such
Subsidiary; provided, however, that the sum of clauses
(1), (2) and (3) above shall not exceed the aggregate
amount of all such Investments made subsequent to the
Issue Date.
The provisions set forth in the immediately preceding paragraph do not
prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been
permitted on the date of declaration;
(2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any shares of our Capital Stock,
either (A) solely in exchange for shares of our Qualified Capital
Stock or (B) through the application of net proceeds of a
substantially concurrent sale for cash (other than to one of our
Subsidiaries) of shares of our Qualified Capital Stock;
(3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any of our Indebtedness that is
subordinate or junior in right of payment to the notes either (x)
solely in exchange for shares of our Qualified Capital Stock or (y)
through the application of net proceeds of a substantially concurrent
sale for cash (other than to one of our Subsidiaries) of (A) shares
of our Qualified Capital Stock or (B) Refinancing Indebtedness;
(4) so long as no Default or Event of Default shall have occurred and be
continuing, our repurchases of our Common Stock from our employees or
their authorized representatives upon the death, disability or
termination of employment of such employees, in an aggregate amount
not to exceed $5 million in any calendar year;
57
(5) the consummation of the Tender Offer;
(6) so long as no Default or Event of Default shall have occurred or be
continuing, the declaration and payment of dividends to holders of
any class or series of our Preferred Stock (other than Disqualified
Capital Stock) issued after the Issue Date, provided that after
giving effect to such issuance on a pro forma basis, we would be
permitted to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the "Limitation on
Incurrence of Additional Indebtedness" covenant; and
(7) other Restricted Payments in an aggregate amount not to exceed $2
million.
In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (4)(C) of the second preceding
paragraph, amounts expended pursuant to clauses (1), (2)(B), (4) and (6) of the
preceding paragraph shall be included in such calculation.
Not later than the date of making any Restricted Payment, we shall deliver
to the trustee an officers' certificate stating that such Restricted Payment
complies with the indenture and setting forth in reasonable detail the basis
upon which the required calculations were computed, which calculations may be
based upon our latest available internal quarterly financial statements.
Limitation on Asset Sales. We will not, and will not permit any of our
Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) we or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal
to the fair market value of the assets sold or otherwise disposed of
(as determined in good faith by senior management or, in the case of
an Asset Sale in excess of $5 million, by our board of directors);
(2) at least 75% of the consideration we or the Restricted Subsidiary, as
the case may be, receive from such Asset Sale shall be in the form of
cash or Cash Equivalents and is received at the time of such
disposition; provided that the amount of (a) any of our liabilities
or those of the Restricted Subsidiary (as shown on our or the
Restricted Subsidiary's most recent balance sheet, other than
liabilities that are by their terms subordinated to the notes) that
are assumed by the transferee of any such assets, and (b) any notes
or other obligations we or our Restricted Subsidiary receive from
such transferee that are converted by us or the Restricted Subsidiary
into cash within 180 days after such Asset Sale, to the extent of the
cash received, shall be deemed to be cash for the purposes of this
provision; and
(3) upon the consummation of an Asset Sale, we shall apply, or cause such
Restricted Subsidiary to apply, the Net Cash Proceeds relating to
such Asset Sale within 360 days of receipt thereof either:
(a) to prepay any Senior Debt or Guarantor Senior Debt and, in the
case of any Senior Debt or Guarantor Senior Debt under any
revolving credit facility, effect a permanent reduction in the
availability under such revolving credit facility;
(b) to make an Investment in properties and assets that replace
the properties and assets that were the subject of such Asset
Sale or in properties and assets that will be used in our
business and the business of our Restricted Subsidiaries as
existing on the Issue Date or in businesses reasonably
related, complementary or ancillary thereto or a reasonable
expansion thereof ("Replacement Assets"); and/or
(c) a combination of prepayment and investment permitted by the
foregoing clauses (3)(a) and (3)(b).
58
On the 361st day after an Asset Sale or such earlier date, if any, as our
senior management or our board of directors, as the case may be, or that of
the Restricted Subsidiary determines not to apply the Net Cash Proceeds
relating to such Asset Sale as set forth in clause (3)(a), (3)(b) or (3)(c) of
the preceding paragraph (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (3)(a), (3)(b)
and (3)(c) of the preceding paragraph (each a "Net Proceeds Offer Amount")
shall be applied by us or the Restricted Subsidiary to make an offer to
purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment
Date") not less than 30 nor more than 60 days following the applicable Net
Proceeds Offer Trigger Date, from all holders on a pro rata basis, that amount
of notes equal to the Net Proceeds Offer Amount at a price equal to 100% of
the principal amount of the notes to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided, however, that if
at any time we or any Restricted Subsidiary, as the case may be, receives non-
cash consideration in connection with any Asset Sale which is converted into
or sold or otherwise disposed of for cash (other than interest received with
respect to any such non-cash consideration), then the conversion or
disposition will be deemed to constitute an Asset Sale and the Net Cash
Proceeds will be applied in accordance with this covenant.
We may defer the Net Proceeds Offer until there is an aggregate unutilized
Net Proceeds Offer Amount equal to or in excess of $10 million resulting from
one or more Asset Sales, at which time, the entire unutilized Net Proceeds
Offer Amount, and not just the amount in excess of $10 million, shall be
applied as required pursuant to this covenant.
In the event of the transfer of substantially all, but not all, of our
property and assets and that of our Restricted Subsidiaries as an entirety to
a Person in a transaction permitted under "--Merger, Consolidation and Sale of
Assets," which transaction does not constitute a Change of Control, the
successor corporation shall be deemed to have sold our properties and assets
and that our Restricted Subsidiaries not so transferred for purposes of this
covenant, and will comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale. In addition, the fair market
value of such properties and assets deemed to be sold will be deemed to be Net
Cash Proceeds for purposes of this covenant.
Notwithstanding clauses (1) and (2) of the first paragraph of this
covenant, we and our Restricted Subsidiaries will be permitted to consummate
an Asset Sale without complying with such clauses to the extent that:
(1) at least 75% of the consideration for such Asset Sale constitutes
Replacement Assets; and
(2) such Asset Sale is for fair market value;
provided that any consideration not constituting Replacement Assets that we or
any of our Restricted Subsidiaries receive in connection with any Asset Sale
permitted to be consummated under this paragraph will constitute Net Cash
Proceeds subject to the provisions of the first two paragraphs of this
covenant.
Each Net Proceeds Offer will be mailed to the record holders as shown on
the register of holders within 30 days following the Net Proceeds Offer
Trigger Date, with a copy to the trustee, and shall comply with the procedures
set forth in the indenture. Upon receiving notice of the Net Proceeds Offer,
holders may elect to tender their notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent holders properly
tender notes in an amount exceeding the Net Proceeds Offer Amount, notes of
tendering holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer will remain open for a period of 20 business
days or such longer period as may be required by law.
59
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of notes
pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Asset Sale" provisions of the
indenture, we shall comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under the "Asset Sale"
provisions of the indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. We will not, and will not cause or permit any of our Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
of our Restricted Subsidiaries to:
(1) pay dividends or make any other distributions on or in respect of its
Capital Stock;
(2) make loans or advances or to pay any Indebtedness or other obligation
owed to us or any of our other Restricted Subsidiaries; or
(3) transfer any of its property or assets to us or any of our other
Restricted Subsidiaries,
except, with respect to each of clauses (1), (2) and (3) above, for such
encumbrances or restrictions existing under or by reason of:
(a) applicable law;
(b) the indenture;
(c) customary non-assignment provisions of any contract of, any
lease governing a leasehold interest of, or any license held
by, any of our Restricted Subsidiaries;
(d) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person
or the properties or assets of the Person so acquired;
(e) the Credit Agreement;
(f) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date;
(g) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clauses (b), (d), (e) or (f) above
and (h) and (j) below; provided, however, that the provisions
relating to such encumbrance or restriction contained in any
such Indebtedness are no less favorable to us in any material
respect as determined by our board of directors or senior
management in its reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction
contained in agreements referred to in such clauses (b), (d),
(e), (f), (h) and (j);
(h) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the
nature discussed in clause (3) above on the property so
acquired;
(i) contracts for the sale of assets, including without
limitation, customary restrictions with respect to a
Restricted Subsidiary pursuant to an agreement that has been
entered into for the sale or disposition of the Capital Stock
or assets of that Restricted Subsidiary;
60
(j) secured Indebtedness otherwise permitted to be incurred
pursuant to the "Limitation on Incurrence of Additional
Indebtedness" covenant and the "Limitation on Liens" covenant
that limits the right of the debtor to dispose of the assets
securing such Indebtedness;
(k) customary provisions in joint venture agreements, licenses and
leases and other similar agreements entered into the ordinary
course of business;
(l) net worth provisions in leases and other agreements; or
(m) an agreement governing Indebtedness (including any Credit
Facilities) permitted to be incurred pursuant to the
"Limitation on Incurrence of Additional Indebtedness"
covenant; provided that provisions relating to such
encumbrance or restriction contained in such Indebtedness are
no less favorable to us in any material respect as determined
by our senior management in its reasonable and good faith
judgment than the provisions contained in the Credit Agreement
as in effect on the Issue Date.
Limitation on Liens. We will not, and will not cause or permit any of our
Restricted Subsidiaries to, directly or indirectly, create, incur, assume,
permit or suffer to exist any Liens of any kind against or upon any of our
property or assets or that of any of our Restricted Subsidiaries whether owned
on the Issue Date or acquired after the Issue Date, or any proceeds therefrom,
or assign or otherwise convey any right to receive income or profits therefrom
unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the notes, the notes are
secured by a Lien on such property, assets or proceeds that is senior
in priority to such Liens; and
(2) in all other cases, the notes are equally and ratably secured, except
for:
(a) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
(b) Liens securing Senior Debt and Liens securing Guarantor Senior
Debt;
(c) Liens securing the notes and the Guarantees;
(d) our Liens or the Liens of a Wholly Owned Restricted Subsidiary
on assets of any of our Restricted Subsidiaries;
(e) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness which has been secured by a Lien
permitted under the indenture and which has been incurred in
accordance with the provisions of the indenture; provided,
however, that such Liens (i) are no less favorable to the
holders and are not more favorable to the lienholders with
respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced; and (ii) do not extend to or
cover any of our property or assets or that of any of our
Restricted Subsidiaries not securing the Indebtedness so
Refinanced; and
(f) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. We will not, and will
not permit any Restricted Subsidiary that is a Guarantor to, incur or suffer to
exist Indebtedness that is senior in right of payment to the notes or such
Guarantor's Guarantee, as the case may be, and subordinate in right of payment
to any of our other Indebtedness or that Guarantor, as the case may be.
61
Merger, Consolidation and Sale of Assets. We will not, in a single
transaction or series of related transactions, consolidate or merge with or
into any Person, or sell, assign, transfer, lease, convey or otherwise dispose
of, or cause or permit any Restricted Subsidiary to sell, assign, transfer,
lease, convey or otherwise dispose of, all or substantially all of our assets,
determined on a consolidated basis for us and our Restricted Subsidiaries,
whether as an entirety or substantially as an entirety to any Person unless:
(1) either:
(a) we shall be the surviving or continuing corporation; or
(b) the Person (if other than our company) formed by such
consolidation or into which we are merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or
other disposition our properties and assets and those of our
Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity"):
(x) shall be a corporation, partnership, trust or a limited
liability company organized and validly existing under the
laws of the United States or any State thereof or the
District of Columbia; and
(y) shall expressly assume, by supplemental indenture, executed
and delivered to the trustee, the due and punctual payment
of the principal of, and premium, if any, and interest on
all of the notes and the performance of every covenant of
the notes, the indenture and the registration rights
agreement to be performed or observed by our company;
provided that if at any time we or the Surviving Entity is a
limited liability company, partnership or trust there shall
be a co-issuer of the notes that is a Restricted Subsidiary
and that is a corporation organized and existing under the
laws of the United States or any State thereof or the
District of Columbia;
(2) immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(b)(y) above, including giving
effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction, we or the Surviving Entity, as the case may be, shall be
able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Incurrence of
Additional Indebtedness" covenant;
(3) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(b)(y)
above, including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred and any Lien granted in connection with or in respect of the
transaction, no Default or Event of Default shall have occurred or be
continuing; and
(4) we or the Surviving Entity shall have delivered to the trustee an
officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of the indenture and
that all conditions precedent in the indenture relating to the
transaction have been satisfied.
Notwithstanding the foregoing, we may merge with an Affiliate incorporated
solely for the purpose of reincorporating us in another jurisdiction.
For purposes of the foregoing, the transfer by lease, assignment, sale or
otherwise, in a single transaction or series of transactions of all or
substantially all of the properties or assets of
62
one or more Restricted Subsidiaries, the Capital Stock of which constitutes all
or substantially all of our properties and assets, shall be deemed to be the
transfer of all or substantially all of our properties and assets.
The indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of our assets in accordance
with the foregoing in which we are not the continuing corporation, the
successor Person formed by such consolidation or into which we are merged or to
which that conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, our company under
the indenture and the notes.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the indenture in connection
with any transaction complying with the provisions of "-- Limitation on Asset
Sales") will not, and we will not cause or permit any Guarantor to, consolidate
with or merge with or into any Person other than our company or any other
Guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor) is a corporation, partnership, trust or
limited liability company organized and existing under the laws of
the United States or any State thereof or the District of Columbia;
(2) such entity assumes by supplemental indenture all of the obligations
of the Guarantor on the Guarantee;
(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(4) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, we could satisfy the
provisions of clause (2) of the first paragraph of this covenant.
If a Guarantor merges or consolidates with and into us, where we are the
surviving entity or another Guarantor that is our Wholly Owned Restricted
Subsidiary need only comply with clause (4) of the first paragraph of this
covenant.
Limitations on Transactions with Affiliates. (a) We will not, and will not
permit any of our Restricted Subsidiaries to, directly or indirectly, enter
into or permit to exist any transaction or series of related transactions,
including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service, with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or an Affiliate of the
Restricted Subsidiary.
All Affiliate Transactions, and each series of related Affiliate
Transactions which are similar or part of a common plan, involving aggregate
payments or other property with a fair market value in excess of $3.0 million
shall be approved by our board of directors or the board of the Restricted
Subsidiary, as the case may be. The approval must be evidenced by a board
resolution stating that the board of directors has determined that the
transaction complies with the foregoing provisions. If we or any Restricted
Subsidiary enters into an Affiliate Transaction, or a series of related
Affiliate Transactions related to a common plan, that involves an aggregate
fair market value of more than $10 million, we or the Restricted Subsidiary, as
the case may be,
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shall, prior to the consummation thereof, obtain a favorable opinion as to the
fairness of such transaction or series of related transactions to us or the
relevant Restricted Subsidiary, as the case may be, from a financial point of
view, from an Independent Financial Advisor and file the same with the trustee.
(b) The restrictions set forth in paragraph (a) of this covenant shall not
apply to:
(1) reasonable fees and compensation paid to and indemnity provided on
behalf of our officers, directors, employees, consultants or
investment bankers or those of any Restricted Subsidiary as
determined in good faith by our board of directors or senior
management;
(2) transactions exclusively between or among us and any of our Wholly
Owned Restricted Subsidiaries or exclusively between or among our
Wholly Owned Restricted Subsidiaries, provided such transactions
are not otherwise prohibited by the indenture;
(3) any agreement as in effect as of the Issue Date or any amendment
to such agreement or any transaction contemplated by such
agreement, including pursuant to any amendment to such agreement,
or any replacement agreement to such agreement so long as any such
amendment or replacement agreement is not more disadvantageous to
the holders in any material respect than the original agreement as
in effect on the Issue Date;
(4) Restricted Payments permitted by the indenture;
(5) transactions in which we or any of our Restricted Subsidiaries, as
the case may be, delivers to the trustee a letter from an
Independent Financial Advisor stating that the transaction is fair
to us or the Restricted Subsidiary from a financial point of view
or meets the requirements of the first sentence of this covenant
above;
(6) the existence of, or the performance by us or any of our
Restricted Subsidiaries of its obligations under the terms of, the
Investors' Rights Agreement, the Securities Purchase Agreement,
any stockholders agreement (including any registration rights
agreement or purchase agreement related thereto) to which it is a
party as of the Issue Date and any similar agreements which it may
enter into thereafter; provided, however, that the existence of,
or the performance by our company or any of our Restricted
Subsidiaries of obligations under, any future amendment to any
such existing agreement or under any similar agreement entered
into after the Issue Date shall only be permitted by this clause
(6) to the extent that the terms of any such amendment or new
agreement are not otherwise disadvantageous to the holders of the
notes in any material respect;
(7) the issuance of securities or other payments, awards or grants, in
cash, securities or otherwise, pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
approved by our board of directors in good faith and loans to our
employees and those of our Subsidiaries which are approved by our
senior management in good faith; and
(8) transactions with customers, clients, suppliers, purchasers or
sellers of goods or services, in each case in the ordinary course
of business and otherwise in compliance with the terms of the
indenture, which are fair to us or our Restricted Subsidiaries, in
the reasonable determination of our senior management, or are on
terms at least as favorable as might reasonably have been obtained
at such time from an unaffiliated party.
Additional Subsidiary Guarantees. If we or any of our Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property to any Domestic Restricted
Subsidiary that is not a Guarantor, or if we or any of our Restricted
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Subsidiaries shall organize, acquire or otherwise invest in another Domestic
Restricted Subsidiary having total assets with a book value in excess of $1
million, then the transferee or acquired or other Restricted Subsidiary shall:
. execute and deliver to the trustee a supplemental indenture pursuant to
which the Restricted Subsidiary shall unconditionally guarantee all of
our obligations under the notes and the indenture on the terms set
forth in the indenture; and
. deliver to the trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by the
Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of the Restricted Subsidiary. Thereafter, the
Restricted Subsidiary shall be a Guarantor for all purposes of the
indenture.
Conduct of Business. Neither we nor our Restricted Subsidiaries will engage
in any businesses which are not substantially related, ancillary or
complementary to the businesses in which we and our Restricted Subsidiaries are
engaged on the Issue Date or a reasonable expansion thereof.
Reports to Holders. The indenture provides that, whether or not required by
the rules and regulations of the Commission, so long as any notes are
outstanding, we will furnish the holders of notes:
. all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K
if we were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" that describes our financial condition and results of
operations and those of our consolidated Subsidiaries, showing in
reasonable detail, either on the face of the financial statements or in
the footnotes thereto, our financial condition and results of
operations and those of our Restricted Subsidiaries separate from the
financial condition and results of operations of our Unrestricted
Subsidiaries, if any and, with respect to the annual information only,
a report thereon by our certified independent accountants; and
. all current reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports, in
each case within two days after the time periods specified in the
Commission's rules and regulations.
In addition, whether or not required by the rules and regulations of the
Commission, we will file a copy of all such information and reports with the
Commission for public availability within the time periods specified in the
Commission's rules and regulations, unless the Commission will not accept such
a filing, and make such information available to securities analysts and
prospective investors upon request. In addition, we have agreed that, for so
long as any notes remain outstanding, we will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Events of Default
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest on any notes when the same becomes due
and payable and the default continues for a period of 30 days,
whether or not such payment shall be prohibited by the subordination
provisions of the Indenture;
(2) the failure to pay the principal on any notes when such principal
becomes due and payable, at maturity, upon redemption or otherwise,
including the failure to make a
65
payment to purchase notes tendered pursuant to a Change of Control Offer
or a Net Proceeds Offer on the date specified for such payment in the
applicable offer to purchase, whether or not such payment shall be
prohibited by the subordination provisions of the Indenture;
(3) a default in the observance or performance of any other covenant or
agreement contained in the indenture, which default continues for a
period of 30 days after we receive written notice specifying the
default (and demanding that such default be remedied) from the
trustee or the holders of at least 25% of the outstanding principal
amount of the notes;
(4) the failure to pay at final maturity, giving effect to any applicable
grace periods and any extensions thereof, the principal amount of any
of our Indebtedness or Indebtedness of any Significant Subsidiary,
which failure continues for at least 20 days, or the acceleration of
the final stated maturity of any such Indebtedness, which
acceleration is not rescinded, annulled or otherwise cured within 20
days of receipt by us or the Significant Subsidiary of notice of any
such acceleration, if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final
maturity or which has been accelerated (in each case with respect to
which the 20-day period described above has passed) aggregates $10
million or more at any time;
(5) one or more judgments in an aggregate amount in excess of $10
million, exclusive of amounts covered by insurance, shall have been
rendered against us or any of our Significant Subsidiaries and the
judgments remain undischarged, unpaid or unstayed for a period of 60
days after the judgment or judgments become final and non-appealable;
(6) certain events of bankruptcy affecting us or any of our Significant
Subsidiaries; or
(7) any Guarantee of a Significant Subsidiary ceases to be in full force
and effect or any Guarantee of a Significant Subsidiary is declared
to be null and void and unenforceable or any Guarantee of a
Significant Subsidiary is found to be invalid or any Guarantor that
is a Significant Subsidiary denies its liability under its Guarantee,
other than by reason of release of a Guarantor in accordance with the
terms of the Indenture.
If an Event of Default, other than an Event of Default specified in clause
(6) above with respect to the Company, shall occur and be continuing, the
trustee or the holders of at least 25% in principal amount of outstanding
notes may declare the principal of and accrued interest on all the notes to be
due and payable by notice in writing to us, and the trustee if given by the
holders, specifying the respective Event of Default and stating that it is a
"notice of acceleration" (the "Acceleration Notice"), and the same:
. shall become immediately due and payable; or
. if there are any amounts outstanding under the Credit Agreement, shall
become immediately due and payable upon the first to occur of an
acceleration under the Credit Agreement or 5 business days after we and
the Representative under the Credit Agreement receive the Acceleration
Notice but only if such Event of Default is then continuing.
If an Event of Default specified in clause (6) above with respect to our
company occurs and is continuing, then all unpaid principal of, and premium,
if any, and accrued and unpaid interest on all of the outstanding notes shall
ipso facto become and be immediately due and payable without any declaration
or other act on the part of the trustee or any holder.
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The indenture provides that, at any time after a declaration of acceleration
with respect to the notes as described in the preceding two paragraphs, the
holders of a majority in principal amount of the notes may rescind and cancel
such declaration and its consequences:
. if the rescission would not conflict with any judgment or decree;
. if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because
of the acceleration;
. to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been
paid;
. if we have paid the trustee its reasonable compensation and reimbursed
the trustee for its expenses, disbursements and advances; and
. in the event of the cure or waiver of an Event of Default of the type
described in clause (6) of the description above of Events of Default,
the trustee shall have received an officers' certificate and an opinion
of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The holders of a majority in principal amount of the notes may waive any
existing Default or Event of Default under the indenture, and its consequences,
except a default in the payment of the principal of or interest on any notes.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture and under the Trust Indenture Act. Subject to the
provisions of the indenture relating to the duties of the trustee, the trustee
is under no obligation to exercise any of its rights or powers under the
indenture at the request, order or direction of any of the holders, unless such
holders have offered to the trustee reasonable indemnity. Subject to all
provisions of the indenture and applicable law, the holders of a majority in
aggregate principal amount of the then outstanding notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee.
Under the indenture, we are required to provide an officers' certificate to
the trustee promptly upon any such officer obtaining knowledge of any Default
or Event of Default, provided that such officers shall provide such
certification at least annually whether or not they know of any Default or
Event of Default, that has occurred and, if applicable, describe such Default
or Event of Default and the status thereof.
No Personal Liability of Directors, Officers, Employees and Stockholders
Our directors, officers, employees and stockholders and those of our
Subsidiaries shall not have any liability for any of our obligations under the
notes, the indenture or the Guarantees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of notes,
by accepting a note, waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the notes.
Legal Defeasance and Covenant Defeasance
We may, at its option and at any time, elect to have its obligations and the
obligations of the Guarantors discharged with respect to the outstanding Notes.
This is called "legal defeasance." Such legal defeasance means that we shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding notes, except for:
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. the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on the notes
when such payments are due;
. our obligations with respect to the notes concerning issuing temporary
notes, registration of notes, mutilated, destroyed, lost or stolen
notes and the maintenance of an office or agency for payments;
. the rights, powers, trust, duties and immunities of the trustee and our
obligations in connection therewith; and
. the legal defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations released with respect to certain covenants that are described in
the indenture. This is called "covenant defeasance." Thereafter any omission to
comply with such obligations shall not constitute a Default or Event of Default
with respect to the notes. In the event covenant defeasance occurs, certain
events, not including nonpayment, bankruptcy, receivership, reorganization and
insolvency events, described under "Events of Default" will no longer
constitute an Event of Default with respect to the notes.
In order to exercise either legal defeasance or covenant defeasance:
. we must irrevocably deposit with the trustee, in trust, for the benefit
of the holders cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the notes on the stated date for payment thereof
or on the applicable redemption date, as the case may be;
. in the case of legal defeasance, we shall have delivered to the trustee
an opinion of counsel in the United States reasonably acceptable to the
trustee confirming that:
(a) we have received from, or there has been published by, the
Internal Revenue Service a ruling; or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders will not recognize income, gain
or loss for federal income tax purposes as a result of such legal
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such legal defeasance had not occurred;
. in the case of covenant defeasance, we shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that the holders will not
recognize income, gain or loss for federal income tax purposes as a
result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred;
. no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
. such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under the indenture,
the Credit Agreement or any other material agreement or instrument to
which we or any of our Subsidiaries is a party or by which we or any of
our Subsidiaries is bound;
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. we shall have delivered to the trustee an officers' certificate stating
that the deposit was not made with the intent of preferring the holders
over any of our other creditors or with the intent of defeating,
hindering, delaying or defrauding any of our other creditors or others;
. we shall have delivered to the trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent provided
for or relating to the legal defeasance or the covenant defeasance have
been complied with; and
. we shall have delivered to the trustee an opinion of counsel to the
effect that:
(a) the trust funds will not be subject to any rights of holders of
Senior Debt, including, without limitation, those arising under
the indenture; and
(b) assuming we do not file for bankruptcy between the date of
deposit and the 91st day following the date of deposit and that
no holder is an insider of our company, after the 91st day
following the date of deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights
generally.
The opinion of counsel required by clause (2) above with respect to a legal
defeasance need not be delivered if all notes not theretofore delivered to the
trustee for cancellation (a) have become due and payable or (b) will become due
and payable on the maturity date within one year under arrangements
satisfactory to the trustee for the giving of notice of redemption by the
trustee in our name, and at our expense.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
notes, as expressly provided for in the indenture) as to all outstanding notes
when:
(1) either:
(a) all the notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or paid
and notes for whose payment money has theretofore been deposited
in trust or segregated and held by us in trust and thereafter
repaid to us or discharged from such trust) have been delivered
to the trustee for cancellation; or
(b) all notes not theretofore delivered to the trustee for
cancellation have become due and payable and we have irrevocably
deposited or caused to be deposited with the trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on
the notes not theretofore delivered to the trustee for
cancellation, for principal of, premium, if any, and interest on
the notes to the date of deposit together with irrevocable
instructions from us directing the trustee to apply such funds to
the payment thereof at maturity or redemption, as the case may
be;
(2) we have paid all other sums payable by us under the Indenture; and
(3) we have delivered to the trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the
indenture relating to the satisfaction and discharge of the indenture
have been complied with.
Modification of the Indenture
From time to time, we, the Guarantors and the trustee, without the consent
of the holders, may amend the indenture for certain specified purposes,
including curing ambiguities, defects
69
or inconsistencies, so long as such change does not, in the opinion of the
trustee, adversely affect the rights of any of the holders in any material
respect. In formulating its opinion on such matters, the trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an opinion of counsel. Other modifications and amendments
of the indenture may be made with the consent of the holders of a majority in
principal amount of the then outstanding notes issued under the indenture,
except that, without the consent of each holder affected thereby, no amendment
may:
. reduce the amount of notes whose holders must consent to an amendment,
supplement or waiver;
. reduce the rate of or change or have the effect of changing the time
for payment of interest, including default interest, on any notes;
. reduce the principal of or change or have the effect of changing the
fixed maturity of any notes, or change the date on which any notes may
be subject to redemption or repurchase or reduce the redemption or
purchase price therefor;
. make any notes payable in money other than that stated in the notes;
. make any change in provisions of the indenture protecting the right of
each holder to receive payment of principal of and interest on such
note on or after the due date thereof or to bring suit to enforce such
payment, or permitting holders of a majority in principal amount of
notes to waive Defaults or Events of Default;
. after our obligation to purchase notes arises thereunder, amend, change
or modify in any material respect our obligation to make and consummate
a Change of Control Offer in the event of a Change of Control or make
and consummate a Net Proceeds Offer with respect to any Asset Sale that
has been consummated, or modify any of the provisions or definitions
with respect thereto;
. modify or change any provision of the indenture or the related
definitions affecting the subordination or ranking of the notes or any
Guarantee in a manner which adversely affects the holders; or
. release any Guarantor that is a Significant Subsidiary from any of its
obligations under its Guarantee or the indenture otherwise than in
accordance with the terms of the indenture.
Governing Law
The indenture provides that it, the notes and the Guarantees are governed
by, and construed in accordance with, the laws of the State of New York but
without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be
required thereby.
The Trustee
The indenture provides that, except during the continuance of an Event of
Default, the trustee will perform only such duties as are specifically set
forth in the indenture. During the existence of an Event of Default, the
trustee will exercise such rights and powers vested in it by the indenture, and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
The indenture and the provisions of the Trust Indenture Act contain certain
limitations on the rights of the trustee, should it become our creditor, to
obtain payments of claims in certain
70
cases or to realize on certain property received in respect of any such claim
as security or otherwise. Subject to the Trust Indenture Act, the trustee will
be permitted to engage in other transactions; provided that if the trustee
acquires any conflicting interest as described in the Trust Indenture Act, it
must eliminate such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided. We use the term "Encompass" in this definitions subsection to mean
only Encompass Services Corporation, and not our subsidiaries.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Restricted Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of Encompass or at the time it merges or consolidates with or into
Encompass or any of its Subsidiaries or is assumed in connection with the
acquisition of assets from such Person and in each case whether or not incurred
by such Person in connection with, or in anticipation or contemplation of, such
Person becoming a Restricted Subsidiary of Encompass or such acquisition,
merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Asset Acquisition" means (1) an Investment by Encompass or any Restricted
Subsidiary of Encompass in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of Encompass or any Restricted Subsidiary of
Encompass, or shall be merged with or into Encompass or any Restricted
Subsidiary of Encompass, or (2) the acquisition by Encompass or any Restricted
Subsidiary of Encompass of the assets of any Person (other than a Restricted
Subsidiary of Encompass) which constitute all or substantially all of the
assets of such Person or comprises any operating unit, division or line of
business of such Person or any other properties or assets of such Person other
than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by Encompass or any
of its Restricted Subsidiaries (including any Sale and Leaseback Transaction)
to any Person other than Encompass or a Wholly Owned Restricted Subsidiary of
Encompass of: (1) any Capital Stock of any Restricted Subsidiary of Encompass;
or (2) any other property or assets of Encompass or any Restricted Subsidiary
of Encompass other than in the ordinary course of business; provided, however,
that Asset Sales shall not include: (a) a transaction or series of related
transactions for which Encompass or its Restricted Subsidiaries receive
aggregate consideration of less than $1.5 million; (b) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of Encompass as permitted under "Merger, Consolidation and Sale of
Assets"; (c) any Restricted Payment permitted by the covenant described under
"Limitations on Restricted Payments" or that constitutes a Permitted
Investment; (d) sales of damaged, worn-out or obsolete equipment or assets
that, in Encompass' reasonable judgment, are no longer either used or useful in
the business of Encompass or its Restricted Subsidiaries; and (e) the sale of
accounts receivable pursuant to a Qualified Receivables Transaction.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
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"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
trustee.
"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person; and
(2) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency
thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition
thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the
date of acquisition thereof and, at the time of acquisition, having
one of the two highest ratings obtainable from either Standard &
Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of
at least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank
organized under the laws of the United States of America or any state
thereof or the District of Columbia or any U.S. branch of a foreign
bank having at the date of acquisition thereof combined capital and
surplus of not less than $250 million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above
entered into with any bank meeting the qualifications specified in
clause (4) above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1)
through (5) above.
"Change of Control" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the
assets of Encompass to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group"), together
with any Affiliates thereof, whether or not otherwise in compliance
with the provisions of the indenture, other than to the Permitted
Holders;
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(2) the approval by the holders of Capital Stock of Encompass of any plan
or proposal for the liquidation or dissolution of Encompass, whether
or not otherwise in compliance with the provisions of the indenture;
(3) any Person or Group (other than the Permitted Holders) shall become
the owner, directly or indirectly, beneficially or of record, of
shares representing more than 50% of the aggregate ordinary voting
power represented by the issued and outstanding Capital Stock of
Encompass; or
(4) the replacement of a majority of the Board of Directors of Encompass
over a two-year period from the directors who constituted the Board
of Directors of Encompass at the beginning of such period, and such
replacement shall not have been approved by the Permitted Holders or
a vote of at least a majority of the Board of Directors of Encompass
then still in office who either were members of such Board of
Directors at the beginning of such period or whose election as a
member of such Board of Directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby:
(a) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other
than income taxes attributable to extraordinary, unusual or
nonrecurring gains);
(b) Consolidated Interest Expense; and
(c) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio for which financial statements are available (the "Transaction
Date") to Consolidated Fixed Charges of such Person for the Four Quarter
Period. In addition to and without limitation of the foregoing, for purposes of
this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall
be calculated after giving effect on a pro forma basis for the period of such
calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or any
of its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of
the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital
purposes pursuant to working capital facilities, occurring during the
Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if
such incurrence or repayment, as the case may be (and the application
of the proceeds thereof), occurred on the first day of the Four
Quarter Period; and
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(2) any Asset Sales or other dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to
the need to make such calculation as a result of such Person or one
of its Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA (including
any pro forma expense and cost reductions, adjustments and other
operating improvements or synergies both achieved by such Person
during such period and to be achieved by such Person and with respect
to the acquired assets, all as determined in good faith by a
responsible financial or accounting officer of Encompass and as
reported on or otherwise confirmed, consistent with applicable
standards of the American Institute of Certified Public Accountants,
to Encompass by an independent public accounting firm) attributable
to the assets which are the subject of the Asset Acquisition or Asset
Sale or other disposition during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction
Date, as if such asset sale or other disposition or Asset Acquisition
(including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four Quarter
Period.
If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate
per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; and
(2) notwithstanding clause (1) above, interest on Indebtedness determined
on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense (excluding amortization or write-off of
deferred financing costs) plus
(2) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person (other than dividends paid in
Qualified Capital Stock) paid, accrued or scheduled to be paid or
accrued during such period times (y) a fraction, the numerator of
which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of
such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP, including, without limitation: (a) any
amortization of debt discount and amortization or write-off of
deferred financing costs (including the amortization of costs
relating to interest rate
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caps or other similar agreements); (b) the net costs under Interest Swap
Obligations; (c) all capitalized interest; and (d) the interest portion
of any deferred payment obligation; and
(2) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP, minus interest income for
such period.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom:
(1) after-tax gains or losses from Asset Sales (without regard to the
$1.5 million limitation set forth in the definition thereof) or
abandonments or reserves relating thereto;
(2) items classified as extraordinary, nonrecurring or unusual gains or
losses on an after-tax basis (including, but not limited to, non-cash
charges related to the acceleration of the vesting of options);
(3) the net income of any Person acquired in a "pooling-of-interests"
transaction accrued prior to the date it becomes a Restricted
Subsidiary of the referent Person or is merged or consolidated with
the referent Person or any Restricted Subsidiary of the referent
Person;
(4) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends and
the making of loans or advances or similar distributions, loans or
advances by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise;
(5) the net income of any Person, other than a Restricted Subsidiary of
the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Wholly Owned
Restricted Subsidiary of the referent Person by such Person;
(6) in the case of a successor to the referent Person by consolidation or
merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation,
merger or transfer of assets; and
(7) the effect of changes in accounting principles after the Issue Date.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net
Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Credit Agreement" means the Credit Agreement dated as of the Issue Date,
between Encompass, the lenders party thereto in their capacities as lenders
thereunder, Goldman Sachs, Credit Partners, L.P., as documentation agent,
Salomon Smith Barney Inc., as syndication agent and Bankers Trust Company, as
administrative agent, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and
restatement thereof), supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including increasing the amount of available
borrowings thereunder or adding Restricted Subsidiaries of
75
the Company as additional borrowers or guarantors thereunder) all or any
portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Credit Facilities" means one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities with banks or
other institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) and/or letters of credit or banker's acceptances.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect
Encompass or any Restricted Subsidiary of Encompass against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Debt" means (1) Indebtedness under or in respect of the
Credit Agreement and (2) any other Indebtedness constituting Senior Debt which,
at the time of determination, has an aggregate principal amount of at least $25
million and is specifically designated in the instrument evidencing such Senior
Debt as "Designated Senior Debt" by Encompass.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event (other than an event which would constitute a Change of
Control or Asset Sale), matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of
the holder thereof (except, in each case, upon the occurrence of a Change of
Control or Asset Sale) on or prior to the final maturity date of the Notes.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated
or otherwise organized or existing under the laws of the United States, any
state thereof or any territory or possession of the United States.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction between a
willing seller and a willing and able buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantees" means the guarantees of the notes by the Guarantors.
"Guarantor" means: (1) each of Encompass' Restricted Subsidiaries as of the
Issue Date; and (2) each of Encompass' Restricted Subsidiaries that in the
future executes a supplemental
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indenture in which such Restricted Subsidiary agrees to be bound by the terms
of the indenture as a Guarantor; provided that any Person constituting a
Guarantor as described above shall cease to constitute a Guarantor when its
respective Guarantee is released in accordance with the terms of the indenture.
"Guarantor Senior Debt" means, with respect to any Guarantor, the principal
of, premium, if any, and interest (including any interest accruing subsequent
to the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on any Indebtedness of such Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
(x) all monetary obligations of every nature of such Guarantor under,
or with respect to, the Credit Agreement, including, without
limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses
and indemnities (including guarantees thereof);
(y) all Interest Swap Obligations (and guarantees thereof); and
(z) all obligations (and guarantees thereof) under Currency Agreements;
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(1) any Indebtedness of such Guarantor to a Subsidiary of such Guarantor;
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of such Guarantor or any Subsidiary of
such Guarantor (including, without limitation, amounts owed for
compensation) other than a shareholder who is also a lender (or an
Affiliate of a lender) under the Credit Facilities (including the
Credit Agreement);
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Capital Stock;
(5) any liability for federal, state, local or other taxes owed or owing
by such Guarantor;
(6) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (6) if
the holder(s) of such obligation or their representative shall have
received an officers' certificate of Encompass to the effect that the
incurrence of such Indebtedness does not (or, in the case of
revolving credit indebtedness, that the incurrence of the entire
committed amount thereof at the date on which the initial borrowing
thereunder is made would not) violate such provisions of the
indenture);
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to Encompass; and
77
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of such Guarantor.
"Indebtedness" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money (including, without
limitation, Senior Debt);
(2) all Obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the
ordinary course of business that are not overdue by 90 days or more
or are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted);
(5) all Obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause
(8) below;
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any lien on any property
or asset of such Person, the amount of such Obligation being deemed
to be the lesser of the fair market value of such property or asset
or the amount of the Obligation so secured;
(8) all Obligations under currency agreements and interest swap
agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding
accrued dividends, if any.
Notwithstanding anything to the contrary in this definition, Indebtedness
shall not include any contingent purchase price obligations or other earnout
obligations of Encompass and its Restricted Subsidiaries in connection with
acquisitions, which obligations are not required to be included as indebtedness
on the face of Encompass' consolidated balance sheet in accordance with GAAP.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in
good faith by the Board of Directors of the issuer of such Disqualified Capital
Stock.
"Independent Financial Advisor" means a firm: (1) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in Encompass; and (2) which, in the judgment of the
Board of Directors of Encompass, is otherwise independent and qualified to
perform the task for which it is to be engaged.
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"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any other Person. "Investment" shall exclude extensions of trade
credit by Encompass and its Restricted Subsidiaries on commercially reasonable
terms in accordance with normal trade practices of Encompass or such Restricted
Subsidiary, as the case may be.
For purposes of the "Limitation on Restricted Payments" covenant:
(1) "Investment" shall include and be valued at the fair market value of
the net assets of any Restricted Subsidiary of Encompass at the time
that such Restricted Subsidiary is designated an Unrestricted
Subsidiary of Encompass and shall exclude the fair market value of
the net assets of any Unrestricted Subsidiary of Encompass at the
time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary of Encompass; and
(2) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by Encompass
or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-
offs with respect to such Investment, reduced by the payment of
dividends or distributions in connection with such Investment or any
other amounts received in respect of such Investment; provided that
no such payment of dividends or distributions or receipt of any such
other amounts shall reduce the amount of any Investment if such
payment of dividends or distributions or receipt of any such amounts
would be included in Consolidated Net Income.
If Encompass or any Restricted Subsidiary of Encompass sells or otherwise
disposes of any Common Stock of any direct or indirect Restricted Subsidiary of
Encompass such that, after giving effect to any such sale or disposition,
Encompass no longer owns, directly or indirectly, 100% of the outstanding
Common Stock of such Restricted Subsidiary, Encompass shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the
fair market value of the Common Stock of such Restricted Subsidiary not sold or
disposed of.
"Investors' Rights Agreement" means the Investors' Rights Agreement, dated
March 22, 1999, among Encompass and certain of its investors.
"Issue Date" means April 30, 1999, the date of original issuance of any
notes under the indenture.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement to
give any security interest).
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"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by Encompass or any of its Restricted Subsidiaries from such Asset
Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions);
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions
and any tax sharing arrangements;
(3) repayment of Indebtedness that is required to be repaid in connection
with such Asset Sale;
(4) appropriate amounts to be provided by Encompass or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and
retained by Encompass or any Restricted Subsidiary, as the case may
be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale; and
(5) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries or joint ventures as a
result of such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnification, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holders" means Apollo Management, L.P. and its Affiliates and
management of Encompass.
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness under the notes and the Guarantees issued on the Issue
Date in an aggregate principal amount not to exceed $200 million;
(2) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $375
million less the amount of all repayments and permanent commitment
reductions under the Credit Agreement with the Net Cash Proceeds of
an Asset Sale applied to the Indebtedness as required by the
"Limitation on Asset Sales" covenant; provided that the amount of
Indebtedness permitted to be incurred pursuant to the Credit
Agreement in accordance with this clause (2) shall be in addition to
any Indebtedness permitted to be incurred pursuant to the Credit
Agreement in reliance on and in accordance with clause (15) below;
provided, further, that the aggregate principal amount of
Indebtedness permitted to be incurred under this clause (2) shall be
reduced dollar for dollar by any Indebtedness outstanding under
clause (14) below;
(3) other Indebtedness of Encompass and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions of the Indebtedness;
(4) Interest Swap Obligations of Encompass or any Restricted Subsidiary
of Encompass covering Indebtedness of Encompass or any of its
Restricted Subsidiaries; provided,
80
however, that such Interest Swap Obligations are entered into to protect
Encompass and its Restricted Subsidiaries from fluctuations in interest
rates on its outstanding Indebtedness to the extent the notional
principal amount of such Interest Swap Obligation does not, at the time
of the incurrence of the Indebtedness, exceed the principal amount of
the Indebtedness to which such Interest Swap Obligations relate;
(5) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable under the Currency Agreement;
(6) Indebtedness of a Restricted Subsidiary of Encompass to Encompass or
to a Wholly Owned Restricted Subsidiary of Encompass for so long as
such Indebtedness is held by the Company or a Wholly Owned Restricted
Subsidiary of the Company or the lenders or collateral agent under
the Credit Agreement, in each case subject to no Lien held by a
Person other than Encompass, a Wholly Owned Restricted Subsidiary of
Encompass or the lenders or collateral agent under the Credit
Agreement; provided that if as of any date any Person other than
Encompass, a Wholly Owned Restricted Subsidiary of Encompass or the
lenders or collateral agent under the Credit Agreement owns or holds
any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of
such Indebtedness;
(7) Indebtedness of Encompass to a Wholly Owned Restricted Subsidiary of
Encompass or the lenders or collateral agent under the Credit
Agreement for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary of Encompass or the lenders or collateral agent
under the Credit Agreement, in each case subject to no Lien; provided
that (a) any Indebtedness of Encompass to any Wholly Owned Restricted
Subsidiary of Encompass is unsecured and subordinated, pursuant to a
written agreement, to Encompass' obligations under the indenture and
the notes and (b) if as of any date any Person other than a Wholly
Owned Restricted Subsidiary of Encompass or the lenders or collateral
agent under the Credit Agreement owns or holds any such Indebtedness
or any Person holds a Lien (other than a Lien in favor of the lenders
or collateral agent under the Credit Agreement) in respect of such
Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by Encompass;
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within two business
days of incurrence;
(9) Indebtedness of Encompass or any of its Restricted Subsidiaries
represented by letters of credit for the account of Encompass or such
Restricted Subsidiary, as the case may be, in order to provide
security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the
ordinary course of business;
(10) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of Encompass and its Restricted
Subsidiaries incurred in the ordinary course of business not to
exceed $20 million at any one time outstanding; provided that all or
a portion of the $20 million permitted to be incurred pursuant to
this clause
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(10) may, at the option of Encompass, be incurred under the Credit
Agreement instead of pursuant to Capitalized Lease Obligations or
Purchase Money Indebtedness;
(11) Indebtedness arising from agreements of Encompass or a Restricted
Subsidiary of Encompass providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets
or a Subsidiary, other than guarantees of Indebtedness incurred by
any Person acquiring all or any portion of such business, assets or
a Subsidiary for the purpose of financing such acquisition;
provided, however, that (a) such Indebtedness is not reflected on
the balance sheet of Encompass or any Restricted Subsidiary of
Encompass (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance
sheet will not be deemed to be reflected on such balance sheet for
purposes of this clause (a)) and (b) the maximum assumable liability
in respect of all such Indebtedness shall at no time exceed the
gross proceeds including noncash proceeds (the fair market value of
such noncash proceeds being measured at the time it is received and
without giving effect to any subsequent changes in value) actually
received by Encompass and its Restricted Subsidiaries in connection
with such disposition;
(12) Indebtedness of Encompass or any of its Restricted Subsidiaries in
respect of performance bonds, bankers' acceptances, workers'
compensation claims, surety or appeal bonds, payment obligations in
connection with self-insurance or similar obligations, and bank
overdrafts (and letters of credit in respect thereof);
(13) Refinancing Indebtedness;
(14) the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction that is without recourse to
Encompass or to any Restricted Subsidiary of Encompass or their
assets (other than such Receivables Subsidiary and its assets), and
is not guaranteed by any such Person; provided that any outstanding
Indebtedness incurred under this clause (14) shall reduce the
aggregate amount permitted to be incurred under clause (2) above to
the extent set forth therein; and
(15) additional Indebtedness of Encompass and its Restricted Subsidiaries
in an aggregate principal amount not to exceed $20 million at any
one time outstanding (which amount may, but need not, be incurred in
whole or in part under the Credit Agreement).
For purposes of determining compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the categories of Permitted Indebtedness
described in clauses (1) through (15) above or is entitled to be incurred
pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of such
covenant, Encompass shall, in its sole discretion, classify (or later
reclassify) such item of Indebtedness in any manner that complies with this
covenant. Accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, and the payment of dividends on Disqualified
Capital Stock in the form of additional shares of the same class of
Disqualified Capital Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Capital Stock for purposes of the
"Limitation on Incurrence of Additional Indebtedness" covenant.
"Permitted Investments" means:
(1) Investments by Encompass or any Restricted Subsidiary of Encompass in
any Person that is or will become immediately after such Investment a
Wholly Owned Restricted
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Subsidiary of Encompass or that will merge or consolidate into Encompass
or a Wholly Owned Restricted Subsidiary of Encompass;
(2) Investments in Encompass by any Restricted Subsidiary of Encompass;
provided that any Indebtedness evidencing such Investment is
unsecured and subordinated, pursuant to a written agreement, to
Encompass' obligations under the notes and the indenture;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of Encompass and its
Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes not in excess of $5 million at any one time
outstanding;
(5) Currency Agreements and Interest Swap Obligations entered into in the
ordinary course of Encompass' or its Restricted Subsidiaries'
businesses and otherwise in compliance with the indenture;
(6) additional Investments (including joint ventures) not to exceed $10
million at any one time outstanding;
(7) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(8) Investments made by Encompass or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale
made in compliance with the "Limitation on Asset Sales" covenant or
any Investment made by Encompass or any Restricted Subsidiary in
connection with a transaction that would be an Asset Sale if it
involved aggregate consideration of $1.5 million or more;
(9) Investments of a Person or any of its Subsidiaries existing at the
time such Person becomes a Restricted Subsidiary of Encompass or at
the time such Person merges or consolidates with Encompass or any of
its Restricted Subsidiaries, in either case in compliance with the
indenture; provided that such Investments were not made by such
Person in connection with, or in anticipation or contemplation of,
such Person becoming a Restricted Subsidiary of Encompass or such
merger or consolidation;
(10) repurchases of Capital Stock of Encompass deemed to occur upon the
exercise of stock options if such Capital Stock represents a portion
of the exercise price thereof;
(11) Investments made by Encompass or any Restricted Subsidiary in
connection with purchase price adjustments, contingent purchase
price payments or other earnout payments required in connection with
Investments otherwise permitted under the indenture;
(12) Investment in securities received in settlement of trade obligations
in the ordinary course of business; and
(13) Investments in the notes.
"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which Encompass or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required
pursuant to GAAP;
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(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed
by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security, including any Lien securing letters
of credit issued in the ordinary course of business consistent with
past practice in connection therewith, or to secure the performance
of tenders, statutory obligations, surety and appeal bonds, bids,
leases, government contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(4) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall
not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
(5) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering
in any material respect with the ordinary conduct of the business of
Encompass or any of its Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
asset which is not leased property subject to such Capitalized Lease
Obligation;
(7) Liens securing Capitalized Lease Obligations and Purchase Money
Indebtedness permitted pursuant to clause (10) of the definition of
"Permitted Indebtedness"; provided, however, that in the case of
Purchase Money Indebtedness (a) the Indebtedness shall not exceed the
cost of such property or assets and shall not be secured by any
property or assets of Encompass or any Restricted Subsidiary of
Encompass other than the property and assets so acquired and (b) the
Lien securing such Indebtedness shall be created within 180 days of
such acquisition or construction or, in the case of a refinancing of
any Purchase Money Indebtedness, within 180 days of such refinancing;
(8) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or
other goods;
(9) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of
Encompass or any of its Restricted Subsidiaries, including rights of
offset and set-off;
(11) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under
the Indenture;
(12) Liens in the ordinary course of business not exceeding $5 million at
any one time outstanding that (a) are not incurred in connection
with borrowing of money and (b) do not materially detract from the
value of the property or materially impair its use;
(13) Liens by reason of judgment or decree not otherwise resulting in an
Event of Default;
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(14) Liens securing Indebtedness under Currency Agreements permitted
under the indenture;
(15) Liens securing Acquired Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant;
provided that:
(a) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by
Encompass or a Restricted Subsidiary of Encompass and were not
granted in connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by Encompass or a Restricted
Subsidiary of Encompass; and
(b) such Liens do not extend to or cover any property or assets of
Encompass or of any of its Restricted Subsidiaries other than the
property or assets that secured the Acquired Indebtedness prior
to the time such Indebtedness became Acquired Indebtedness of
Encompass or a Restricted Subsidiary of Encompass and are no more
favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired
Indebtedness by Encompass or a Restricted Subsidiary of
Encompass; and
(16) Liens securing Indebtedness permitted to be incurred pursuant to
clause (15) of the definition of "Permitted Indebtedness."
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of Encompass and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment and any
Refinancings of such Indebtedness.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by Encompass or any of its Restricted
Subsidiaries pursuant to which Encompass or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer to (1) a Receivables Subsidiary (in the
case of a transfer by Encompass or any of its Restricted Subsidiaries) and (2)
any other Person (in the case of a transfer by a Receivables Subsidiary), or
may grant a security interest in, any accounts receivable (whether now existing
or arising in the future) of Encompass or any of its Restricted Subsidiaries,
and any assets related thereto, including, without limitation, all collateral
securing such accounts receivable, all contracts and all guarantees or other
obligations in respect of such accounts receivable, proceeds of such accounts
receivable and other assets which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Restricted Subsidiary of
Encompass that engages in no activities other than in connection with the
financing of accounts receivable and that is designated by the Board of
Directors of Encompass (as provided below) as a
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Receivables Subsidiary (a) no portion of the Indebtedness or any other
Obligations (contingent or otherwise) of which (1) is guaranteed by Encompass
or any Restricted Subsidiary of the Company (excluding guarantees of
Obligations (other than the principal of, and interest on, Indebtedness)
pursuant to representations, warranties, covenants and indemnities entered into
in the ordinary course of business in connection with a Qualified Receivables
Transaction), (2) is recourse to or obligates Encompass or any Restricted
Subsidiary of Encompass in any way other than pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction or (3) subjects
any property or asset of Encompass or any Restricted Subsidiary of Encompass,
directly or indirectly, contingently or otherwise, to the satisfaction thereof,
other than pursuant to representations, warranties, covenants and indemnities
entered into in the ordinary course of business in connection with a Qualified
Receivables Transaction, (b) with which neither Encompass nor any Restricted
Subsidiary of Encompass has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to Encompass or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of Encompass, other than fees payable in the
ordinary course of business in connection with servicing accounts receivable
and (c) with which neither Encompass nor any Restricted Subsidiary of Encompass
has any obligation to maintain or preserve such Restricted Subsidiary's
financial condition or cause such Restricted Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors of
Encompass shall be evidenced to the trustee by filing with the trustee a Board
Resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing conditions.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by Encompass or any
Restricted Subsidiary of Encompass of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clauses (2), (4), (5), (6), (7), (8), (9), (10), (11), (12), (14)
or (15) of the definition of Permitted Indebtedness), in each case that does
not:
(1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed
Refinancing (plus the amount of any premium required to be paid under
the terms of the instrument governing such Indebtedness and plus the
amount of reasonable expenses incurred by Encompass in connection
with such Refinancing); or
(2) create Indebtedness with: (a) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced; or (b) a final maturity earlier than
the final maturity of the Indebtedness being Refinanced;
provided that (x) if such Indebtedness being Refinanced is Indebtedness of
Encompass, then such Refinancing Indebtedness shall be Indebtedness solely of
Encompass and (y) if such Indebtedness being Refinanced is subordinate or
junior to the notes, then such Refinancing Indebtedness shall be subordinate to
the notes at least to the same extent and in the same manner as the
Indebtedness being Refinanced.
"Registration Rights Agreement" means the registration rights agreement
dated as of June 28, 2001 among Encompass, the Guarantors and the initial
purchasers.
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"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to Encompass or a Restricted Subsidiary of any property, whether owned
by Encompass or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by Encompass or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"Securities Purchase Agreement" means the Securities Purchase Agreement,
dated as of March 22, 1999, between Boss Investment, LLC and Encompass.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of Encompass, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium,
if any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
(1) all monetary obligations of every nature of Encompass under, or with
respect to, the Credit Agreement, including, without limitation,
obligations to pay principal and interest, reimbursement obligations
under letters of credit, fees, expenses and indemnities;
(2) all Interest Swap Obligations (including guarantees thereof); and
(3) all obligations under Currency Agreements (including guarantees
thereof),
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of Encompass to a Subsidiary of Encompass;
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of Encompass or any Subsidiary of
Encompass (including, without limitation, amounts owed for
compensation) other than a shareholder who is a lender (or an
Affiliate of a lender) under the Credit Facilities (including the
Credit Agreement);
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Capital Stock;
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(5) any liability for federal, state, local or other taxes owed or owing
by Encompass;
(6) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (6) if
the holder(s) of such obligation or their representative shall have
received an officers' certificate of Encompass to the effect that the
incurrence of such Indebtedness does not (or, in the case of
revolving credit indebtedness, that the incurrence of the entire
committed amount thereof at the date on which the initial borrowing
thereunder is made would not) violate such provisions of the
indenture);
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to Encompass; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of Encompass.
"Significant Subsidiary", with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange Act
based upon the most recent pro forma annual financial information filed by
Encompass with the SEC.
"Subsidiary", with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned,
directly or indirectly, by such Person; or
(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly,
owned by such Person.
"Tender Offer" means (i) the purchase of Encompass' common stock, including
shares underlying certain options, pursuant to Encompass' offer to purchase
dated February 19, 1999, as amended through the Issue Date or (ii) to the
extent that Encompass has not purchased an aggregate of 25.5 million shares of
its common stock, including shares underlying options, pursuant to the offer to
purchase described in clause (i), any other purchase of Encompass' common stock
or shares underlying options to purchase Encompass' common stock within 180
days of the Issue Date, provided that the aggregate amount expended pursuant to
clauses (i) and (ii) shall not exceed $573.75 million.
"Unrestricted Subsidiary" of any Person means:
(1) any Subsidiary of such Person that at the time of determination shall
be or continue to be designated an Unrestricted Subsidiary by the
Board of Directors of such Person in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, Encompass or any other Subsidiary of Encompass that is not a
Subsidiary of the Subsidiary to be so designated; provided that:
(1) Encompass certifies to the Trustee that such designation complies
with the "Limitation on Restricted Payments" covenant; and
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(2) each Subsidiary to be so designated and each of its Subsidiaries has
not at the time of designation, and does not thereafter, create,
incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which
the lender has recourse to any of the assets of Encompass or any of
its Restricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if:
(1) immediately after giving effect to such designation, Encompass is
able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; and
(2) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and
be continuing.
Any such designation by the Board of Directors shall be evidenced to the
trustee by promptly filing with the trustee a copy of the Board Resolution
giving effect to such designation and an officers' certificate certifying that
such designation complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Wholly Owned
Subsidiary of such Person which at the time of determination is a Restricted
Subsidiary of such Person.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than in the case of a
foreign Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Subsidiary of such Person.
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BOOK-ENTRY, SETTLEMENT AND CLEARANCE
Street Name and Other Indirect Holders
Investors who hold notes in accounts at banks, brokers and other financial
institutions will generally not be recognized by us as legal holders of notes.
This is called holding in street name. These intermediary banks, brokers and
other financial institutions pass along principal, interest and other payments
on the notes, either because they agree to do so in their customer agreement or
because they are legally required to. If you hold notes in street name, you
should check with your own institution to find out:
. how it handles securities payments and notices;
. whether it imposes fees or charges;
. how it would handle voting if required; and
. how it would pursue rights under the notes if there were a default or
other event triggering the need for holders to act to protect their
interests.
Direct Holders
Our obligations, as well as the obligations of the trustee and those of any
third parties employed by us or the trustee, extend only to persons who are
registered as holders of notes. As described above, we do not have any
obligations to you if you hold notes in street name or other indirect means
because the notes are issued in the form of global notes as described below.
For example, once we make a payment to the registered holder, we have no
further responsibility for the payment, even if that holder is legally required
to pass the payment along to you as a street name customer but does not do so.
Global Notes
A global note is a special type of indirectly held note. Because we will
issue the notes only in the form of global notes, the ultimate beneficial
owners can only be indirect holders. We do this by requiring that the global
notes be registered in the name of a financial institution we select and by
requiring that the notes included in the global notes not be transferred to the
name of any other direct holder unless the special circumstances described
below occur. The financial institution that acts as the sole direct holder of
the global note is called the depositary. Any person wishing to own a note must
do so indirectly by virtue of an account with a bank, broker or other financial
institution that in turn has an account with the depositary.
Special Investor Considerations for Global Notes. As an indirect holder, an
investor's rights relating to the global notes will be governed by the account
rules of the investor's bank, broker or other financial institution and of the
depositary, as well as general laws relating to securities transfers. We do not
recognize this type of investor as a holder of notes and instead deal only with
the depositary that holds the global notes.
If you are an investor, you should be aware that:
. you cannot get notes registered in your own name;
. you cannot receive physical certificates for your interest in the notes;
. you will be a street name holder and must look to your own bank, broker
or other financial institution for payments on the notes and protection
of your legal rights relating to the notes; see "Street Name and Other
indirect Holders;"
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. you may not be able to sell or pledge interests in the notes to some
insurance companies and other institutions that are required by law to
own their securities in the form of physical certificates; and
. the depositary's policies will govern payments, transfers, exchange and
other matters relating to your interest in the global notes. We and the
trustee have no responsibility for any aspect of the depositary's
actions or for its records of ownership interest in the global notes. We
and the trustee also do not supervise the depositary in any way.
Special Situations When Global Notes Will Be Terminated. In a few special
situations described in the next paragraph, the global notes will terminate and
interests in them will be exchanged for physical certificates representing
notes. After that exchange, the choice of whether to hold notes directly or in
street name will be up to you. You must consult your own bank, broker or other
financial institution to find out how to have your interests in the notes
transferred to your own name, so that you will be a direct holder. The rights
of street name investors and direct holders in the notes have been previously
described in the subsections entitled "--Street Name and Other Indirect
Holders" and "--Direct Holders."
The special situations for termination of the global notes are:
. When the depositary notifies us that it is unwilling, unable or no
longer qualified to continue as depositary;
. when we notify the trustee that we wish to terminate the global notes;
and
. when an event of default on the notes has occurred and has not been
cured, disregarding for this purpose any requirement of notice or that
the default exist for a specified period of time.
Global Notes
The original notes offered and sold to qualified institutional buyers
pursuant to Rule 144A were issued in the form of one or more registered notes
in global form, without interest coupons, which we call the Rule 144A Global
Notes. The Rule 144A Global Notes were deposited on the date of initial
issuance of the original notes with, or on behalf of, The Depository Trust
Company or will remain in the custody of the trustee pursuant to the FAST
Balance Certificate Agreement between The Depository Trust Company and the
trustee, and registered in the name of Cede & Co., as nominee of The Depository
Trust Company. Interests in the Rule 144a Global Notes will be available for
purchase only by qualified institutional buyers.
The Depository Trust Company has advised us that it is a limited-purpose
trust company organized under the laws of the State of New York, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
New York Uniform Commercial Code and a "clearing agency" registered pursuant to
Section 17A of the Exchange Act. The Depository Trust Company was created to
hold securities of persons who have accounts with The Depository Trust Company,
otherwise known as participants, and to facilitate the clearance and settlement
of securities transactions among its participants in securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of certificates. These participants
include securities brokers and dealers, banks, trust companies and other
clearing corporations. Indirect access to The Depository Trust Company's book-
entry system also is available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. The Depository Trust Company is
owned by a number of its participants, and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc., and the National Association of
Securities
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Dealers, Inc. The rules applicable to The Depository Trust Company and its
participants are on file with the SEC.
Notes offered and sold in offshore transactions following the initial
offering of the original notes to Non-U.S. Persons in reliance on Regulation S
will be issued in the form of one or more registered notes in global form,
without interest coupons, which we call the Regulation S Global Notes. Each
Regulation S Global Note will be deposited upon issuance with, or on behalf of,
a custodian for The Depository Trust Company in the manner described in the
preceding paragraph for credit to the respective accounts of the purchasers, or
to other accounts as they may direct, at Morgan Guaranty Trust Company of New
York, Brussels Office, as operator of the Euroclear System, or Clearstream
Banking, as applicable; provided that prior to the 41st day after the later of
the commencement of the offering of the original notes and the date of initial
issuance of the original notes, which we call the restricted period, beneficial
interests in the Regulation S Global Notes may be held only in or through
accounts maintained at The Depository Trust Company by Euroclear or Clearstream
unless exchanged for interests in the Rule 144A Global Notes.
You may hold your interests in the applicable Regulation S Global Note
directly through Euroclear or Clearstream, if you are a participant in those
systems, or indirectly through organizations which are participants in such
systems. After the expiration of the restricted period, but not earlier, you
may also hold your interests through organizations other than Euroclear or
Clearstream that are participants in The Depository Trust Company system.
Euroclear and Clearstream will hold the interests in the applicable Regulation
S Global Notes on behalf of their participants through customers' securities
accounts in their names on the books of their depositaries. These depositaries,
in turn, will hold such interests in the applicable Regulation S Global Note in
customers' securities accounts in the depositaries' names on the books of The
Depository Trust Company.
Exchanges Among the Global Notes
Prior to the expiration of the restricted period, transfers by an owner of a
beneficial interest in a Regulation S Global Note to a transferee who takes
delivery of such interest through a Rule 144A Global Note will be made only in
accordance with the following procedures. The trustee must receive a written
certification from the transferor of the beneficial interest in the form
provided in the indenture to the effect that the transfer is being made to a
person who the transferor reasonably believes is a qualified institutional
buyer within the meaning of Rule 144A in a transaction meeting the requirements
of Rule 144A.
Transfers by an owner of a beneficial interest in a Rule 144A Global Note to
a transferee who takes delivery of the interest through a Regulation S Global
Note, whether before or after the expiration of the restricted period, will be
made only after the trustee receives a certification form from the transferor
of the beneficial interest in the form provided in the indenture to the effect
that the transfer is being made in accordance with Regulation S or, if
available, Rule 144A under the Securities Act and that, if the transfer is
being made prior to the expiration of the restricted period, the interests
transferred will be held immediately thereafter through Euroclear or
Clearstream.
Form, Exchange and Transfer of Physical Notes
The following discussion only applies if the global notes are terminated as
described above under "--Legal Ownership--Global Notes--Special Situations When
Global Notes Will Be Terminated" and the notes are issued in the form of
physical certificates.
92
The notes will be issued:
. only in registered form;
. without interest coupons; and
. in denominations that are even multiples of $1,000.
You may have your notes divided into more notes of smaller denominations or
combined into fewer notes of larger denominations, as long as the total
principal amount is not changed. This is called an exchange.
You may exchange or transfer notes at the office of the trustee. The trustee
acts as our agent for registering notes in the names of holders and
transferring notes. We may change this appointment to another entity or perform
these functions ourselves. The entity performing the role of maintaining the
list of registered holders is called the security registrar. It will also
perform transfers.
You will not be required to pay a service charge to transfer or exchange the
notes, but you may be required to pay for any tax or other governmental charge
associated with the exchange or transfer. The transfer or exchange will only be
made if the security registrar is satisfied with your proof of ownership.
We may cancel the designation of any particular transfer agent. We may also
approve a change in the office through which any transfer agent acts.
93
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material U.S. federal income tax
consequences resulting from beneficial ownership and disposition of the notes.
Except where otherwise noted, it deals only with investors who acquire their
notes in exchange for original notes and who hold the exchange notes as
capital assets. This summary is based upon the provisions of the Internal
Revenue Code of 1986, as amended, administrative pronouncements, judicial
decisions, and Treasury regulations currently in effect, any of which may be
changed, possibly on a retroactive basis, so as to result in federal income
tax consequences different from those discussed below. We have not obtained
and do not intend to obtain a ruling from the IRS or an opinion of counsel
regarding the classification of the exchange notes for U.S. federal income tax
purposes or for any other aspect of the tax consequences described herein.
This summary does not address all aspects of U.S. federal income taxation
that may be applicable to holders in light of their particular circumstances
and does not address special classes of holders subject to special treatment
(such as dealers in securities, partnerships or other pass-through entities,
financial institutions, life insurance companies, certain expatriates, persons
holding the notes as part of a straddle or hedging or conversion transaction,
or persons whose functional currency is not the U.S. dollar). This summary
also does not address the effect of any state, local or foreign tax laws that
may apply, or the application of the federal estate tax or the alternative
minimum tax.
A "U.S. holder" is a beneficial owner of a note that is, for U.S. federal
income tax purposes,
. a citizen or resident of the U.S.;
. a corporation that is organized under the laws of the U.S. or any
political subdivision thereof;
. an estate, the income of which is subject to U.S. federal income tax
without regard to its source; or
. a trust if a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more
U.S. persons have the authority to control all substantial decisions
of the trust or if the trust has made a valid election to be treated
as a U.S. person.
A "Non-U.S. holder" is any beneficial owner that, for U.S. federal income
tax purposes, is a nonresident alien, or a corporation, estate or trust that
is not a U.S. holder.
If a partnership holds notes, the tax treatment of a partner will generally
depend on the status of the partner and on the activities of the partnership.
Partners of partnerships holding notes should consult their tax advisors.
PROSPECTIVE PURCHASERS OF THE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES TO THEM ARISING UNDER THE TAX LAWS OF
ANY FOREIGN, STATE, OR LOCAL TAXING JURISDICTION.
Exchange of Notes
The exchange of notes for original notes will not constitute a taxable
event to U.S. holders or Non-U.S. holders. Consequently, no gain or loss will
be recognized by a U.S. holder or Non-U.S. holder upon receipt of an exchange
note. The holding period and tax basis of an exchange note will be the same as
the holding period and tax basis, immediately before the exchange, in the
original note so exchanged.
94
We intend to take the position that after the completion of the exchange
offer, the exchange notes would be fungible with the existing 1999 notes.
However, if the original notes are treated as issued with OID (as discussed
above), the exchange notes would not be fungible with our existing 1999 notes
for U.S. federal income tax purposes even after the completion of the exchange
offer.
United States Federal Income Taxation of U.S. Holders
Payment of Interest
Payments of stated interest on a note will generally be taxable to a U.S.
holder as ordinary income at the time it is received or accrued, depending on
the U.S. holder's method of accounting for federal income tax purposes.
We intend to take the position that the original notes were not issued with
original issue discount. However, we cannot assure you that the IRS will not
successfully assert a contrary position. If the IRS were to successfully assert
that the payment of the delayed draw special payment represented a reduction in
the issue price of the original notes, the original notes and the exchange
notes would be deemed to have been issued with original issue discount ("OID")
equal to the excess of (a) the stated principal amount of the notes over (b)
the initial offering price (reduced by the amount of the delayed draw special
payment).
In such event, U.S. holders would be required to include in gross income the
OID as it accrues, in accordance with a constant yield method, over the period
the notes are held. In such case, the OID allocable to any accrual period will
equal the product of the adjusted issue price of the notes as of the beginning
of such period and the notes' yield to maturity, less any stated interest
allocable to that accrual period. The "adjusted issue price" of the notes as of
the beginning of any accrual period will equal the issue price of the notes
increased by the amount of OID, if any, previously includible in income and
decreased by any payments under the notes (other than payments of stated
interest).
Amortizable Bond Premium.
If a U.S. holder purchases a note for an amount that is greater than the sum
of all payments payable on the note after the purchase date, other than
qualified stated interest, such U.S. holder will be considered to have
purchased such note at a premium. A U.S. holder may elect to amortize such bond
premium over the remaining term of such note (or if it results in a smaller
amount of amortizable bond premium, until an earlier call date, and in such
case by reference to the amount payable on that date).
If bond premium is amortized, the amount of interest on the note included in
the U.S. holder's income for each accrual period ending on an interest payment
date or on the stated maturity of the note, as the case may be, will be reduced
by a portion of the bond premium allocable to such accrual period based on the
note's yield to maturity (or earlier call date, if reference to such call date
produces a smaller amount of amortizable bond premium). If the amortizable bond
premium allocable to such accrual period exceeds the amount of interest
allocable to such accrual period, such excess would be allowed as a deduction
for such accrual period, but only to the extent of the U.S. holder's prior
inclusion in income of interest payments on the note. Any excess above such
prior interest inclusions is generally carried forward to the next accrual
period. A U.S. holder who elects to amortize bond premium must reduce such U.S.
holder's tax basis in the notes as described under "Sale, Exchange and
Retirement of Notes." If such an election to amortize bond premium is not made,
a U.S. holder must include the full amount of each interest payment on the note
in income in accordance with its regular method of accounting and will receive
a tax benefit from the bond premium only in computing such U.S. holder's gain
or loss upon disposition of the note.
95
An election to amortize bond premium will apply to all taxable debt
obligations then held or subsequently acquired by the electing U.S. holder on
or after the first day of the first taxable year to which the election applies
and may not be revoked without the consent of the IRS. A U.S. holder should
consult with such U.S. holder's tax advisor with respect to the general
applicability of the amortizable bond premium rules of the Internal Revenue
Code to such U.S. holder, and whether such U.S. holder should make an election
under these rules.
Market Discount.
If a U.S. holder purchases a note for an amount that is less than its stated
redemption price at maturity (i.e., the sum of all payments on the note other
than stated interest payments), the amount of the difference will be treated as
"market discount" for federal income tax purposes, unless such difference is
less than a de minimis amount as specified by the Internal Revenue Code. Under
the market discount rules, a U.S. holder will be required to treat any
principal payment on, or any gain on the sale, exchange, retirement or other
disposition of a note as ordinary income to the extent of the market discount
which has not previously been included in income and is treated as having
accrued on such note at the time of such payment or disposition. In addition,
the U.S. holder may be required to defer, until maturity of the note or its
earlier disposition in a taxable transaction, the deduction of all or a portion
of the interest expense on any indebtedness incurred or maintained to purchase
or carry such note.
The notes provide for optional redemption and (in the case of a Change in
Control) mandatory offers to purchase, in whole or in part, prior to maturity.
If the notes were redeemed, a U.S. holder generally would be required to
include in gross income as ordinary income the portion of the gain recognized
on the redemption attributable to accrued market discount, if any.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the notes, unless the U.S.
holder elects to accrue market discount on a constant interest method. A U.S.
holder of a note may elect to include market discount in income currently as it
accrues (under either a ratable or constant interest method). This election to
include currently, once made, applies to all market discount obligations
acquired in or after the first taxable year to which the election applies and
may not be revoked without the consent of the IRS. If a U.S. holder of notes
makes such an election, the foregoing rules with respect to the recognition of
ordinary income on sales and other dispositions of instruments, and with
respect to the deferral of interest deductions incurred or maintained to
purchase or carry such notes, would not apply.
Sale, Exchange and Retirement of Notes
Upon a sale, exchange (other than an exchange of original notes for exchange
notes) or retirement of a note, a U.S. holder generally will recognize gain or
loss equal to the difference between the amount realized upon the sale,
exchange or retirement (less any accrued interest that has not previously been
included in income which will be taxable as ordinary income) and the holder's
tax basis in the note at that time. A U.S. holder's tax basis in a note will
generally equal the initial offering price of the orignial note (reduced by the
delayed draw special payment if the IRS successful recharacterizes such payment
as a reduction of the notes' issue price), increased by the OID, if any,
includible in your taxable income and reduced by any payments received on the
note by such holder (other than payments of stated interest). Such gain or loss
will be capital gain or loss and will be long-term capital gain or loss if at
the time of sale, exchange or retirement the note has been held for more than
one year. Under current law, long-term capital gains of certain non-corporate
holders are generally taxed at lower rates than items of ordinary income. The
use of capital losses is subject to limitations.
96
United States Federal Income Taxation of Non-U.S. Holders
Payment of Interest
As noted above, although we intend to take the position that the original
notes were not issued with OID, the IRS may successfully assert a contrary
position. Payments of OID, if any, and interest on the original notes (or
exchange notes) to or on behalf of any Non-U.S. holder who is not engaged in a
trade or business within the U.S. with respect to which OID, if any, or
interest on the notes (or exchange notes) is effectively connected, will not be
subject to U.S. federal income or withholding tax, provided that (1) such
beneficial owner does not actually or constructively own ten percent or more of
the total combined voting power of all classes of our stock entitled to vote,
(2) such beneficial owner is not a controlled foreign corporation for U.S.
federal income tax purposes (generally, a foreign corporation controlled by
U.S. shareholders) that is related to us through stock ownership, and (3)
certain certification requirements are met.
If a Non-U.S. holder does not qualify for the foregoing exemption, OID, if
any, and interest payments to such holder generally will be subject to a 30%
withholding tax on the gross amount received, unless reduced or eliminated by
an applicable income tax treaty.
If OID, if any, and interest received by a Non-U.S. holder with respect to
the notes (including proceeds from the disposition of the notes) are
effectively connected with the conduct by the Non-U.S. holder of a trade or
business within the U.S., then such holder will not be subject to the
withholding tax and will generally be subject to tax on a net basis under the
rules described above for a U.S. holder (subject to any modification provided
under an applicable income tax treaty), provided such holder delivers a
properly executed IRS Form W-8ECI to us or our paying agents. Such Non-U.S.
holder may also be subject to the "branch profits tax" at a rate of 30% (or
lower treaty rate if applicable) if such Non-U.S. holder is a corporation.
Sale, Exchange and Retirement of Notes
Any capital gain realized upon a sale, exchange or retirement of an original
note or exchange note by or on behalf of a Non-U.S. holder ordinarily will not
be subject to U.S. federal withholding or income tax unless (1) such gain is
effectively connected with a U.S. trade or business of the holder or (2) in the
case of an individual, such beneficial owner is present in the U.S. for 183
days or more during the taxable year of the sale, exchange or retirement and
certain other requirements are met.
Information Reporting and Backup Withholding
For each calendar year in which the original notes or exchange notes are
outstanding, we, our agents or paying agents or a broker may be required to
provide the IRS with certain information, including the holder's name, address
and taxpayer identification number, the aggregate amount of principal and
interest paid to that holder during the calendar year, and the amount of tax
withheld, if any. This obligation, however, does not apply with respect to
certain holders, including corporations, tax-exempt organizations, qualified
pension and profit sharing trusts, and individual retirement accounts. A 31%
backup withholding tax will apply to "reportable payments" if a U.S. holder
fails to provide a taxpayer identification number or certification of foreign
or other exempt status or fails to report its full dividend and interest
income.
Backup withholding and information reporting generally will not apply to
payments of interest or principal made to a Non-U.S. holder of a note who
provides the appropriate IRS
97
Forms W-8ECI, W-8BEN, W-8EXP or W-8IMY, together with all appropriate
attachments, signed under penalties of perjury as to its non-U.S. holder status
or otherwise establishes that it qualifies for an exemption (provided that
neither we nor our paying agent has actual knowledge that the holder is a U.S.
person or that the conditions of any other exemption are not in fact
satisfied). Payment of the proceeds of a disposition of the notes by or through
a U.S. office of a U.S. or foreign broker generally will be subject to backup
withholding and information reporting unless the Non-U.S. holder certifies
under penalties of perjury on IRS Form W-8BEN that it is a Non-U.S. holder or
otherwise establishes that it qualifies for an exemption. Payment of the
proceeds of a disposition of the notes by or through a foreign office of a
broker generally will not be subject to backup withholding or information
reporting; however, if such broker has certain relationships to the United
States, then information reporting, but not backup withholding, will apply
unless the holder establishes its non-U.S. status.
Backup withholding is not an additional tax; any amounts withheld under the
backup withholding rules will be allowed as a refund or a credit against such
holder's U.S. federal income tax liability provided the required information is
furnished to the IRS. The information reporting requirements may apply
regardless of whether withholding is required. Copies of the information
returns reporting such interest and withholding also may be made available to
the tax authorities in the country in which a Non-U.S. holder is a resident
under the provisions of an applicable income tax treaty or other agreement.
VALIDITY OF THE EXCHANGE NOTES
The validity of the exchange notes offered hereby will be passed upon for us
by Bracewell & Patterson, L.L.P., Houston, Texas.
EXPERTS
The consolidated balance sheet of Encompass Services Corporation as of
December 31, 2000 and the related consolidated statements of operations,
shareholders' equity and other comprehensive income and cash flows for the year
then ended, have been incorporated into this prospectus by reference to the
Current Report on Form 8-K/A dated December 5, 2001, in reliance upon the
report of KPMG LLP, independent auditors, incorporated by reference into this
prospectus, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated balance sheet of Encompass Services Corporation as of
December 31, 1999 and the related consolidated statements of operations, of
shareholders' equity and other comprehensive income and of cash flows for each
of the two years in the period ended December 31, 1999, incorporated into this
prospectus by reference to the Current Report on Form 8-K/A dated December 5,
2001, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated balance sheets of Encompass Services Corporation (formerly
Group Maintenance America Corp.) as of December 31, 1999 and 1998 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1999 and 1998 and the ten months ended
December 31, 1997, have been incorporated by reference into this prospectus in
reliance upon the report of KPMG LLP, independent auditors, incorporated by
reference into this prospectus, and upon the authority of said firm as experts
in accounting and auditing.
98
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. The SEC allows us to "incorporate by reference" the
information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference into this prospectus is an important part of this
prospectus, and information that we file later with the SEC will automatically
update and supersede this information as well as the information included in
this prospectus.
You may read and copy any document we file with the SEC at its public
reference room located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms and their copy charges. Our SEC filings are also available to
the public on the SEC's web site at http://www.sec.gov and through the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which our
shares of common stock are traded.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until we sell all of the notes:
. Our Annual Report on Form 10-K for the year ended December 31, 2000,
except for Item 8. Financial Statements and Supplementary Data which
are presented in the Form 8-K/A dated December 5, 2001 incorporated
herein by reference;
. Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2001, June 30, 2001 and September 30, 2001;
. Our Current Reports on Form 8-K dated June 12, 2001 and June 15, 2001
and on Form 8-K/A dated December 5, 2001; and
. Item 8. Financial Statements and Supplementary Data in our Annual
Report on Form 10-K for the year ended December 31, 1999.
We will provide a copy of any document incorporated by reference into this
prospectus and any exhibit specifically incorporated by reference in those
documents, without charge, by request directed to us at the following address
and telephone number:
Encompass Services Corporation
3 Greenway Plaza, Suite 2000
Houston, Texas 77046
Attention: Investor Relations
713-860-0100
99
FORWARD-LOOKING STATEMENTS
This document and the information incorporated by reference contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to risks and
uncertainties and are based on the beliefs and assumptions of management, based
on information currently available to management. Forward-looking statements
can be identified by the use of the future tense or other forward-looking words
such as "believe," "expect," "anticipate," "intend," "plan," "estimate,"
"should," "may," "will," "objective," "projection," "forecast," "management
believes," "continue," "strategy," "position" or the negative of those terms or
other variations of them or by comparable terminology. In particular,
statements, express or implied, concerning future operating results or the
ability to generate sales, income or cash flow are forward-looking statements.
Forward-looking statements include the information concerning possible or
assumed future results of our operations set forth in this document under:
. Summary;
. Risk Factors;
. Capitalization; and
. Business;
and in the documents incorporated by reference under the captions:
. Description of Business;
. Management's Discussion and Analysis of Financial Condition and Results
of Operations; and
. Unaudited Pro Forma Consolidated Statement of Operations.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. Our future results may differ materially
from those expressed in these forward-looking statements. Many of the factors
that will determine these results and values are beyond management's ability to
control or predict. These statements are necessarily based upon various
assumptions involving judgments with respect to the future including, among
others:
. the ability to achieve synergies and revenue growth;
. national, regional and local economic, competitive and regulatory
conditions and developments;
. technological developments;
. capital market conditions;
. inflation rates;
. interest rates;
. weather conditions;
. the timing and success of integration and business development efforts;
. the impact of a national energy policy; and
. other uncertainties,
100
all of which are difficult to predict and many of which are beyond management's
control. You are cautioned not to put undue reliance on any forward-looking
statements.
You should understand that the foregoing important factors, in addition to
those discussed elsewhere in this document, including those under the heading
"Risk Factors," could affect our future results and could cause results to
differ materially from those expressed in such forward-looking statements.
101
ANNEX A
ENCOMPASS SERVICES CORPORATION
LETTER OF TRANSMITTAL
LETTER OF TRANSMITTAL
To Tender for Exchange
10 1/2% Senior Subordinated Notes due 2009
issued on June 28, 2001
of
Encompass Services Corporation
Pursuant to the Prospectus dated December 7, 2001
THIS OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JANUARY 8,
2002 UNLESS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (THE
"EXPIRATION DATE"). TENDERS OF NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO
THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
The Bank of New York
By Mail: By Facsimile: By Hand:
The Bank of New York (212) 235-2261 The Bank of New York
Reorganization Department Reorganization Department
15 Broad Street--16th Floor Confirm by Telephone 15 Broad Street--16th Floor
New York, NY 10005 (212) 235-2354 New York, NY 10005
Attn: Carolle Montreuil Attn: Carolle Montreuil
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN AS
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES PURSUANT TO THE
EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR ORIGINAL NOTES TO
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
This Letter of Transmittal is to be used by holders ("Holders") of 10 1/2%
Senior Subordinated Notes due 2009 of Encompass Services Corporation (the
"Company") issued in a private offering on June 28, 2001 (the "Original Notes")
to receive 10 1/2% Exchange Senior Subordinated Notes due 2009 (the "Exchange
Notes") if: (1) certificates representing Original Notes are to be physically
delivered to the Exchange Agent herewith by such Holders; (2) tender of
Original Notes is to be made by book-entry transfer to the Exchange Agent's
account at The Depository Trust Company ("DTC") pursuant to the procedures set
forth under the caption "The Exchange Offer--Procedures for Tendering Original
Notes--Book-Entry Delivery Procedures" in the Prospectus dated December 7, 2001
(the "Prospectus"); or (3) tender of Original Notes is to be made according to
the guaranteed delivery procedures set forth under the caption "The Exchange
Offer--Procedures for Tendering Original Notes--Guaranteed Delivery" in the
Prospectus, and, in each case, instructions are not being transmitted through
the DTC Automated Tender Offer Program ("ATOP"). The undersigned hereby
acknowledges receipt of the Prospectus. All capitalized terms used herein and
not defined shall have the meanings ascribed to them in the Prospectus.
Holders of Original Notes that are tendering by book-entry transfer to the
Exchange Agent's account at DTC can execute the tender through ATOP, for which
the transaction will be eligible. DTC participants that are accepting the
exchange offer (the "Exchange Offer") as set
A-1
forth in the Prospectus and this Letter of Transmittal must transmit their
acceptance to DTC which will edit and verify the acceptance and execute a book-
entry delivery to the Exchange Agent's account at DTC. DTC will then send an
Agent's Message to the Exchange Agent for its acceptance. Delivery of the
Agent's Message by DTC will satisfy the terms of the Offer as to execution and
delivery of a Letter of Transmittal by the participant identified in the
Agent's Message. DTC participants may also accept the Exchange Offer by
submitting a notice of guaranteed delivery through ATOP.
Delivery of documents to DTC does not constitute delivery to the Exchange
Agent.
If a Holder desires to tender Original Notes pursuant to the Exchange Offer
and time will not permit this Letter of Transmittal, certificates representing
such Original Notes and all other required documents to reach the Exchange
Agent, or the procedures for book-entry transfer cannot be completed, on or
prior to the Expiration Date, then such Holder must tender such Original Notes
according to the guaranteed delivery procedures set forth under the caption
"The Exchange Offer--Procedures for Tendering Original Notes--Guaranteed
Delivery" in the Prospectus. See Instruction 2.
The undersigned should complete, execute and deliver this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer.
TENDER OF ORIGINAL NOTES
- --------------------------------------------------------------------------------
[_]CHECK HERE IF TENDERED ORIGINAL NOTES ARE ENCLOSED HEREWITH.
[_]CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _______________________________________
Account Number: ______________________________________________________
Transaction Code Number: _____________________________________________
[_]CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): _____________________________________
Window Ticker Number (if any): _______________________________________
Date of Execution of Notice of Guaranteed Delivery: __________________
Name of Eligible Institution that Guaranteed Delivery: _______________
A-2
List below the Original Notes to which this Letter of Transmittal relates.
The name(s) and address(es) of the registered Holder(s) should be printed, if
not already printed below, exactly as they appear on the Original Notes
tendered hereby. The Original Notes and the principal amount of Original Notes
that the undersigned wishes to tender should be indicated in the appropriate
boxes. If the space provided is inadequate, list the certificate number(s) and
principal amount(s) on a separately executed schedule and affix the schedule to
this Letter of Transmittal.
DESCRIPTION OF ORIGINAL NOTES
- --------------------------------------------------------------------------------
Name(s) and Address(es)
of Registered Holder(s) Aggregate
(Please fill in if blank) Certificate Principal Amount Principal Amount
See Instruction 3. Number(s)* Represented** Tendered**
-------------------------------------------------------------------------------------------
-------------------------- ---------------------------------------------------------------
-------------------------- ---------------------------------------------------------------
-------------------------- ---------------------------------------------------------------
-------------------------- ---------------------------------------------------------------
-------------------------- ---------------------------------------------------------------
-------------------------- ---------------------------------------------------------------
Total Principal
Amount of Original Notes
- --------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Unless otherwise specified, the entire aggregate principal amount
represented by the Original Notes described above will be deemed to be
tendered. See Instruction 4.
A-3
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Encompass Services Corporation (the
"Company"), upon the terms and subject to the conditions set forth in its
Prospectus dated December 7, 2001 (the "Prospectus"), receipt of which is
hereby acknowledged, and in accordance with this Letter of Transmittal (which
together constitute the "Exchange Offer"), the principal amount of Original
Notes indicated in the foregoing table entitled "Description of Original Notes"
under the column heading "Principal Amount Tendered." The undersigned
represents that it is duly authorized to tender all of the Original Notes
tendered hereby which it holds for the account of beneficial owners of such
Original Notes ("Beneficial Owner(s)") and to make the representations and
statements set forth herein on behalf of such Beneficial Owner(s).
Subject to, and effective upon, the acceptance for purchase of the principal
amount of Original Notes tendered herewith in accordance with the terms and
subject to the conditions of the Exchange Offer, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company, all right, title
and interest in and to all of the Original Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent the
true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that the Exchange Agent also acts as the agent of the Company) with
respect to such Original Notes, with full powers of substitution and revocation
(such power of attorney being deemed to be an irrevocable power coupled with an
interest) to (i) present such Original Notes and all evidences of transfer and
authenticity to, or transfer ownership of, such Original Notes on the account
books maintained by DTC to, or upon the order of, the Company, (ii) present
such Original Notes for transfer of ownership on the books of the Company, and
(iii) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Original Notes, all in accordance with the terms and
conditions of the Exchange Offer as described in the Prospectus.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that:
(1) the Exchange Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being
acquired by the undersigned and any Beneficial Owner(s) in the ordinary
course of business of the undersigned and any Beneficial Owner(s),
(2) the undersigned and each Beneficial Owner are not participating, do
not intend to participate, and have no arrangement or understanding with
any person to participate, in the distribution of the Exchange Notes,
(3) except as indicated below, neither the undersigned nor any
Beneficial Owner is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act"), of the Company, and
(4) the undersigned and each Beneficial Owner acknowledge and agree that
(x) any person participating in the Exchange Offer with the intention or
for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale of the Exchange Notes acquired by such
person with a registration statement containing the selling securityholder
information required by Item 507 of Regulation S-K of the Securities and
Exchange Commission (the "SEC") and cannot rely on the interpretation of
the Staff of the SEC set forth in the no-action letters that are noted in
the section of the Prospectus
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entitled "The Exchange Offer--Registration Rights" and (y) any broker-
dealer that pursuant to the Exchange Offer receives Exchange Notes for its
own account in exchange for Original Notes which it acquired for its own
account as a result of market-making activities or other trading activities
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes.
If the undersigned is a broker-dealer that will receive Exchange Notes for
its own account in exchange for Original Notes that were acquired as the result
of market-making activities or other trading activities, it acknowledges that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. By so acknowledging and by delivering a prospectus, a broker-dealer
shall not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned understands that tenders of Original Notes may be withdrawn
by written notice of withdrawal received by the Exchange Agent at any time
prior to the Expiration Date in accordance with the Prospectus. In the event of
a termination of the Exchange Offer, the Original Notes tendered pursuant to
the Exchange Offer will be returned to the tendering Holders promptly (or, in
the case of Original Notes tendered by book-entry transfer, such Original Notes
will be credited to the account maintained at DTC from which such Original
Notes were delivered). If the Company makes a material change in the terms of
the Exchange Offer or the information concerning the Exchange Offer or waives a
material condition of such Exchange Offer, the Company will disseminate
additional Exchange Offer materials and extend such Exchange Offer, if and to
the extent required by law.
The undersigned understands that the tender of Original Notes pursuant to
any of the procedures set forth in the Prospectus and in the instructions
hereto will constitute the undersigned's acceptance of the terms and conditions
of the Exchange Offer. The Company's acceptance for exchange of Original Notes
tendered pursuant to any of the procedures described in the Prospectus will
constitute a binding agreement between the undersigned and the Company in
accordance with the terms and subject to the conditions of the Exchange Offer.
For purposes of the Exchange Offer, the undersigned understands that validly
tendered Original Notes (or defectively tendered Original Notes with respect to
which the Company has, or has caused to be, waived such defect) will be deemed
to have been accepted by the Company if, as and when the Company gives oral or
written notice thereof to the Exchange Agent.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Original Notes
tendered hereby, and that when such tendered Original Notes are accepted for
purchase by the Company, the Company will acquire good title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim or right. The undersigned and each Beneficial Owner will,
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Original Notes tendered hereby.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall not be affected by, and shall survive the death or incapacity
of the undersigned and any Beneficial Owner(s), and any obligation of the
undersigned or any Beneficial Owner(s) hereunder shall be binding upon the
heirs, executors, administrators, trustees in bankruptcy, personal and legal
representatives, successors and assigns of the undersigned and such Beneficial
Owner(s).
The undersigned understands that the delivery and surrender of any Original
Notes is not effective, and the risk of loss of the Original Notes does not
pass to the Exchange Agent or the Company, until receipt by the Exchange Agent
of this Letter of Transmittal, or a manually signed facsimile hereof, properly
completed and duly executed, together with all accompanying
A-5
evidences of authority and any other required documents in form satisfactory to
the Company. All questions as to form of all documents and the validity
(including time of receipt) and acceptance of tenders and withdrawals of
Original Notes will be determined by the Company, in its sole discretion, which
determination shall be final and binding.
Unless otherwise indicated herein under "Special Issuance Instructions," the
undersigned hereby requests that any Original Notes representing principal
amounts not tendered or not accepted for exchange be issued in the name(s) of
the undersigned (and in the case of Original Notes tendered by book-entry
transfer, by credit to the account of DTC), and Exchange Notes issued in
exchange for Original Notes pursuant to the Exchange Offer be issued to the
undersigned. Similarly, unless otherwise indicated herein under "Special
Delivery Instructions," the undersigned hereby requests that any Original Notes
representing principal amounts not tendered or not accepted for exchange and
Exchange Notes issued in exchange for Original Notes pursuant to the Exchange
Offer be delivered to the undersigned at the address shown below the
undersigned's signature(s). In the event that the "Special Issuance
Instructions" box or the "Special Delivery Instructions" box is, or both are,
completed, the undersigned hereby requests that any Original Notes representing
principal amounts not tendered or not accepted for purchase be issued in the
name(s) of, certificates for such Original Notes be delivered to, and Exchange
Notes issued in exchange for Original Notes pursuant to the Exchange Offer be
issued in the name(s) of, and be delivered to, the person(s) at the address(es)
so indicated, as applicable. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" box or "Special
Delivery Instructions" box to transfer any Original Notes from the name of the
registered Holder(s) thereof if the Company does not accept for exchange any of
the principal amount of such Original Notes so tendered.
[_]CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU HOLD ORIGINAL NOTES
IS AN AFFILIATE OF THE COMPANY.
[_]CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU HOLD ORIGINAL NOTES
TENDERED HEREBY IS A BROKER-DEALER WHO ACQUIRED SUCH NOTES DIRECTLY FROM THE
COMPANY OR AN AFFILIATE OF THE COMPANY.
[_]CHECK HERE AND COMPLETE THE LINES BELOW IF YOU OR ANY BENEFICIAL OWNER FOR
WHOM YOU HOLD ORIGINAL NOTES TENDERED HEREBY IS A BROKER-DEALER WHO ACQUIRED
SUCH NOTES IN MARKET-MAKING OR OTHER TRADING ACTIVITIES. IF THIS BOX IS
CHECKED, THE COMPANY WILL SEND 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10
COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO TO YOU OR SUCH BENEFICIAL
OWNER AT THE ADDRESS SPECIFIED IN THE FOLLOWING LINES.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________
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SPECIAL ISSUANCE INSTRUCTIONS (See SPECIAL DELIVERY INSTRUCTIONS (See
Instructions 1, 5, 6 and 7) Instructions 1, 5, 6 and 7)
To be completed ONLY if To be completed ONLY if
Original Notes in a principal Original Notes in a principal
amount not tendered or not amount not tendered or not
accepted for exchange are to be accepted for exchange or
issued in the name of, or Exchange Notes are to be sent to
Exchange Notes are to be issued someone other than the person(s)
in the name of, someone other whose signature(s) appear(s)
than the person(s) whose within this Letter of
signature(s) appear(s) within Transmittal or to an address
this Letter of Transmittal or different from that shown in the
issued to an address different box entitled "Description of
from that shown in the box Original Notes" within this
entitled "Description of Letter of Transmittal.
Original Notes" within this
Letter of Transmittal. Issue:[_] Original Notes
[_] Exchange Notes
Issue:[_] Original Notes (check as applica-
[_] Exchange Notes ble)
(check as applicable)
Name ____________________________
Name ____________________________ (Please Print)
(Please Print)
Address _________________________
Address _________________________ (Please Print)
(Please Print)
_________________________________
_________________________________ (Zip Code)
(Zip Code)
_________________________________
_________________________________ (Tax Identification or Social
(Tax Identification or Social Security Number)
Security Number) (See Substitute Form W-9 herein)
(See Substitute Form W-9 herein)
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PLEASE SIGN HERE
(To be completed by all tendering Holders of Original Notes regardless of
whether Original Notes are being physically delivered herewith)
This Letter of Transmittal must be signed by the registered Holder(s)
exactly as name(s) appear(s) on certificate(s) for Original Notes or, if
tendered by a participant in DTC exactly as such participant's name
appears on a security position listing as owner of Original Notes, or by
the person(s) authorized to become registered Holder(s) by endorsements
and documents transmitted herewith. If signature is by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity,
please set forth full title and see Instruction 5.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Signature(s) of Registered Holder(s) or Authorized Signatory
(See guarantee requirement below)
Dated: ____________________________________________________________________
Name(s): __________________________________________________________________
---------------------------------------------------------------------------
(Please Print)
Capacity (Full Title): ____________________________________________________
Address: __________________________________________________________________
---------------------------------------------------------------------------
(Including Zip Code)
Area Code and Telephone Number: ___________________________________________
Tax Identification or Social Security Number: _____________________________
(Complete Accompanying Substitute Form W-9)
Signature Guarantee
(If Required--See Instructions 1 and 5)
Authorized Signature ______________________________________________________
Name of Firm ______________________________________________________________
[place seal here]
A-8
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Signature Guarantees. Signatures of this Letter of Transmittal must be
guaranteed by a recognized member of the Medallion Signature Guarantee Program
or by any other "eligible guarantor institution," as such term is defined in
Rule 17Ad-15 promulgated under the Exchange Act (each of the foregoing, an
"Eligible Institution"), unless the Original Notes tendered hereby are tendered
(i) by a registered Holder of Original Notes (or by a participant in DTC whose
name appears on a security position listing as the owner of such Original
Notes) that has not completed either the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" on this
Letter of Transmittal, or (ii) for the account of an Eligible Institution. If
the Original Notes are registered in the name of a person other than the signer
of this Letter of Transmittal, if Original Notes not accepted for exchange or
not tendered are to be returned to a person other than the registered Holder or
if Exchange Notes are to be issued in the name of or sent to a person other
than the registered Holder, then the signatures on this Letter of Transmittal
accompanying the tendered Original Notes must be guaranteed by an Eligible
Institution as described above. See Instruction 5.
2. Delivery of Letter of Transmittal and Original Notes. This Letter of
Transmittal is to be completed by Holders if (i) certificates representing
Original Notes are to be physically delivered to the Exchange Agent herewith by
such Holders; (ii) tender of Original Notes is to be made by book-entry
transfer to the Exchange Agent's account at DTC pursuant to the procedures set
forth under the caption "The Exchange Offer--Procedures for Tendering Original
Notes--Book-Entry Delivery Procedures" in the Prospectus; or (iii) tender of
Original Notes is to be made according to the guaranteed delivery procedures
set forth under the caption "The Exchange Offer--Procedures for Tendering
Original Notes--Guaranteed Delivery" in the Prospectus. All physically
delivered Original Notes, or a confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of all Original Notes delivered electronically,
as well as a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof), any required signature guarantees and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at one of its addresses set forth on the cover page hereto on or
prior to the Expiration Date, or the tendering Holder must comply with the
guaranteed delivery procedures set forth below. Delivery of documents to DTC
does not constitute delivery to the Exchange Agent.
If a Holder desires to tender Original Notes pursuant to the Exchange Offer
and time will not permit this Letter of Transmittal, certificates representing
such Original Notes and all other required documents to reach the Exchange
Agent, or the procedures for book-entry transfer cannot be completed, on or
prior to the Expiration Date, such Holder must tender such Original Notes
pursuant to the guaranteed delivery procedures set forth under the caption "The
Exchange Offer--Procedures for Tendering Original Notes--Guaranteed Delivery"
in the Prospectus. Pursuant to such procedures, (i) such tender must be made by
or through an Eligible Institution; (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by the
Company, or an Agent's Message with respect to guaranteed delivery that is
accepted by the Company, must be received by the Exchange Agent, either by hand
delivery, mail, telegram, or facsimile transmission, on or prior to the
Expiration Date; and (iii) the certificates for all tendered Original Notes, in
proper form for transfer (or confirmation of a book-entry transfer or all
Original Notes delivered electronically into the Exchange Agent's account at
DTC pursuant to the procedures for such transfer set forth in the Prospectus),
together with a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) and any other documents required by this
Letter of
A-9
Transmittal, or in the case of a book-entry transfer, a properly transmitted
Agent's Message, must be received by the Exchange Agent within two business
days after the date of the execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter of Transmittal, the Original Notes and
all other required documents, including delivery through DTC and any acceptance
or Agent's Message delivered through ATOP, is at the election and risk of the
tendering Holder and, except as otherwise provided in this Instruction 2,
delivery will be deemed made only when actually received by the Exchange Agent.
If delivery is by mail, it is suggested that the Holder use properly insured,
registered mail with return receipt requested, and that the mailing be made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to such date.
No alternative, conditional or contingent tenders will be accepted. All
tendering Holders, by execution of this Letter of Transmittal (or a facsimile
thereof), waive any right to receive any notice of the acceptance of their
Original Notes for exchange.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the principal amount represented by Original Notes
should be listed on separate signed schedule attached hereto.
4. Partial Tenders. (Not applicable to Holders who tender by book-entry
transfer). If Holders wish to tender less than the entire principal amount
evidenced by an Original Note submitted, such Holders must fill in the
principal amount that is to be tendered in the column entitled "Principal
Amount Tendered." The minimum permitted tender is $1,000 in principal amount of
Original Notes. All other tenders must be in integral multiples of $1,000 in
principal amount. In the case of a partial tender of Original Notes, as soon as
practicable after the Expiration Date, new certificates for the remainder of
the Original Notes that were evidenced by such Holder's old certificates will
be sent to such Holder, unless otherwise provided in the appropriate box on
this Letter of Transmittal. The entire principal amount that is represented by
Original Notes delivered to the Exchange Agent will be deemed to have been
tendered, unless otherwise indicated.
5. Signatures on Letter of Transmittal, Instruments of Transfer and
Endorsements. If this Letter of Transmittal is signed by the registered
Holder(s) of the Original Notes tendered hereby, the signatures must correspond
with the name(s) as written on the face of the certificate(s) without
alteration, enlargement or any change whatsoever. If this Letter of Transmittal
is signed by a participant in DTC whose name is shown as the owner of the
Original Notes tendered hereby, the signature must correspond with the name
shown on the security position listing as the owner of the Original Notes.
If any of the Original Notes tendered hereby are registered in the name of
two or more Holders, all such Holders must sign this Letter of Transmittal. If
any of the Original Notes tendered hereby are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any Original Note or instrument of transfer
is signed by a trustee, executor, administrator, guardian, attorney-in-fact,
agent, officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to the Company of such person's authority to so
act must be submitted.
A-10
When this Letter of Transmittal is signed by the registered Holder(s) of the
Original Notes listed herein and transmitted hereby, no endorsements of
Original Notes or separate instruments of transfer are required unless Exchange
Notes are to be issued, or Original Notes not tendered or exchanged are to be
issued, to a person other than the registered Holder(s), in which case
signatures on such Original Notes or instruments of transfer must be guaranteed
by an Eligible Institution.
If this Letter of Transmittal is signed other than by the registered
Holder(s) of the Original Notes listed herein, the Original Notes must be
endorsed or accompanied by appropriate instruments of transfer, in either case
signed exactly as the name(s) of the registered Holder(s) appear on the
Original Notes and signatures on such Original Notes or instruments of transfer
are required and must be guaranteed by an Eligible Institution, unless the
signature is that of an Eligible Institution.
6. Special Issuance and Delivery Instructions. If certificates for Exchange
Notes or unexchanged or untendered Original Notes are to be issued in the name
of a person other than the signer of this Letter of Transmittal, or if Exchange
Notes or such Original Notes are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown herein, the
appropriate boxes on this Letter of Transmittal should be completed. All
Original Notes tendered by book-entry transfer and not accepted for payment
will be returned by crediting the account at DTC designated herein as the
account for which such Original Notes were delivered.
7. Transfer Taxes. Except as set forth in this Instruction 7, the Company
will pay or cause to be paid any transfer taxes with respect to the transfer
and sale of Original Notes to it, or to its order, pursuant to the Exchange
Offer. If Exchange Notes, or Original Notes not tendered or exchanged are to be
registered in the name of any persons other than the registered owners, or if
tendered Original Notes are registered in the name of any persons other than
the persons signing this Letter of Transmittal, the amount of any transfer
taxes (whether imposed on the registered Holder or such other person) payable
on account of the transfer to such other person must be paid to the Company or
the Exchange Agent (unless satisfactory evidence of the payment of such taxes
or exemption therefrom is submitted) before the Exchange Notes will be issued.
8. Waiver of Conditions. The conditions of the Exchange Offer may be amended
or waived by the Company, in whole or in part, at any time and from time to
time in the Company's sole discretion, in the case of any Original Notes
tendered.
9. Substitute Form W-9. Each tendering owner of a Note (or other payee) is
required to provide the Exchange Agent with a correct taxpayer identification
number ("TIN"), generally the owner's social security or federal employer
identification number, and with certain other information, on Substitute Form
W-9, which is provided hereafter under "Important Tax Information," and to
certify that the owner (or other payee) is not subject to backup withholding.
Failure to provide the information on the Substitute Form W-9 may subject the
tendering owner (or other payee) to a $50 penalty imposed by the Internal
Revenue Service and 31% federal income tax withholding. The box in Part 3 of
the Substitute Form W-9 may be checked if the tendering owner (or other payee)
has not been issued a TIN and has applied for a TIN or intends to apply for a
TIN in the near future. If the box in Part 3 is checked and the Exchange Agent
is not provided with a TIN within 60 days of the date on the Substitute Form
W-9, the Exchange Agent will withhold 31% until a TIN is provided to the
Exchange Agent.
10. Broker-Dealers Participating in the Exchange Offer. If no broker-dealer
checks the last box on page 6 of this Letter of Transmittal, the Company has no
obligation under the
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Registration Rights Agreement to allow the use of the Prospectus for resales of
the Exchange Notes by broker-dealers or to maintain the effectiveness of the
Registration Statement of which the Prospectus is a part after the consummation
of the Exchange Offer.
11. Requests for Assistance or Additional Copies. Any questions or requests
for assistance or additional copies of the Prospectus, this Letter of
Transmittal or the Notice of Guaranteed Delivery may be directed to the
Exchange Agent at the telephone numbers and location listed above. A Holder or
owner may also contact such Holder's or owner's broker, dealer, commercial bank
or trust company or nominee for assistance concerning the Exchange Offer.
IMPORTANT: This Letter of Transmittal (or a facsimile hereof), together with
certificates representing the Original Notes and all other required documents
or the Notice of Guaranteed Delivery, must be received by the Exchange Agent on
or prior to the Expiration Date.
IMPORTANT TAX INFORMATION
Under federal income tax law, an owner of Original Notes whose tendered
Original Notes are accepted for exchange is required to provide the Exchange
Agent with such owner's current TIN on Substitute Form W-9 below. If such owner
is an individual, the TIN is his or her social security number. If the Exchange
Agent is not provided with the correct TIN, the owner or other recipient of
Exchange Notes may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, any interest on Exchange Notes paid to such owner or
other recipient may be subject to 31% backup withholding tax.
Certain owners of Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, that owner must submit to the Exchange Agent a properly
completed Internal Revenue Service Forms W-8ECI, W-8BEN, W-8EXP or W-8IMY
(collectively, a "Form W-8"), signed under penalties of perjury, attesting to
that individual's exempt status. A Form W-8 can be obtained from the Exchange
Agent. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
Backup withholding is not an additional tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding the owner is required to notify the Exchange
Agent of the owner's current TIN (or the TIN of any other payee) by completing
the following form, certifying that the TIN provided on Substitute Form W-9 is
correct (or that such owner is awaiting a TIN), and that (i) the owner is
exempt from withholding, (ii) the owner has not been notified by the Internal
Revenue Service that the owner is subject to backup withholding as a result of
failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the owner that the owner is no longer subject to backup
withholding.
What Number to Give the Exchange Agent
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the owner of the Original
Notes. If the Original Notes are
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registered in more than one name or are not registered in the name of the
actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9", for additional guidance on which
number to report.
PAYEE'S NAME:
- --------------------------------------------------------------------------------
Social Security
Number(s)
Part 1 -- PLEASE PROVIDE
SUBSTITUTE YOUR TIN IN THE BOX AT or
Form W-9 RIGHT AND CERTIFY BY Employer Identification
SIGNING AND DATING BELOW. Number(s)
Department of the Treasury Internal Revenue Service ---------------------
---------------------------------------------------------
(1) The number shown on this form is my correct
taxpayer identification number (or I am waiting
for a number to be issued to me) and
Payer's Request for Part 2--Certifications--Under penalties of perjury,
Taxpayer I certify that:
Identification Number
("TIN") (2) I am not subject to backup withholding because:
(a) I am exempt from backup withholding, or (b) I
have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup
withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup
withholding.
Certification Instructions--You must cross out
item (2) above if you have been notified by the
IRS that you are currently subject to backup
withholding because of under-reporting interest
or dividends on your tax return.
---------------------------------------------------------
Part 3--
Signature ________________
Awaiting
Date _____________________ TIN [_]
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31%.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office, or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number within 60 days of the date in this form, 31% of all
reportable cash payments made to me will be withheld until I provide a
taxpayer identification number.
Signature ____________________ Date ____________________
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