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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission file number 0-23241
Building One Services Corporation
(Exact name of registrant as specified in its charter)
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Delaware 52-2054952
(State or other jurisdiction of (I.R.S. Employer
incorporation Identification No.)
or organization)
800 Connecticut Avenue, N.W., 20006
Suite 1111 (Zip Code)
Washington, DC
(Address of principal executive
offices)
202/261-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: YES [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10- K. [_]
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 29, 1999 was $800,082,106.
As of March 29, 1999, 46,047,891 shares of the Registrant's Common Stock,
$.001 par value per share, were outstanding.
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Unless otherwise indicated, references in this Annual Report on Form 10-K to
"Building One," "we," "us," "our" and the "Company" refer to Building One
Services Corporation and it subsidiaries as well as its predecessors.
This Annual Report on Form 10-K contains some forward-looking statements.
Forward-looking statements give our current expectations or forecasts of
future events. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. They use words like "believe,"
"may," "will," "expect," "intend," "plan," "anticipate," "estimate" or
"continue" and other words and terms of similar meaning. In particular, these
include statements relating to future actions, our tender offer, our
acquisition program, the integration of acquired businesses, our growth in
revenues and earnings, our achievement of operating efficiencies, the trading
of our stock, and our plans with respect to potential new products or
services. From time to time, we also may provide oral or written forward-
looking statements in other materials.
Any or all of our forward-looking statements in this Annual Report on Form
10-K or in any other public statements we make may turn out to be wrong. They
can be affected by inaccurate assumptions we might make or by known or unknown
risks and uncertainties. Many factors mentioned in this Annual Report on Form
10-K will be important in determining our future results. Consequently, no
forward-looking statement can be guaranteed. Actual results could differ
significantly. Factors that could cause or contribute to such differences
include those discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors Affecting the Company's
Prospects." We do not undertake any obligation to revise these forward-looking
statements to reflect any future events or circumstances.
PART I
Item 1. Business
The Company
When the Company was founded in February 1997, its goal was to identify one
or more fragmented industries that were attractive consolidation
opportunities. By January 1998, we decided to focus our consolidation efforts
exclusively on the facilities services industry. Facilities services companies
provide many of the services and related products necessary for the routine
operation and maintenance of a commercial and industrial building.
Historically, the facilities services industry consisted primarily of
privately held or family-owned businesses. Most of these privately-held and
family-owned operations operated from day-to-day with no real market or
business plan and did not have access to capital markets to finance expansion
and adequate training and incentive programs. We realized that we could add
value by acquiring many of these companies and marketing them on a nationwide
basis. In 1998, we changed our name from Consolidation Capital Corporation to
Building One Services Corporation in order to better describe our business.
Within less than two years, we have become a leader in the facilities
services industry. Our Building One Mechanical and Electrical Group provides
mechanical and electrical systems installation and maintenance services and
our Building One Service Solutions Group provides janitorial and maintenance
management services. Since our formation, we have grown primarily through
acquisitions, having acquired 35 companies with average revenues of
approximately $41.0 million. We have acquired 27 businesses specializing in
providing in either mechanical or electrical installation, maintenance and/or
specialty services and eight businesses specializing in providing janitorial
and maintenance management services. We currently have 127 locations and
provides nationwide facilities services to over 8,800 commercial and
industrial customers in 48 states. We intend to continue to purchase
businesses offering these three types of services. On February 19, 1999, we
commenced a tender offer to purchase shares of our common stock. See the
section below entitled "--Recent Developments."
Our goal is to become the preeminent single-source provider of facilities
services in the United States. To achieve this goal, we intend to capitalize
on favorable industry dynamics such as the trend by our customers to outsource
significant portions of facilities services requirements to third-party
providers and the trend of building managers to seek a single-source provider.
In addition, the recent combination of our mechanical and electrical
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groups will further enhance our ability to offer combined services to existing
customers and to attract new customers seeking to reduce the number of vendors
with which they do business. We believe that our skilled workforce, hiring and
training programs, breadth of service offerings, geographic coverage and
reputation provide us with a competitive advantage in achieving our goal.
Industry Background
Facilities services companies provide many products and services needed for
the operation and maintenance of a building including:
. Janitorial and maintenance management . Engineering
. Mechanical installation and maintenance . Parking facility management
. Electrical installation and maintenance . Security systems and
management
. Data communications cabling
. Grounds keeping and
landscaping
. Lighting equipment and maintenance
. Building automation and controls . Pest control
. Energy management . General equipment maintenance
The facilities services industry is highly fragmented with a small number of
firms providing multiservice product offerings on a multi-location basis.
According to industry data, no single source provider holds more than a 2%
market share. Electrical, mechanical and janitorial services represent more
than 75% of the revenues in the facilities services industry. The markets are
substantial and highly fragmented with a small number of multi-location
regional or national operators and a large number of relatively small,
independent businesses serving discrete local markets with limited service
offerings.
Each distinct market segment within the facilities services industry has its
own specific dynamics and competitive environment and, as a result, has
different projected growth rates. In general, the primary drivers of industry
growth include:
. vendor consolidation;
. decreasing metropolitan vacancy rates;
. increased outsourcing of non-core functions by corporations;
. customer interest in relief from labor force issues;
. the need to upgrade and invest in infrastructure and technology; and
. to a lesser extent, revival of construction activity in suburban areas
and smaller cities.
We believe that there has been a significant trend toward outsourcing
business services, including facilities services, over the last several years.
This increase in outsourcing will impact all three of the sectors in which we
do business. According to the Outsourcing Institute, approximately 80% of
United States companies outsource some aspect of their business services.
Spending on outsourcing services increased approximately 100% from 1992
through 1996 and we believe this trend will continue. The Outsourcing
Institute estimates that the demand for outsourcing services will grow at an
estimated compounded annual growth rate of 20% through the year 2000.
Outsourcing allows companies to, among other things, focus on their core
competencies, reduce operating expenses, share risk management responsibility
and access technical expertise not available internally.
Facilities services companies have expanded their businesses from providing
traditional cleaning services for commercial property managers and large
corporations to performing higher value added services for companies in the
retail, commercial and industrial sectors.
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The Mechanical and Electrical Services Industry
Electrical Services Market
The electrical services industry, including commercial, industrial and
residential markets, was estimated by the United States Census Bureau to have
generated annual revenues in excess of $40 billion in 1992, the most recent
year for which United States Census data is available. More recent data
reported by The Electrical Contracting Magazine shows that the industry size
in 1998 was approximately $72 billion. Electrical maintenance service repair
and modernization work represented approximately 55% of the industry revenues.
Demand for electrical services is growing more rapidly than demand for new
installations. The industry is highly fragmented with a forecasted number of
companies in 1999 more than 66,000, up from an estimated 54,000 in 1992. Most
of those companies are small, private owner-operated businesses, performing
various types of electrical work.
Virtually all construction and renovation drive demand for electrical
installation services. Electrical work accounts for approximately 8% to 12% of
the total construction cost of commercial and industrial projects. In recent
years, demand for electrical installation repair and maintenance work has
increased due to increased electrical code requirements, demand for additional
electrical capacity, additional data cabling requirements and increased use of
computers and control systems.
We believe that growth in the electrical services industry will be driven by
the following factors:
. increasing capital investment in new facility installation and renovation
of existing facilities;
. new codes for power and life safety;
. revised national energy standards requiring energy efficient lighting
fixtures and other equipment;
. new demands for backup power;
. complex systems requiring specialized technical expertise;
. cost savings that can be derived from the central monitoring and control
of integrated systems (e.g., fire protection, security systems,
temperature control);
. networking of local area and wide area computer systems; and
. minimizing downtime through predictive and preventive maintenance.
Mechanical Services Market
Mechanical systems include HVAC systems and plumbing and process systems. We
believe that the HVAC services industry generates approximately $35 billion in
annual commercial and industrial revenues and that the plumbing services
industry generates approximately $19 billion in revenues. We believe the
mechanical services market is highly fragmented with over 50,000 businesses.
Most are small, owner-operated companies focusing on a single local geographic
area and providing a limited range of services.
Growth in the mechanical services industry will be driven by the following
factors:
. an aging installed base of systems;
. increasing automation, sophistication and complexity of HVAC and other
systems;
. increasing restrictions on the use of refrigerants commonly used in older
HVAC systems;
. a desire by property owners/managers to outsource their maintenance
services; and
. increasing focus by property owners/managers on energy cost savings from
more efficient systems.
The Janitorial Services Industry
Based on data reported by the Building Owners and Managers Association in
1996, we believe the market for janitorial services is approximately $67
billion. We believe the janitorial service market is a highly
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fragmented industry comprised of more than 45,000 companies, most of which are
privately owned businesses with fewer than 20 employees.
We believe that growth in the janitorial and maintenance management services
market will be driven by the following factors:
. a desire by owner/managers to outsource their cleaning management;
. increasing focus by owners/managers on retaining commercial tenants;
. technology driven demand for niche cleaning services, such as "clean
room" maintenance; and
. increasing demand for automated "back office" janitorial management,
including insurance, invoicing, quality control and reporting.
Our Services
We offer a broad range of mechanical and electrical installation,
maintenance and specialty services and janitorial and maintenance management
services.
Mechanical and Electrical Services. Through the Building One Mechanical and
Electrical Group, we offer a broad range of mechanical and electrical design,
installation and maintenance services for industrial, commercial, retail and
institutional customers, including:
. lighting and power systems;
. heating, ventilation and air conditioning ("HVAC") systems;
. plumbing and industrial process piping systems;
. evaluation and testing of system performance;
. building access, security systems, and fire protection systems;
. fiber optic and data cabling;
. telecommunications equipment and systems;
. fire protection, building access and surveillance systems;
. manufacturing process controls and instrumentation; and
. technical facilities management.
Our 27 operating companies offer mechanical and electrical services through
82 branch locations serving over 30 states. The 1998 pro forma revenues of
these businesses were approximately $1.3 billion. The presidents of these 27
companies have an average of 27 years of experience in mechanical and
electrical contracting and services.
We believe the fragmented nature of this industry provides significant
opportunities to consolidate mechanical and electrical installation,
maintenance and specialty service businesses. In addition, we believe that the
majority of owners in this industry have limited access to adequate capital
for modernization, training and expansion and limited opportunities for
liquidity in their business. Many of these businesses are being threatened by
increased competition from larger entities with greater financial resources,
resulting in part from the deregulation of the United States gas and electric
utility industries Because of these opportunities, several
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publicly traded consolidators, in addition to our company, have emerged in the
mechanical and electrical installation, maintenance and specialty service
industry.
We plan to continue to expand our market presence and grow through strategic
acquisitions, partnerships with other service providers, and internal growth.
We expect to continue to buy businesses with strong cash flows, strategic
locations and value-added service offerings. For example, because we have
fewer mechanical operating companies, we intend to acquire businesses that
provide mechanical services in areas where we already provide electrical
services to further enhance our cross-selling opportunities.
In addition, we believe that there are growth opportunities in the
electrical maintenance and specialized services portion of the business. We
are increasing the amount and proportion of revenues represented by such
services. Electrical maintenance services generate a recurring revenue stream
that is less susceptible to downswings in the economy than the more cyclical
new installation market. Specialized services require specific skills and
equipment and provide higher margins than general electrical installation and
maintenance services.
Joint Delivery of Mechanical and Electrical Services. We recently
reorganized our mechanical and electrical services groups into the Building
One Mechanical and Electrical Group. Under this combination, a regional
manager is responsible for overseeing both mechanical and electrical
operations. Therefore, we have the opportunity to "cross-sell" our mechanical
and electrical systems and services. Cross-selling occurs when one of our
companies sells another of our company's services to existing customers.
In addition, our Building One Mechanical and Electrical Group intends to
continue growing the proportion of work we complete on a "design-build" basis.
Design-build is an approach to installation projects in which the contractor
is given full or partial responsibility for the design specifications of the
installation. Design-build is an alternative to the traditional "plan and
spec" model, in which the contractor is required to build to the exact
specifications of the architect and engineer. We believe that design-build is
the superior model because it allows the contractor to use past experience to
install the project at the least cost to the customer. We have an advantage
over our competitors because we have opportunities to complete design build
work where our mechanical and electrical companies are working as partners.
Janitorial and Maintenance Management Services. Our Building One Service
Solutions Group offers janitorial and maintenance management services. A
number of these services are often provided for a customer under a contractual
arrangement on a regional or national basis. The customers of this group are:
retail chain stores, grocery stores, office buildings, industrial plants,
banks, department stores, warehouses, educational and health facilities,
restaurants and airport terminals throughout the United States. The services
provided by this group include:
. floor and carpet cleaning and maintenance;
. floor stripping and refinishing;
. chemical supply and equipment management;
. window, wall and structural cleaning and maintenance;
. restroom and other area sanitation;
. duct cleaning;
. furniture polishing; and
. exterior window, wall, sidewalk, and parking lot cleaning and
maintenance.
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We believe that our Building One Service Solutions Group is the largest
provider of janitorial and maintenance management services to the retail
sector in the United States based on revenues. Our eight companies offer these
services in 48 states. The pro forma revenues of these companies in 1998 were
$195 million. The presidents of these eight companies have an average of 17
years of experience in janitorial maintenance and management services.
We believe there is significant growth potential for our Building One
Service Solutions Group as a result of the trend toward outsourcing non-core
business functions. We offer programs and systems that free the customer to
focus on its core business activity while the support services are managed in
an efficient, cost-effective manner. We believe that our management expertise,
our menu of services and new technologies will contribute to growth in this
group.
To provide seamless integrated services to our broad customer base, our
Building One Service Solutions Group selects, manages and integrates services
provided by our local companies and third parties to our customers. We often
administer the back office functions for the third party and ensure the
quality of the service performed. We also relieve our customers from the
burden of finding and supervising the contractor or in-house labor to provide
service.
We intend to increase our market presence by increasing the number of
national customers we service, first in the retail market and then in other
markets. Through strategic partnerships and subcontracting relationships, we
will add depth to our broad geographic coverage. We also may add new services
to our menu of janitorial and maintenance management services.
The following chart identifies the companies we have acquired since our
formation:
<TABLE>
<CAPTION>
Date Geographic Year
Name Service Segment Acquired Coverage Founded
---- --------------- -------- ---------- -------
<S> <C> <C> <C> <C>
Service Management, USA
(now Building One
Service Solutions)..... Janitorial 02/04/98 National 1984
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Garfield Electric Ohio, Indiana,
Company................ Electrical 03/11/98 Kentucky 1972
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Ohio, Indiana,
Indecon, Inc............ Electrical 03/11/98 Kentucky 1989
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Riviera Electric
Construction Company,
Inc.................... Electrical 03/11/98 Colorado 1982
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Kansas &
SKC Electric Inc........ Electrical 03/11/98 Missouri 1980
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Town & Country Electric
Inc.................... Electrical 03/11/98 Mid West Region 1972
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Tri-City Electrical
Contractors, Inc....... Electrical 03/11/98 Florida 1958
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Wilson Electric Company,
Inc.................... Electrical 03/11/98 Arizona 1988
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Walker Engineering,
Inc.................... Electrical 03/25/98 Texas 1981
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Crest International,
LLC.................... Janitorial 04/01/98 Wisconsin 1995
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United Service
Solutions, Inc......... Janitorial 04/27/98 National 1997
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Taylor Electric, Inc.... Electrical 05/22/98 Utah & Nevada 1978
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G.S. Group, Inc.
including subsidiaries
Gulf States, Inc., GSI
of California, Inc.,
G.S. Financial, Inc.
and Testronics, Inc. .. Mechanical 05/22/98 National 1986
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Perimeter Maintenance
Corporation............ Janitorial 05/31/98 Southeast Region 1985
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Spann Building
Maintenance Company.... Janitorial 05/31/98 Midwest Region 1959
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National Network Colorado, Oregon,
Services, Inc.......... Electrical 06/15/98 California, South Dakota 1990
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Riviera Electric of
California, Inc........ Electrical 06/17/98 California 1995
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Regency Electric Southeast &
Company, Inc........... Electrical 06/24/98 Eastern Regions 1979
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The Lewis Companies..... Mechanical/Electrical 06/29/98 Southwest Region 1979
</TABLE>
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<TABLE>
<CAPTION>
Date Geographic Year
Name Service Segment Acquired Coverage Founded
---- --------------- -------- ---------- -------
<S> <C> <C> <C> <C>
Chambers Electronic
Communications, LLC.... Electrical 07/01/98 Arizona 1969
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McIntosh Mechanical, South Carolina &
Inc.................... Mechanical 08/03/98 Georgia 1982
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Ivey Mechanical, Inc.... Mechanical 09/02/98 South & Southeast Regions 1947
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Tri-M Corporation &
Affiliates............. Electrical 09/03/98 Northeast Region 1964
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Robinson Mechanical,
Inc.................... Mechanical 09/14/98 Colorado 1978
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Watson Electrical
Construction Co. and
Welcon Management
Company................ Electrical 11/02/98 North Carolina & Virginia 1935
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Boxberger, Inc.......... Janitorial 11/06/98 Southeast Region 1989
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Flor-Shin, Inc.......... Janitorial 11/06/98 Southeast Region 1982
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R.J. Miguel Services, New England
Inc.................... Janitorial 12/04/98 (except for Maine) 1986
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North, South
Gamewell Mechanical, Carolina,
LP..................... Mechanical 12/14/98 Virginia 1966
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Potter Electric
Company................ Electrical 01/01/99 Nevada 1969
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Beltline................ Mechanical 02/09/99 Texas 1987
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Sanders Bros., Inc...... Mechanical 03/24/99 Southeast 1997
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D/FW Mechanical
Services, Inc.......... Mechanical 03/26/99 Texas 1981
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American Air Company,
Inc.................... Mechanical 03/26/99 California 1973
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Advent Electric Company,
Inc.................... Electrical 03/29/99 Tennessee 1978
</TABLE>
Competitive Strengths
We believe several factors give us a competitive advantage in the facilities
services industry including our:
Leading Market Position. We had pro forma revenues of approximately $1.5
billion for the fiscal year ended December 31, 1998 assuming that we had
acquired the 35 businesses we have acquired since our formation as of January
1, 1998. This makes us a leading provider of integrated facilities services in
the United States. We believe that we are the number one or two provider of
facilities services in each of the top 15 cities in which we operate. Our size
gives us the critical mass necessary to compete for larger contracts and to
exercise significant purchasing power. The average revenues of our acquired
businesses are approximately $41 million, which we believe to be the highest
among our competitors. With this size comes enhanced infrastructure, more
experienced management teams, better information systems and improved brand
recognition.
Premier Operating Capabilities. We believe our operating capabilities are
among the best in the industry. Our superior technical and engineering
expertise, optimal materials management practices and higher 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 recurring maintenance work. As part of an installation, we typically
prefabricate significant portions of the 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.
Diversified Business Mix. 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 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. Furthermore, on a pro forma basis for 1998, approximately
43% of our revenue came from higher-margin maintenance and repair business,
which is generally recurring in nature.
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National Scale and Service Capability. We have become a leading national
single-source provider of facilities services through our acquisition of 35
businesses with 127 locations that provide services in 48 states. This network
enables us to effectively service national and regional customers who are
increasingly purchasing facilities services on a consolidated basis. Some of
our larger customers include Dow Chemical, Wal-Mart, Kmart, MarMaxx, State
Farm Insurance and Federal Express.
Superior Employee Training. We believe that our superior ability to recruit,
train and retain a highly skilled workforce results in higher quality service
for our customers and increased productivity and profitability for our
Company.
Focused Acquisition Strategy. We have developed significant expertise in
identifying and effecting acquisitions within the facilities services
industry. In conjunction with our internal growth strategies, we will continue
to selectively pursue well-managed, profitable businesses with established
market positions, which will allow us to expand our service offerings in
existing markets or penetrate new attractive high-growth markets.
Experienced Management Team. Our executive officers and the presidents of
our operating companies average over 25 years of experience in the facilities
services industry. In addition, we have developed an experienced group of
operating managers who have established strong reputations in their local
markets.
Business Strategies
Our objective is to become the premier, national single-source provider of
electrical, mechanical and janitorial services in the United States. We expect
to achieve our objective by improving operations and expanding our business
through internal growth and selective acquisitions.
Operating Strategy
. Implement "Best of Class" Practices. We believe that opportunities exist
to achieve operating efficiencies and cost savings through the adoption
of a "best of class" operating program. We will continue to implement on
a company-wide basis the best business practices used by our operating
companies in areas such as installation and service methods, project
cost estimation, manpower utilization, recruiting and training programs,
safety and risk management programs, marketing strategies and sales
techniques and sales training materials.
. Develop Brand Recognition. We intend to create a brand name for Building
One that suggests superior quality, consistency and reliability. We
believe that developing brand recognition will enhance our ability to
establish regional and national coverage.
. Leverage Purchasing Power. We have begun, and will continue, to use our
growing purchasing power to obtain favorable prices and discounts on
products and services such as insurance, employee benefits, bonding,
service vehicles, commodity materials, legal support, real estate
services and banking and financial services.
Growth Strategy
. Exploit Industry Trends. We intend to further broaden the services we
currently offer by acquiring businesses that provide specialized
services that we want to offer to our customers. This will allow us to
become a single-source provider for all of our customers' electrical,
mechanical and janitorial needs. We believe that becoming a single-
source provider will allow us to take advantage of the recent industry
trends of vendor consolidation and increased outsourcing of facilities
services.
. Leverage Customer Relationships. We use strong customer relationships to
expand the services that we provide to those customers. Our operating
companies that provide mechanical and electrical services generally
provide services to the same markets and customers. We believe that
significant opportunities exist to cross-sell our mechanical and
electrical services to existing customers. In addition, our significant
number of janitorial customers will enable us to increase the number of
customers for our mechanical and electrical services.
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. Enter New Geographic Markets. We intend to make complementary
acquisitions in geographic areas where we do not currently operate in
order to further enhance our ability to service our clients on a
nationwide basis.
. Expand Within Existing Markets. We intend to make additional
acquisitions in areas where we already operate to expand market
penetration and the range of services offered. For example, we have
fewer mechanical than electrical businesses and intend to acquire
businesses that provide mechanical services in areas where we already
provide electrical services to further enhance our cross-selling
opportunities.
Customers
We have a diverse customer base, with no single customer accounting for more
than 3% of the pro forma revenues for 1998 of the businesses we acquired. We
seek to provide superior customer service and maintain strict quality controls
across geographic areas. The consistency of our service offerings across
geographic areas and product lines helps to build long-term client
relationships and provides opportunities to cross-sell services. Some of our
larger customers include Dow Chemical, Wal-Mart, Kmart, MarMaxx, State Farm
Insurance and Federal Express. We intend to continue to build and maintain
relationships with our customers by providing consistent, high-quality
service.
Competition
The facilities services industry is highly competitive. There are large
national and multi-national organizations providing a wide variety of
facilities services to their customers. Large competitors offering multiple
services may be willing to accept lower profit margins in order to capture
market share.
We also compete with numerous smaller service providers, many of whom may
provide fewer services in limited geographic areas. These providers may have
more experience in and knowledge of the local market for such services. Such
smaller service providers may also have lower overhead costs, enabling them to
provide their services at lower rates than we can. As a result of this
competition, we may lose customers or have difficulty acquiring new customers.
Barriers to entry to the markets for certain facilities services, such as
janitorial services, are low. As a result, new competitors, including property
management companies, are beginning to enter the facilities services business.
The existing and new sources of competition place pressures on the pricing of
facilities services, which may cause our revenues or margins to decline.
As the industry undergoes continuing consolidation, we expect to face
significant competition in seeking to buy other facilities services
businesses. Therefore, we may have to pay higher prices for those businesses
we acquire in the future.
Potential Environmental Liability
The nature of the facilities services industry often involves the transport,
storage, use and disposal of cleaning solvents, lubricants, chemicals,
gasoline, refrigerants and other hazardous materials by employees. These
materials may be used at and around our customers' facilities or, in certain
cases, facilities leased by us on behalf of our customers. There is stringent
and changing federal, state and local regulation of these materials. We could
be liable for the actions of our employees in handling such materials. In
addition, if our employees are exposed to these materials, they may file
claims against us. As a result, there can be no assurance that compliance with
governmental regulations or liability related to hazardous materials will not
have a negative effect on our financial condition or results of operations.
Backlog
As of December 31, 1998, we had backlog orders believed to be firm of $693.5
million. Backlog information as of December 31, 1997 has not been presented
because the Company made its first acquisition during 1998. The backlog for
these companies was $553 million on a pro forma basis for the year ended
December 31, 1997.
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Employees
As of March 26, 1999, we employed more than 15,000 people. Fewer than 10% of
our employees are members of labor unions. We have satisfactory employee
relationships.
Recent Developments
On February 19, 1999, we commenced a tender offer to purchase shares of our
common stock. As recently modified, we are offering to purchase 25.5 million
shares of our common stock at a price of $22.50 per share. We have assumed,
for purposes of estimating the cost of the tender offer, that we will purchase
approximately 24.6 million shares of our outstanding common stock at a price
of $22.50 per share and approximately 900,000 shares underlying stock options
that have an exercise price of less than $22.50 at a price of $22.50 less the
exercise price of the option and that holders of outstanding warrants will not
exercise the warrants and tender the shares underlying the warrants. Based
upon those assumptions, we expect that our purchase of the 25.5 million shares
in the tender offer will require approximately $585.5 million of financing
(including fees and expenses). We expect to fund our purchase of the shares
with our cash on hand (approximately $200 million as of December 31, 1998),
the sale of $200 million of senior subordinated notes and $100 million of
convertible subordinated notes and borrowings under a $350 million revolving
credit facility. We have received commitment letters from Bankers Trust
Company, Citicorp USA, Inc. and Goldman Sachs Credit Partners LP for the $350
million revolving credit facility. The revolving credit facility will also be
available for future acquisitions, contingent payments that are required by
the terms of certain acquisition agreements, capital expenditures and other
general corporate purposes. In addition, we have received a highly confident
letter from BT Alex. Brown relating to the $200 million of senior subordinated
notes. The tender offer is subject to a number of conditions, including the
tender of at least 21 million shares and the receipt of financing. The tender
offer will expire on April 16, 1999 unless extended.
At the time of our announcement of the modified tender offer, we also
announced that we had entered into an agreement with Boss Investment LLC, an
affiliate of Apollo Management, L.P., under which Boss Investment agreed to
invest $100 million in our company in exchange for convertible subordinated
notes.
For a description of the securities we expect to issue in connection with
our tender offer and the revolving credit facility, you should refer to "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." With respect to our transaction
with Boss Investment, you should refer to the Current Report on Form 8-K that
we filed with the Securities and Exchange Commission on March 23, 1999.
Item 2. Properties
As of March 26, 1999, we operated 129 facilities, including corporate
facilities, in various states. Of these facilities, 117 are leased and 12 are
owned. The facilities are used for warehouse and office purposes, or a
combination of these functions. We are expanding our facilities at four of our
local companies as a result of the expansion of these companies in recent
years. At this time, we believe that our facilities are suitable for our
purposes, and that they have adequate capacity for our present and anticipated
needs.
Item 3. Legal Proceedings
We are party to litigation that arises from the normal course of the
business of the acquired companies. Management believes that none of these
actions will have a material adverse effect on our financial condition,
results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the Company's stockholders for consideration
during the quarter ended December 31, 1998.
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Price Range of Common Stock. The Company's common stock, par value
$0.001 per share, has traded on the Nasdaq National Market since November 26,
1997. On March 26, 1999, closing price per share of the common stock was
$17.25 per share. The following table shows the high and low sales prices of
our common stock, traded under the symbol "BOSS" since September 1998.
<TABLE>
<CAPTION>
High Low
--------- -------
<S> <C> <C>
Fiscal Year 1997
Fourth Quarter.......................................... $21.50 $20.00
Fiscal Year 1998
First Quarter........................................... $25 7/8 $18 3/8
Second Quarter.......................................... $25 15/16 $19.75
Third Quarter........................................... $24.50 $11.50
Fourth Quarter.......................................... $22.50 $ 7 7/8
Fiscal Year 1999
First Quarter through March 26, 1999.................... $21.00 $15.50
</TABLE>
(b) Approximate Number of Equity Security Holders. The number of record
holders of our common stock as of March 25, 1999 was 755. We believe that a
substantially larger number of beneficial owners hold such shares of common
stock in depository or nominee form.
(c) Dividends. We have never paid a cash dividend on our common stock and we
do not anticipate paying any cash dividends on our common stock in the
foreseeable future because we would like to keep any earnings to finance the
expansion of our business, including for acquisitions, and for general
corporate purposes. Any payment of future dividends will be at the discretion
of your Board of Directors and will depend upon, among other things, our
earnings, financial condition, capital requirements and debt levels.
Furthermore, we will incur indebtedness in connection with the pending tender
offer and the terms of that indebtedness will prohibit or limit our payment of
dividends to you.
(d) Recent Sales of Unregistered Securities and Uses of Proceeds from
Registered Securities.
(i) In February 1997, Jonathan J. Ledecky, our chairman, founded the
Company's predecessor, Ledecky Brothers L.L.C. On September 10, 1997,
Jonathan J. Ledecky exchanged his 100% interest in Ledecky Brothers L.L.C.
for 4,411,765 shares of our common stock, or 100% of the outstanding
shares. The issuances of securities by Ledecky Brothers L.L.C. and the
Company to Jonathan J. Ledecky were made in reliance upon the exemption
from registration under the Securities Act of 1933, as amended, in Section
4(2).
(ii) Pursuant to Item 701(f) of Regulation S-K, the following information
is being furnished to disclose certain information regarding the uses of
the proceeds we received in our initial public offering:
(1) The Registration Statement for the initial public offering (File
No. 333-36193) was declared effective on November 25, 1997.
(2) The offering commenced on November 25, 1997 and terminated when
all of the shares were sold in December 1997.
(3) The managing underwriter was Friedman, Billings, Ramsey & Co.,
Inc.
(4) In the initial public offering, we registered and sold an
aggregate of 27,850,000 shares of our common stock, par value $.001 per
share, and 500,000 shares of convertible non-voting common stock, par
value $.01 per share, which is convertible into common stock. On
November 25, 1998, the 500,000 shares of convertible non-voting common
stock were converted into shares of common stock.
(5) The aggregate offering price of the shares sold was $567,000,000.
12
<PAGE>
(6) We incurred the following expenses in connection with the initial
public offering:
<TABLE>
<S> <C>
Underwriting discounts and commissions...................... $38,640,000
Expenses paid to or for underwriters........................ 60,000
Accountants' fees........................................... 100,000
Legal fees.................................................. 315,000
Printing expenses........................................... 255,000
Miscellaneous fees and expenses............................. 466,000
-----------
$39,836,000
===========
</TABLE>
Except as described under "Certain Relationships and Related
Transactions," the payments referred to above were not made directly or
indirectly to officers, directors, general partners of the issuer or
their associates, or to any person owning 10% or more of any class of
securities of the issuer, or to any officers of the issuer and were not
direct or indirect payments to others.
(7) The net offering proceeds were approximately $527 million.
(8) From the effective date of the initial public offering
registration statement to March 23, 1999, the amount of net offering
proceeds used for any purpose for which at least 5% of the offering
proceeds or $100,000 (whichever is less) was used is as follows:
<TABLE>
<S> <C>
Cash used to repay acquisition indebtedness................ $ 33,847,000
Cash used in acquisitions net of cash acquired............. $231,602,000
Repurchase of shares of Common Stock....................... $ 41,835,000
Investments in investment grade securities (earnings on
such investments were used for working capital purposes,
including salaries of executive officers)................. $219,571,000
Repayment of indebtedness owed to Jonathan J. Ledecky...... $ 309,000
------------
TOTAL.................................................... $527,164,000
============
</TABLE>
13
<PAGE>
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
(In thousands, except share and per share data)
The Selected Financial Data for the years ended December 31, 1996, 1997 and
1998 and as of December 31, 1997 and 1998 have been derived from the company's
audited financial statements which are included elsewhere in this Annual
Report. The Selected Financial Data for the years ended December 31, 1994 and
1995 and as of December 31, 1994, 1995 and 1996 have been derived from our
unaudited financial statements which are not included in this Annual Report.
Our consolidated financial statements give retroactive effect to the three
business combinations accounted for under the pooling-of-interests method
during the year ended December 31, 1998 and include the results of the
businesses acquired in business combinations accounted for under the purchase
method from their respective acquisition dates. The financial statements for
periods prior to the fiscal year ended December 31, 1998 reflect only the
operating results of the three business combinations accounted for under the
pooling-of-interests method of accounting.
<TABLE>
<CAPTION>
As of or For the Year Ended
December 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 45,106 $ 57,287 $ 63,202 $ 70,101 $ 809,601
Cost of revenues........ 37,634 48,783 53,664 58,857 636,225
--------- --------- --------- --------- ----------
Gross profit............ 7,472 8,504 9,538 11,244 173,376
Selling, general and
administrative......... 6,635 8,468 8,803 11,776 99,771
Goodwill amortization... -- -- -- -- 7,653
Non-recurring
acquisition costs...... -- -- -- -- 768
--------- --------- --------- --------- ----------
Operating income
(loss)................. 837 36 735 (532) 65,184
Other (income) expense
Interest income....... (41) -- -- (2,056) (19,373)
Interest expense...... 329 239 224 208 1,054
Other, net............ (43) (8) 83 (221) (80)
--------- --------- --------- --------- ----------
Income before income
taxes.................. 592 (195) 428 1,537 83,583
Provision for income
taxes.................. (5) 13 94 36,120
--------- --------- --------- --------- ----------
Net income.............. $ 592 $ (190) $ 415 $ 1,443 $ 47,463
========= ========= ========= ========= ==========
Net income per share--
Basic.................. $ 0.48 $ (0.15) $ 0.32 $ 0.25 $ 1.19
========= ========= ========= ========= ==========
Net income per share--
Diluted................ $ 0.44 $ (0.15) $ 0.30 $ 0.25 $ 1.16
========= ========= ========= ========= ==========
Weighted average number
of common shares
outstanding--Basic..... 1,238,444 1,238,444 1,290,724 5,683,464 39,908,364
Weighted average number
of common shares
outstanding--Diluted... 1,353,560 1,238,444 1,405,840 5,865,550 40,928,452
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $ 300 $ (30) $ 67 $ 528,235 $ 307,390
Total assets............ 8,063 8,132 9,629 539,159 1,043,922
Long-term debt, net of
current maturities..... 1,734 1,589 1,890 1,679 3,287
Stockholders' equity.... 1,496 1,299 1,578 529,480 837,537
</TABLE>
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
The following discussion should be read in conjunction with our audited
consolidated financial statements for the years ended December 31, 1996, 1997
and 1998, and the related notes thereto.
Founded in February 1997, Building One Services Corporation is a leading
provider of facilities services in the United States. We completed our initial
public offering in December 1997, raising net proceeds of approximately $527
million. To date, we have used the proceeds primarily in our acquisition
program and to fund our operations.
As a result of our acquisition program, our financial condition and results
of operations have changed dramatically from our inception and initial public
offering in December 1997 to December 31, 1998. We completed 29 business
combinations during the year ended December 31, 1998. Twenty-six of the
business combinations completed during the year have been accounted for under
the purchase method. Prior to our initial announcement in December 1998 that
we would repurchase shares of our common stock, two of these 29 business
combinations had been accounted for previously under the pooling-of-interests
method. Following this announcement and as required by generally accepted
accounting principles, we restated our historical consolidated financial
statements to account for these two business combinations under the purchase
method. Our consolidated financial statements give retroactive effect to the
three business combinations accounted for under the pooling-of-interests
method during the year ended December 31, 1998 and include the results of the
businesses acquired in business combinations accounted for under the purchase
method from their respective acquisition dates. The financial statements for
periods prior to the fiscal year ended December 31, 1998 reflect only the
operating results of the three business combinations accounted for under the
pooling-of-interests method of accounting. Therefore, the comparison of our
results of operations in 1996, 1997 and 1998 is not meaningful.
Subsequent to December 31, 1998, we completed six additional acquisitions of
mechanical and electrical installation and maintenance businesses for
aggregate consideration of $51.1 million in cash and shares of common stock.
Additionally, there is the potential for the payment of up to an additional
$10.2 million in cash and shares of common stock in connection with a
contingent consideration arrangement.
On February 19, 1999, we commenced an offer to our stockholders to purchase
shares of our common stock. As recently modified, we are offering to purchase
25,500,000 shares of our common stock at a price of $22.50 per share for cash.
See "Business--Recent Developments" and "--Liquidity and Capital Resources".
Our revenues are recognized as services for maintenance and service
contracts are performed. Additionally, we utilize the "percentage-of-
completion" method of accounting for installation contracts. Under this
method, revenues are recognized according to the ratio of costs incurred to
estimated total contract costs. Changes in job performance, job conditions,
estimated profitability and final contract settlements may result in revisions
to costs and income and are recognized in the period in which the revisions
are determined.
The Company believes that it has realized and will continue to realize
savings from consolidation of its insurance and bonding programs,
consolidation of certain back office functions for some of its operations and
volume purchase discounts from vendors of commodity materials and service
vehicles. These savings may be partially offset by costs associated with the
Company's corporate operations and costs of integrating acquired companies.
Results of Operations
Year ended December 31, 1998 Compared to the Year ended December 31, 1997
Revenues. Consolidated revenues for the year ended December 31, 1998
increased by $739.5 million, or 1054.9%, to $809.6 million from $70.1 million
for the year ended December 31, 1997. This increase was primarily a result of
our acquisition of the 26 companies accounted for under the purchase method of
accounting during the year ended December 31, 1998, which have been included
since their respective dates of acquisition. For the year ended December 31,
1998, approximately 66%, 14% and 20% of our revenues were derived from
electrical installation and maintenance services, mechanical installation and
maintenance services and janitorial and maintenance management services,
respectively.
15
<PAGE>
Gross Profit. Gross profit for the year ended December 31, 1998 increased by
$162.1 million, or 1441.9%, to $173.4 million from $11.2 million for the year
ended December 31, 1997. This increase was primarily a result of the
acquisition of the companies accounted for under the purchase method of
accounting and, to a much lesser extent, the increased gross profit of the
companies accounted for under the pooling-of-interests method. Gross margin
increased to 21.4% for the year ended December 31, 1998, from 16.0% for the
year ended December 31, 1997. This increase in the gross margin was primarily
attributable to the higher gross margins of the companies acquired and
accounted for under the purchase method of accounting.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the year ended December 31, 1998 increased by
$88.0 million, or 747.2%, to $99.8 million from $11.8 million for the year
ended December 31, 1997. This increase was primarily attributable to the
selling, general and administrative expenses of the companies accounted for
under the purchase method of accounting, and the general and administrative
costs of our corporate activities. Selling, general and administrative
expenses as a percentage of revenues decreased to 12.3% for the year ended
December 31, 1998 from 16.8% for the year ended December 31, 1997.
Goodwill amortization. Goodwill amortization increased by $7.7 million for
the year ended December 31, 1998 as result of the goodwill recorded in
conjunction with the companies accounted for under the purchase method of
accounting.
Non-recurring acquisition costs. Non-recurring acquisition costs of $0.8
million consists of costs incurred in conjunction with the business
combinations accounted for under the pooling-of-interests method. These costs
include legal and accounting fees, broker fees and other costs directly
attributable to the business combination.
Other income, net. Other income, net for the year ended December 31, 1998
increased by $16.3 million from $2.1 million for the year ended December 31,
1997 to income of $18.4 million for the year ended December 31, 1998. This
increase is primarily attributable to the interest income of $19.4 million
generated from the investment of the proceeds raised in our initial public
offering in December 1997.
Provision for income taxes. The provision for income taxes for the year
ended December 31, 1998 increased to $36.0 million, reflecting an effective
tax rate of 43.2% from an effective tax rate of 6.1% for the year ended
December 31, 1997. The increase in the effective rate was primarily
attributable to the increase in income generated from entities which were
subject to C corporation taxes, versus the companies accounted for under the
pooling-of-interests method, which had elected to be treated as subchapter S
corporations for tax purposes prior to our acquisition of them. Additionally,
the 43.2% effective rate reflects the non-deductibility of goodwill
amortization associated with the majority of our acquisitions.
Year ended December 31, 1997 Compared to the Year ended December 31, 1996
Revenues. Consolidated revenues for the year ended December 31, 1997
increased by $6.9 million, or 10.9%, to $70.1 million from $63.2 million for
the year ended December 31, 1996. This increase was attributable to an
increase in the janitorial and maintenance management services provided by the
companies we acquired in transactions accounted for under the pooling-of-
interests method. These companies had an increase in revenues as a result of
their expansion into new geographic markets and further penetration of their
existing markets.
Gross profit. Gross profit for the year ended December 31, 1997 increased by
$1.7 million, or 17.9%, to $11.2 million from $9.5 million for the year ended
December 31, 1996. Gross profit as a percentage of revenues increased to 16.0%
for the year ended December 31, 1997 from 15.1% for the year ended December
31, 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the year ended December 31, 1997 increased by $3.0
million, or 33.8%, to $11.8 million from $8.8 million for the year ended
December 31, 1996 as a result of the increases in the expenses of the
janitorial and maintenance management services companies we acquired in
transactions accounted for under the pooling-of-interests method
16
<PAGE>
as they increased their staff to support the increase in revenues. Selling,
general and administrative expenses as a percentage of revenues increased to
16.8% for the year ended December 31, 1997 from 13.9% for the year ended
December 31, 1996.
Other income, net. Other income, net for the year ended December 31, 1997
increased by $2.4 million, or 773.9%, to income of $2.1 million from expense
of $0.3 million for the year ended December 31, 1996. This increase is
primarily attributable to the interest income generated from the investment of
the proceeds we raised in our initial public offering in November 1997.
Provision for income taxes. The provision for income taxes for the year
ended December 31, 1997 increased to $0.1 million, reflecting an effective tax
rate of 6.1%, as compared to a tax rate of 3.0% for the year ended December
31,1996. The increase in the effective rate is primarily attributable to the
increase in income generated from entities subject to C Corporation income
taxes.
Liquidity and Capital Resources
We completed 29 business combinations during the year ended December 31,
1998. Aggregate consideration for these acquisitions consisted of 17,550,551
in shares of common stock, 403,389 options assumed in an acquisition and
having an exercise price below fair market value, $259.0 million in cash and
the assumption of approximately $33.8 million in debt. Subsequent to December
31, 1998, we completed two business combinations in the electrical
installation and maintenance services business and four business combinations
in the mechanical installation and maintenance services business for total
consideration of $37.6 million in cash and 772,019 shares of common stock. We
have agreed to pay contingent consideration of up to an estimated $146.1
million in cash and shares of common stock based upon the performance of some
of the businesses we have acquired.
During the year ended December 31, 1998, net cash provided by operating
activities was approximately $32.1 million. Net cash used in investing
activities for the year ended December 31, 1998 was $242.3 million which
primarily consisted of $231.6 million of cash used in acquisitions, net of
cash acquired. Net cash used in financing activities for the year ended
December 31, 1998 was approximately $105.6 million which consisted primarily
of payments on short-term and long-term debt of $67.7 million and $41.8
million of cash used to repurchase 2,990,000 shares of our common stock at an
average price of $13.99 per share. These shares were repurchased in accordance
with a stock repurchase program covering 3,100,000 shares which was announced
on August 24, 1998. The number of shares repurchased was determined based upon
the number of shares issued in connection with acquisitions accounted for
under the purchase method of accounting.
As previously discussed, our Board of Directors recently approved the
modification of our tender offer. We have assumed, for purposes of estimating
the cost of the tender offer, that we will purchase approximately 53% of our
outstanding shares of common stock on March 29, 1999 at a price of $22.50 per
share and approximately 900,000 shares underlying stock options that have an
exercise price of less than $22.50 at a price of $22.50 less the exercise
price of the option and that holders of outstanding warrants will not exercise
the warrants and tender the shares underlying the warrants. Based upon those
assumptions, the estimated aggregate cost to complete the tender offer,
including fees and expenses, will be approximately $585.5 million.
We plan to finance the tender offer through the use of our cash on hand, the
sale of $200 million of senior subordinated notes and $100 million of
convertible subordinated notes and borrowings under a $350 million revolving
credit facility. The tender offer is subject to a number of conditions,
including the tender of at least 21 million shares and the receipt of
financing. The sale of the $100 million of convertible subordinated notes to
Boss Investment is subject to the receipt of the other financing for the
tender offer, the completion of the tender offer, the expiration or early
termination of the waiting period under the Hart-Scott-Rodino Act of 1976, as
amended, satisfaction that our shares will continue to be listed on Nasdaq,
the appointment of three designees of Boss Investment to our Board and the
increase in the size of our Board to ten directors and various other
conditions. We anticipate that the total debt balance on a pro forma basis for
the year ended December 31, 1998, assuming the tender offer closes, would
approximate $434 million.
17
<PAGE>
We have received a highly confident letter from BT Alex. Brown Incorporated
to manage the offering of the $200 million in senior subordinated notes and
commitment letters from Bankers Trust Company, Citicorp USA, Inc. and Goldman
Sachs Credit Partners LP for the revolving credit facility of $350 million.
After the tender offer we will need funds for general corporate purposes and
to pay the interest on the senior subordinated notes, the convertible
subordinated notes and the revolving credit facility, to pay the contingent
consideration required by the terms of certain acquisition agreements and to
make future acquisitions and capital expenditures. We anticipate that, after
the tender offer closes, our cash flow from operations and borrowings
available under the revolving credit facility will be sufficient to meet these
liquidity requirements.
We expect interest on the senior subordinated notes to be paid semi-annually
and that the notes will mature in ten years. The senior subordinated notes
will be unsecured and guaranteed by our domestic subsidiaries and will rank
junior to the revolving credit facility.
We expect that we will be able to redeem the senior subordinated notes, in
whole or in part, at any time on or after the fifth anniversary of their
issuance, at specified redemption prices, plus accrued interest. At any time
(which may be more than once) before the third anniversary of the issue date
of the senior subordinated notes, we expect that will be able to redeem up to
35% of the outstanding senior subordinated notes with money raised in one or
more equity offerings under certain circumstances. Upon a change of control of
the company, the holders of the senior subordinated notes will have the right
to sell the notes to us at 101% of the face amount plus accrued interest.
Additionally, we expect that the indenture governing the senior subordinated
notes will contain certain covenants that will restrict, among other things,
our ability to incur indebtedness, pay dividends, incur liens, sell or
otherwise dispose of a substantial portion of our assets or merge or
consolidate with another entity.
The convertible subordinated notes will mature on the thirteenth anniversary
of the date of issuance and will provide for interest payments at a rate of
7.5% to be paid in additional convertible subordinated notes or cash, at our
election, for the first five years after their issuance, and in cash
thereafter. The holders of a majority of the outstanding principal amount of
the convertible subordinated notes, however, will have the right to require
the payment of interest in cash after the third and through the fifth
anniversary of the issuance of the convertible subordinated notes. In
addition, the provisions of the revolving credit facility and the indenture
for the senior subordinated notes may limit our ability to pay cash interest
payments. The holders of the convertible subordinated notes as of any record
date for a dividend declared on the shares of common stock will also be
entitled to special payments equivalent to the amount of the dividends they
would have received had they converted the convertible subordinated notes into
shares of common stock.
The convertible subordinated notes will be convertible into shares of our
common stock at an initial conversion price of $22.50 per share plus all
accrued and unpaid interest. Assuming conversion of the principal amount of
the convertible subordinated notes and assuming all interest is paid in cash,
Boss Investment will have the right to acquire upon conversion 4,444,444
shares, or approximately 17% of the outstanding shares after the tender offer.
If the convertible subordinated notes are converted prior to the fifth
anniversary of their issuance, the amount converted into shares will include
additional interest that would have accrued or been paid from the date of
conversion through the fifth anniversary of the issuance of the convertible
subordinated notes. However, unless the conversion is in connection with a
change of control, the additional interest will not exceed a total of 30
months of interest. We will adjust the conversion price under certain
circumstances, including the issuance of shares at a price below the
conversion price of the convertible subordinated notes or below the then fair
market value of a share.
The indenture for the convertible subordinated notes will limit our ability
to incur additional indebtedness, pay dividends, repurchase securities or
repay certain other indebtedness. We have agreed to seek stockholder approval
of amendments to our restated certificate of incorporation that would
authorize the holders of the convertible subordinated notes to vote together
with the holders of shares on all of the matters submitted to
18
<PAGE>
stockholders for a vote and to elect three of our directors (or, if the Board
has more than ten directors, no less than 30% of the directors). The holders
of the convertible subordinated notes will be entitled to cast the number of
votes that they would be entitled to cast if they had converted the
convertible subordinated notes into shares. If this amendment is not enacted
by the later of July 25, 1999 and the 60th day after issuance of the
convertible subordinated notes (the "deadline"), the interest rate on the
convertible subordinated notes will increase to 12.5%, but will revert back to
7.5% after the amendment is enacted.
The revolving credit facility will bear interest at the sum of the (i)
applicable margin and (ii) at the option of the company, either the "base
rate" or the "eurodollar rate" (as defined). We will also pay certain
commitment fees. The revolving credit facility will mature five years after
the initial borrowing and will provide for certain mandatory repayments of the
outstanding indebtedness.
The revolving credit facility will likely include a number of significant
covenants that impose restrictions on us and our subsidiaries. These covenants
will include, among others, restrictions on our ability to incur additional
indebtedness and pay the interest on Boss Investment's convertible
subordinated notes in cash, and restrictions on mergers, acquisitions and the
disposition of assets, sale and leaseback transactions and capital lease
payments, dividends and other distributions and voluntary prepayments of
indebtedness. In addition, we will be required to comply with financial
covenants with respect to minimum interest coverage and maximum leverage
ratios.
Year 2000 Issue
The Year 2000 issue refers to a number of date-related problems that may
affect information technology and non-information technology systems,
including codes embedded in chips and other hardware devices. The problems
include systems that identify a year by two digits and not four, so that a
date using "00" would be recognized as the year "1900" rather than "2000."
This could result in system failures, miscalculations or errors causing
disruptions of operations or other business problems, including, among others,
a temporary inability to process transactions, send invoices or engage in
normal business activities. The Year 2000 issue is a significant issue for
most, if not all companies, with far reaching implications, some of which
cannot be anticipated or predicted with any degree of certainty.
State of Readiness--Since our initial public offering in December 1997, we
have acquired 35 companies offering mechanical, electrical and janitorial
services. The due diligence relating to the Year 2000 issue that was performed
on these companies did not reveal any significant internal operating systems
issues. In addition, such due diligence revealed that most of the acquired
companies have identified their respective Year 2000 issues, but are in
different phases of assessment and remediation. Accordingly, we are currently
in the process of conducting a comprehensive survey to be completed by
management of our operating subsidiaries to ensure that our operating
subsidiaries are adequately addressing, or have adequately addressed, the Year
2000 issue.
The survey mentioned above is expected to cover the following areas:
. our information technology and operating systems, including job-costing,
billing, payroll and accounting systems;
. our non-information technology systems, such as buildings, plant,
equipment and other infrastructure systems that may contain embedded
microcontroller technology;
. the systems of our major vendors, insofar as they relate to our
business; and
. the systems of our major customers for which we have performed
installation and maintenance services.
This survey is expected to be completed during the second quarter of 1999.
19
<PAGE>
Costs Related to the Year 2000 Issue--As part of the survey mentioned above,
we will be requesting an estimate from each operating subsidiary of the
material historical and estimated costs of assessment and remediation.
Accordingly, such costs, including, among other things, the costs of
assessment, software upgrade fees, hardware changes and general implementation
of a Year 2000 action plan, are not known at this time. The projected effort
for the majority of the systems is expected to include sending letters to
substantially all of our significant hardware, software and other equipment
vendors, third-party providers and other material service providers requesting
detailed, written information relating to Year 2000 compliance and, where
necessary, upgrades to recent vendor software releases that are fully Year
2000 compliant.
Contingency Plan--Until we complete the survey described above, we will not
be able to develop our most likely worst case Year 2000 scenarios. We intend
to complete our determination of worst case scenarios after we have received
and analyzed responses to the survey and to all of the inquiries we have made
to our vendors.
Risks Related to the Year 2000 Issue--Although our Year 2000 efforts are
intended to minimize the adverse effects of the Year 2000 issue on our
business and operations, the actual effects of the issue cannot be known until
the year 2000. Due to the fact that our operations are primarily service
oriented and are not heavily dependent on complex information systems, we
believe that non-information technology systems (i.e. embedded technology such
as microcontrollers) do not represent a significant area of risk relative to
Year 2000 readiness. In addition, our operations do not include capital
intensive equipment with embedded microcontrollers.
However, our failure or the failure of our major vendors and customers to
adequately address their respective Year 2000 issues generally in a timely
manner (insofar as they relate to our business) could result in, among other
things, our inability to obtain equipment that we are obligated to install in
a timely manner, reductions in the quality of materials used in our business,
reductions, delays or cancellations of customer projects, delays in payments
by customers for services performed or a general inability to record, track
and consummate business transactions. Any or all of these events could have a
material adverse effect on our business, results of operations and financial
condition.
Seasonality
Our mechanical and electrical installation services are subject to the
seasonal variations in operations and demands that affect the construction
business. Specifically, the demand for construction services may be lower
during the winter months as a result of inclement weather conditions.
Accordingly, our revenues and operating results may be lower in the first
quarter.
Factors Affecting the Company's Prospects
Factors Related to Our Company
We will have increased debt on our balance sheet after the tender
offer. After the tender offer, we will have a significant amount of
indebtedness. We will need to borrow approximately $400 million, including the
proceeds of the offering of $200 million of senior subordinated notes, the
issuance of $100 million of convertible subordinated notes to Boss Investment,
and the borrowings under the revolving credit facility to finance the tender
offer. In addition, approximately $225.2 million of the revolving credit
facility will be available to fund the cash portion of future acquisitions,
contingent payments that are required by certain acquisition agreements,
capital requirements and future operations. We estimate that these contingent
payments provide for the potential payment of $146.1 million in cash and
shares of common stock, of which approximately $57 million will be payable in
cash in 1999. The completion of the tender offer and this additional
indebtedness may have important consequences to us. For example, it could:
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate requirements;
20
<PAGE>
. require us to dedicate a substantial portion of our cash flow from
operations to payment of our indebtedness, which will result in any
increase in our expenses making it difficult for us to meet our debt
service requirements and forcing us to modify our operations;
. place us at a disadvantage when compared to those of our competitors
that have less debt; and
. limit our flexibility in planning for, or reacting to, changes in our
business or industry.
We will be subject to restrictive debt covenants. The revolving credit
facility and the indentures relating to the subordinated notes and the terms
relating to the convertible subordinated notes will contain a number of
significant covenants. These covenants will limit our ability to, among other
things:
. borrow additional money;
. make capital expenditures and other investments;
. pay dividends;
. merge, consolidate, or dispose of our assets;
. enter into transactions with our affiliates;
. grant liens on our assets;
. materially alter or change the current business of the company; and
. liquidate, recapitalize or reorganize the company or its subsidiaries.
The revolving credit facility also will require us and our subsidiaries to
meet certain financial tests. The failure to comply with these covenants would
cause a default under the revolving credit facility. A default, if not waived,
could result in acceleration of indebtedness under the revolving credit
facility, in which case the debt would become immediately due and payable. If
this occurs we may not be able to pay our debt or borrow sufficient funds to
refinance it. Even if financing is available, it may not be on terms that are
acceptable to us. Complying with these covenants may cause us to take actions
that we otherwise would not take or not take actions that we otherwise would
take. Please refer to "--Liquidity and Capital Resources."
In connection with the revolving credit facility, we will grant the lenders
a first priority lien on substantially all of our and our subsidiaries' assets
to secure our and our subsidiaries' obligations under the revolving credit
facility. In the event of a default under the revolving credit facility, the
lenders under the revolving credit facility could foreclose upon the assets
pledged to secure the revolving credit facility and the holders of the notes
might not be able to receive any payments until any payment default was cured
or waived, any acceleration was rescinded, or the indebtedness of the
revolving credit facility was discharged or paid in full.
The indenture for the convertible subordinated notes that we will issue to
Boss Investment will provide certain voting rights to the holders of the
convertible subordinated notes, subject to the adoption of amendments to our
restated certificate of incorporation. If such amendments are not adopted
within the time period specified in the indenture, the interest rate on the
convertible subordinated notes will increase to 12.5% for so long as the
amendments to our restated certificate of incorporation have not been adopted.
We may not be able to continue to make acquisitions. We have financed, and
intend to continue to finance, most of our acquisitions with a combination of
cash and shares of our common stock. After the tender offer, we expect to have
the balance of the revolving credit facility available for use for
acquisitions, subject to various conditions, such as continued compliance with
the financial covenants, maximum individual and aggregate purchase price
requirements, adequate remaining availability under the facility and the
nature of the particular business to be acquired. The restrictive covenants
contained in the revolving credit facility, the indenture and the terms of the
convertible subordinated notes may limit our ability to make future
acquisitions. Depending on the pace of our acquisitions, we may need
additional debt or equity financing in order to continue to acquire
businesses. Such financing may not be available if and when additional cash is
needed or it may not be available on terms that we think are acceptable.
21
<PAGE>
If we do not have sufficient cash to pay the cash consideration for
acquisitions, or cannot otherwise finance acquisitions, we will be unable to
meet our acquisition objectives. In addition, we may not be able to continue
to make acquisitions if we cannot issue shares of our common stock as part of
the consideration. The owners of potential target companies may be unwilling
to accept shares of our common stock if our stock price drops in value after
the tender offer. We may be unwilling to issue shares of our common stock as
part of the consideration to the businesses that we want to acquire if we
believe the market price is unreasonably low.
Our management and Boss Investment could significantly influence the
election of directors and other matters. As of March 30, 1999, our directors
and executive officers owned beneficially approximately 17.3% of our
outstanding shares of common stock. In addition, many of the officers of our
subsidiaries received our shares in connection with the sales of their
businesses to us.
The terms of the convertible subordinated notes that we will issue to Boss
Investment will provide certain voting rights to the holders of the
convertible subordinated notes, subject to the adoption of amendments to our
restated certificate of incorporation. We have agreed to seek stockholder
approval of an amendment to our restated certificate of incorporation which
would authorize the holders of the convertible subordinated notes to vote
together with the holders of our common stock on all of the matters submitted
to our stockholders for a vote. In addition, we have agreed to seek
stockholder approval of an amendment to our restated certificate of
incorporation which would authorize the holders of the convertible
subordinated notes to elect three of our ten directors. Assuming adoption of
the amendment to the restated certificate of incorporation, the holders of the
convertible subordinated notes will be entitled to cast the number of votes
that they would be entitled to cast if they converted the convertible
subordinated notes into shares of our common stock. Based upon a conversion
price of $22.50 per share, and assuming conversion of the principal amount of
the convertible subordinated notes and assuming all interest is paid in cash,
Boss Investment would have the right to cast 4,444,444 votes, or votes
equivalent to approximately 18% of the outstanding shares of common stock
after the tender offer. If the amendment to our restated certificate of
incorporation is not adopted within the time period specified in the
indenture, the conversion price will be reduced pursuant to the provisions of
the indenture by up to a maximum reduction of $4.00, which would increase the
voting power of Boss Investment. After the tender offer, our directors,
executive officers, officers of our subsidiaries and Boss Investment, if
acting together, may be able to significantly influence the election of
directors and other matters requiring the approval of our stockholders. See
"Security Ownership and Certain Beneficial Owners." If we default on any of
our indebtedness or materially breach our agreement with Boss Investment, Boss
Investment would have the right, among other remedies available to a holder of
indebtedness, to elect a majority of our directors, subject to our right to
cure any default or breach.
Factors Related to our Company's Business
A downturn in commercial and industrial construction could hurt our
business. Approximately 57% of our pro forma revenues in 1998 involved the
installation of mechanical and electrical systems in newly constructed
commercial and industrial buildings. Our ability to maintain or increase our
revenues from new installation services depends on the levels of new
construction starts in the geographic areas where we operate. Since the
construction industry is cyclical, our revenues from year to year may
fluctuate.
The level of new construction starts is affected by local economic
conditions, changes in interest rates and other related factors. A downturn in
levels of new construction would have a material adverse effect on our
business.
Our mechanical and electrical installation services are subject to the
seasonal variations in operations and demands that affect the construction
business. Specifically, the demand for construction services may be lower
during the winter months as a result of inclement weather conditions.
Accordingly, our revenues and operating results may be lower in the first
quarter.
22
<PAGE>
Adverse changes in economic conditions and occupancy rates can adversely
affect our business. Our success will depend upon the economic conditions in
the geographic areas in which a substantial number of our operating companies
are located. In addition, our success will depend upon occupancy levels at
office buildings for which we do business. Lower occupancy rates could have a
material adverse effect on, among other sectors of the facilities services
industry, janitorial and maintenance management services.
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.
Our short operating history may make it difficult to evaluate our future
prospects. Since our initial public offering in December 1997, we have
acquired 35 businesses. Therefore, our combined company has a short history of
generating revenues, which may make it difficult to evaluate our future
prospects.
Our ability to generate revenues and cash flow in the future will be
dependent upon, among other factors:
. the operating results of the businesses we have acquired;
. the operating results of any future businesses we acquire; and
. the successful integration and consolidation of those businesses.
Boss Investment will have certain rights over our operations. Pursuant to
our agreement with Boss Investment, we will be precluded from entering into
various types of transactions or making certain changes in our capital
structure, board size or management without the consent of Boss Investment. In
addition, Boss Investment will have the "preemptive" right to acquire 50% of
any shares of our common stock or convertible securities that we may offer to
sell in a private placement. Finally, Boss Investment and any other holders of
the convertible subordinated notes will have certain rights to require us to
register the shares of common stock that they acquire upon conversion of the
convertible subordinated notes for sale under the Securities Act of 1933, as
amended.
Factors Related to Our Acquisition Strategy
The integration of our acquired businesses may result in substantial costs,
delays or other problems. We may not be able to successfully integrate our
acquisitions without substantial costs, delays or other problems. We will have
to continue to expend substantial managerial, operating, financial and other
resources to integrate our businesses. The costs of such integration could
have an adverse effect on short-term operating results. Such costs include
non-recurring acquisition costs including accounting and legal fees,
investment banking fees, recognition of transaction-related obligations and
various other acquisition-related costs.
The integration of newly acquired businesses may also lead to diversion of
our management team away from other ongoing business concerns. In addition,
the rapid pace of our acquisitions of other businesses may adversely affect
our efforts to integrate acquisitions and manage those acquisitions
profitably. We may seek to recruit additional managers to supplement the
incumbent management of the acquired companies but we may not have the ability
to recruit additional candidates with the necessary skills.
Our growth strategy will be impacted by our ability to acquire additional
businesses. Our business strategy depends, in part, upon our ability to
compete in the facilities services industry by expanding into new markets and
broaden the services we provide by identifying and acquiring other businesses.
We may not be able
23
<PAGE>
to identify, attract or acquire additional businesses. In addition, certain
acquisitions may require the approval of Boss Investment. We may also be
unable to make appropriate acquisitions because of competition for the
acquisition. In pursuing acquisitions, we compete against other facilities
services providers, some of which are larger than we are and have greater
financial and other resources than we have. We compete for potential
acquisitions based on a number of factors, including price, terms and
conditions, size and ability to offer cash, stock or other forms of
consideration. In addition, the negotiation of potential acquisitions may
require members of management to divert their time and resources away from our
operations.
Once we acquire a business, we are faced with certain additional risks,
including:
. the possibility that it will be difficult to integrate the operations
into our other operations;
. the possibility that we have acquired substantial undisclosed
liabilities;
. the risks of entering markets or offering services for which we have no
prior experience; and
. the potential loss of customers or employees as a result of changes in
management.
We may not be successful in overcoming these risks.
The consolidation of our industry may adversely affect our acquisition
program. Many of our acquisitions are subject to the requirements of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, which could adversely affect
the pace of our acquisitions in one or more sectors of the facilities services
industry. Under the Hart-Scott-Rodino Act, we may be required to divest a
portion of our then-existing operations or those of the acquired business,
which may render a given acquisition disadvantageous. In addition, if we
acquire businesses in regulated industries, we would be subject to regulatory
requirements. Such regulatory requirements could limit our flexibility in
growing and operating our businesses.
We believe that the facilities services industry will continue to undergo
considerable consolidation and changes during the next several years. Such
consolidation could increase the competition we face to acquire facilities
services businesses and increase the prices we must pay for the businesses
that we acquire.
In response to such consolidation, we consider from time to time additional
strategies to enhance stockholder value. One such strategy that we are
pursuing is the tender offer. Other strategies include, among others,
strategic alliances and joint ventures, purchase, sale and merger transactions
with other large companies, and other similar transactions. In considering any
of these strategies, we evaluate the consequences of such strategies,
including, among other things, the potential for high levels of debt that
would result from such a transaction, the tax effects of the transaction, and
the accounting consequences of the transaction. In addition, such strategies
could have various other significant consequences, including changes in
management, control or operational or acquisition strategies. In view of the
on-going tender offer, we may determine not to pursue any of these strategies,
but, if any of these are pursued, they may not be completed successfully.
Factors Related to Competition
Our business is highly competitive, which could cause us to lower our prices
resulting in reduced revenues and profit margins. We face a competitive
environment in the market for facilities services. We compete against both
large national and international organizations providing a wide variety of
facilities services to their customers and numerous smaller companies
providing a single service or fewer services in limited geographic areas.
Other types of companies are also beginning to offer facilities services.
For example, property management companies and real estate investment trusts
(REITS) are beginning to offer facilities services for the properties that
they own or manage. Also, large HVAC manufacturers, such as Carrier
Corporation, Conditioning Company and Honeywell, Inc., and some public
utilities, are active in certain sectors of the facilities services industry.
24
<PAGE>
Barriers to entry to the markets for certain facilities services, such as
janitorial services, are low, and we compete against numerous small service
providers, many of which may have more experience in and knowledge of the
local market for such services. Such smaller service providers may also have
lower overhead cost structures and may be able to provide their services at
lower rates than we can.
In these same markets, we face large competitors that offer multiple
services and that are willing to accept lower profit margins in order to
capture market share. In addition, we face competition from both large and
small companies that offer only one of the services that we offer and may face
competition in the future from companies that enter the markets that we are
in.
In some geographic regions, we may not be eligible to compete for certain
contracts if our employees are not subject to collective bargaining
arrangements. As a result of this requirement, we may lose customers or have
difficulty acquiring new customers.
We may have trouble hiring the employees we need and our employment needs
may increase our costs. Our ability to increase productivity and profitability
will depend upon our ability to recruit, train and retain large numbers of
hourly wage and skilled employees necessary to meet our service requirements.
Competition for such employees has led to increased wage levels and employee
turnover. Inability to recruit, train and retain such employees at competitive
wage rates could increase our operating costs.
In addition, many companies that require skilled employees, such as
mechanical and electrical installation and maintenance and HVAC companies, are
currently experiencing shortages of qualified employees. We may not be able to
maintain an adequate labor force necessary to efficiently operate our
business. Also, our labor expenses may increase as a result of a shortage in
the supply of hourly wage or skilled employees. As a result, we may have to
curtail our planned growth and margins may decline.
Although fewer than 10% of our employees are members of unions, many sectors
of the facilities services industry involve unionized employees. Union
activity at our companies may be disruptive to our business and may increase
our costs. To the extent any of our union contracts expire or we acquire
companies 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.
Other Business Factors
We depend on subcontractors to perform a majority of our janitorial
services. We depend, in part, on subcontractors to provide janitorial services
to our customers. Such reliance reduces our ability to directly control both
our workforce and the quality of services we provide. We may not be able to
control our subcontractors and the quality of services they provide.
Many of our contracts may be terminated on short notice. Many of our
janitorial services 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
expiration.
We may have potential environmental liabilities. The nature of the
facilities services industry often involves the transport, storage, use and
disposal of cleaning solvents, lubricants, chemicals, gasoline, refrigerants,
and other hazardous materials by employees. Such activities are subject to
stringent and changing federal, state and local regulation and present the
potential for liability for the actions of our employees in handling such
materials. In addition, the exposure of any employees to these materials may
give rise to claims by employees against us. Compliance with governmental
regulations or liability related to hazardous materials may have a material
adverse effect on our business.
25
<PAGE>
We are subject to government regulation. Due to the nature of the facilities
services industry, our operations are subject to a variety of federal, state,
county and municipal laws, regulations and licensing requirements, including
labor, employment, immigration, health and safety, consumer protection and
environmental regulations. If we fail to comply with applicable regulations,
we may be subject to substantial fines or revocation of our licenses.
Changes in such laws, regulations and licensing requirements may constrain
our ability to provide services to customers or increase the costs of such
services. In addition, competitive pricing conditions in the industry may
constrain our ability to adjust our billing rates to reflect any such
increased costs.
The Year 2000 issue could disrupt our business and adversely affect our
financial condition. The Year 2000 issue refers to a number of date-related
problems that may affect information technology and non-information technology
systems, including codes embedded in chips and other hardware devices. These
problems include systems that identify a year by two digits and not four so
that a date using "00" would be recognized as the year "1900" rather than
"2000." This could result in system failures, miscalculations or errors
causing disruptions of operations or other business problems, including, among
others, a temporary inability to process transactions, send invoices or engage
in normal business activities. The Year 2000 issue is a significant issue for
most, if not all companies, with far reaching implications, some of which
cannot be anticipated or predicted with any degree of certainty. We have not
completed our evaluation of the Year 2000 exposure. See "--Year 2000 Issue"
for a detailed discussion of the Year 2000 issue.
Factors Relating to our Management
If we lose our key people, our business would suffer. Our success depends
principally upon the efforts of our key management team, presidents of our
operating companies and certain other members of the senior management of the
businesses we have acquired or will acquire in the future. The loss of a
substantial portion of such management could have a material adverse effect on
the company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
26
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... 26
Independent Auditor's Report................................................ 27
Independent Auditor's Report................................................ 28
Consolidated Balance Sheet.................................................. 29
Consolidated Statement of Operations........................................ 30
Consolidated Statement of Stockholders' Equity.............................. 31
Consolidated Statement of Cash Flows........................................ 32
Notes to Consolidated Financial Statements.................................. 34
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Building One Services Corporation
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Building One
Services Corporation and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of certain wholly-owned subsidiaries, which
statements reflect total assets of $4.0 million at December 31, 1997 and total
revenues of $28.5 million and $11.1 million for the years ended December 31,
1997 and 1996, respectively. Those statements were audited by other auditors
whose reports thereon have been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for those wholly-owned
subsidiaries, is based solely on the reports of the other auditors. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits and the reports of other auditors provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 12, 1999, except for Note 3, which is as of March 23, 1999
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Perimeter Maintenance Corporation
Atlanta, Georgia
We have audited the balance sheet of Perimeter Maintenance Corporation (an S
Corporation) as of December 31, 1997 (not presented separately herein), and
the related statements of operations, retained earnings, and cash flows for
the year ended December 31, 1997 (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Perimeter Maintenance
Corporation as of December 31, 1997, and the results of its operations and its
cash flows for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Frazier & Deeter, LLC
---------------------
Frazier & Deeter, LLC
Atlanta, Georgia
February 19, 1998
29
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Members
Crest International, LLC
Green Bay, Wisconsin
We have audited the balance sheet of Crest International, LLC (a Wisconsin
limited liability company) as of December 31, 1997 (not presented separately
herein), and the related statements of income, accumulated deficit and cash
flows for the years ended December 31, 1997 and 1996 (not presented separately
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Crest International, LLC
as of December 31, 1997, and the results of its operations and cash flows for
the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
/s/ Shinners, Hucovski & Company,
S.C.
-------------------------------
Shinners, Hucovski & Company, S.C.
Green Bay, Wisconsin
February 17, 1998
30
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 213,096 $528,972
Marketable securities.................................... 2,697 --
Accounts receivable, less allowance for doubtful accounts
of $1,991 and $104, respectively........................ 246,623 5,193
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 25,441 --
Prepaid expenses and other current assets................ 14,411 2,065
---------- --------
Total current assets.................................... 502,268 536,230
Property and equipment, net............................... 38,967 2,593
Intangible assets, net.................................... 496,381 152
Other assets.............................................. 6,306 184
---------- --------
Total assets............................................ $1,043,922 $539,159
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.......................................... $ 2,167 $ 1,553
Accounts payable......................................... 75,029 1,800
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 58,773 --
Accrued compensation..................................... 27,737 2,237
Income taxes payable..................................... 6,125 298
Accrued liabilities--other............................... 25,047 2,107
---------- --------
Total current liabilities............................... 194,878 7,995
Long-term debt............................................ 3,287 1,679
Other liabilities......................................... 8,220 5
---------- --------
Total liabilities....................................... 206,385 9,679
---------- --------
Commitments and contingencies
Stockholders' equity:
Common Stock, $.001 par value, 250,000,000 shares
authorized, 45,258,946 and 31,440,724 shares
outstanding, respectively............................... 45 31
Convertible Non-Voting Common Stock, $.001 par, 500,000
shares authorized, issued and outstanding at December
31, 1997................................................ -- 1
Additional paid-in capital............................... 832,514 529,441
Treasury stock........................................... (41,832) --
Retained earnings........................................ 47,255 7
Accumulated other comprehensive income (loss)............ (445) --
---------- --------
Total stockholders' equity.............................. 837,537 529,480
---------- --------
Total liabilities and stockholders' equity.............. $1,043,922 $539,159
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December
31,
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Revenues..................................... $ 809,601 $ 70,101 $ 63,202
Cost of revenues............................. 636,225 58,857 53,664
---------- --------- ---------
Gross profit............................... 173,376 11,244 9,538
Selling, general and administrative
expenses.................................... 99,771 11,776 8,803
Goodwill amortization........................ 7,653 -- --
Non-recurring acquisition costs.............. 768 -- --
---------- --------- ---------
Operating income (loss).................... 65,184 (532) 735
Other (income) expense:
Interest income............................ (19,373) (2,056) --
Interest expense........................... 1,054 208 224
Other, net................................. (80) (221) 83
---------- --------- ---------
Income before taxes.......................... 83,583 1,537 428
Provision for income taxes................... 36,120 94 13
---------- --------- ---------
Net income................................... $ 47,463 $ 1,443 $ 415
========== ========= =========
Net income per share--Basic.................. $ 1.19 $ 0.25 $ 0.32
========== ========= =========
Net income per share--Diluted................ $ 1.16 $ 0.25 $ 0.30
========== ========= =========
Weighted average shares outstanding--Basic... 39,908,364 5,683,464 1,290,724
========== ========= =========
Weighted average shares outstanding--
Diluted..................................... 40,928,452 5,865,550 1,405,840
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-Voting Common
Common Stock Stock
------------------- ------------------
Accumulated
Additional Other Total Total
Shares Shares Paid-in- Treasury Retained Comprehensive Stockholders' Comprehensive
Outstanding Amount Outstanding Amount Capital Stock Earnings Loss Equity Income
----------- ------ ----------- ------ ---------- -------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995......... 1,238,444 $ 1 $ 1,199 $ $ $ $ 1,200
Transactions of
Pooled
Companies:
Distributions
paid........... (140) (140)
Common stock
issued......... 52,280 103 103
Net income....... 415 415 $ 415
-------
Total
comprehensive
income.......... $ 415
---------- --- -------- ---- -------- -------- ------- ----- -------- =======
Balance, December
31, 1996......... 1,290,724 1 1,577 1,578
Transactions of
Pooled
Companies:
Distributions
paid........... (831) (831)
Capital
contribution.... 2,300,000 2 124 126
Common stock
issued.......... 27,850,000 28 500,000 1 527,135 527,164
Net income....... 1,436 7 1,443 $ 1,443
-------
Total
comprehensive
income.......... $ 1,443
---------- --- -------- ---- -------- -------- ------- ----- -------- =======
Balance, December
31, 1997......... 31,440,724 31 500,000 1 529,441 7 529,480
Transactions of
Pooled
Companies:
Distributions
paid........... (628) (628)
Stock issued
upon exercise
of options..... 123,046 216 216
Issuance of
common stock for
acquisitions.... 16,144,711 16 302,855 302,871
Stock issued
under employee
stock purchase
plan............ 40,465 415 415
Purchase of
treasury stock.. (2,990,000) (3) (41,832) (41,835)
Unrealized loss
on marketable
securities --
net of tax...... (445) (445) $ (445)
Conversion of
non-voting
common stock.... 500,000 1 (500,000) (1)
Net income....... 215 47,248 47,463 47,463
-------
Total
comprehensive
income.......... $47,018
---------- --- -------- ---- -------- -------- ------- ----- -------- =======
Balance, December
31, 1998 ........ 45,258,946 $45 -- $-- $832,514 $(41,832) $47,255 $(445) $837,537
========== === ======== ==== ======== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 47,463 $ 1,443 $ 415
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization.......... 13,242 945 926
Gain (loss) on sale of equipment....... 37 (52) 1
Changes in operating assets and
liabilities:
Accounts receivable.................. (38,035) (36) (511)
Costs and estimated earnings in
excess of billings.................. 3,200 -- --
Prepaid expenses and other current
assets.............................. (2,721) (1,319) (27)
Billings in excess of costs and
estimated earnings.................. 2,049 -- --
Accounts payable..................... 1,193 (505) 486
Accrued liabilities.................. 7,044 2,254 69
Changes in other assets................ (1,398) 3 39
----------- ----------- --------
Net cash provided by operating
activities........................ 32,074 2,733 1,398
----------- ----------- --------
Cash flows from investing activities:
Cash paid for acquisitions, net of cash
acquired................................ (231,602) -- --
Purchases of property and equipment...... (11,289) (699) (703)
Proceeds on sale of equipment............ 790 387 18
Other.................................... (218) (7) (6)
----------- ----------- --------
Net cash used in investing
activities........................ (242,319) (319) (691)
----------- ----------- --------
Cash flows from financing activities:
Proceeds from initial public offering,
net..................................... -- 527,164 --
Proceeds from issuance of common stock... -- -- 103
Net proceeds (payments) on short-term
debt.................................... (38,783) 145 (140)
Payments on long-term debt............... (28,535) (349) (830)
Proceeds on long-term debt............... 3,519 -- 398
Payment of dividends..................... (628) (831) (140)
Purchase of treasury stock............... (41,835) -- --
Proceeds from issuance of stock options
exercised............................... 216 -- --
Proceeds from issuance of stock under
employee stock purchase plan............ 415 -- --
Contributions by founding stockholder.... -- 126 --
----------- ----------- --------
Net cash provided by (used in)
financing activities.............. (105,631) 526,255 (609)
----------- ----------- --------
Net increase in cash and cash equivalents.. (315,876) 528,669 98
Cash and cash equivalents, beginning of
period.................................... 528,972 303 205
----------- ----------- --------
Cash and cash equivalents, end of period... $ 213,096 $ 528,972 $ 303
=========== =========== ========
Supplemental cash ^ow information:
Cash paid for interest................... $ 882 $ 290 $ 357
Cash paid for income taxes............... 34,395 -- --
</TABLE>
34
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS--(Continued)
(Dollars in thousands)
The Company issued common stock and cash in connection with certain business
combinations during the year ended December 31, 1998. The fair values of the
assets acquired and liabilities assumed at the dates of acquisition are as
follows:
<TABLE>
<S> <C>
Accounts receivable................................................... $202,515
Inventories........................................................... 2,626
Costs and earnings in excess of billings.............................. 31,085
Prepaid expenses and other current assets............................. 12,248
Property and equipment................................................ 33,080
Intangible assets..................................................... 502,470
Other assets.......................................................... 7,745
Short-term debt....................................................... (29,594)
Accounts payable...................................................... (72,805)
Accrued liabilities................................................... (49,020)
Billings in excess of costs and estimated earnings.................... (56,912)
Long-term debt........................................................ (41,287)
Other long-term liabilities........................................... (7,678)
--------
Net assets acquired............................................... $534,473
========
These acquisitions were funded as follows:
Common stock, 16,144,711 shares..................................... $302,871
Cash, net of cash acquired.......................................... 231,602
--------
$534,473
========
</TABLE>
The following notes are an integral part of these financial statements.
35
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1--BUSINESS AND ORGANIZATION
Building One Services Corporation ("Building One" or the "Company") is
consolidating the facilities services industry with the intent to become a
national single-source provider of facilities services. Currently the Company
provides electrical installation and maintenance services, mechanical
installation and maintenance services and janitorial and maintenance
management services throughout the United States.
The Company was incorporated in September 1997 under the name of
Consolidation Capital Corporation and completed an initial public offering
("IPO") of its Common Stock in December 1997, selling 27,850,000 shares of
Common Stock and 500,000 shares of Convertible Non-Voting Common Stock and
raising net proceeds of approximately $527,000. During 1998, the Company
changed its name to Building One Services Corporation.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of Building One, and
the companies acquired in business combinations accounted for under the
purchase method (the "Purchased Companies") from their respective acquisition
dates and give retroactive effect to the results of the companies acquired in
business combinations accounted for under the pooling-of-interests method (the
"Pooled Companies") for all periods presented.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany transactions
and accounts are eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company utilizes the percentage-of-completion method of accounting for
the recognition of revenues and costs of all significant installation
contracts. Revenues are recognized according to the ratio of costs incurred to
estimated total contract costs. Contract costs include all direct material and
labor costs and those indirect costs related to contract performance, such as
indirect labor, supplies, tools, repairs and depreciation costs. Selling and
administrative expenses are expensed as incurred. Changes in job performance,
job conditions, estimated profitability and final contract settlements may
result in revisions to costs and income and are recognized in the period in
which the revisions are determined. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Maintenance and other service revenues are recognized as the
services are performed.
Non-Recurring Acquisition Costs
Non-recurring acquisition costs consist of costs incurred in conjunction
with the business combinations accounted for under the pooling-of-interests
method. These costs include legal and accounting fees, broker fees and other
costs directly attributable to the business combination.
36
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Cash and Cash Equivalents
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade accounts receivable. The Company's temporary cash investments
consist of readily marketable, investment grade financial instruments of a
nature which should reduce risk of loss. Concentration of credit risk with
respect to trade receivables results from these amounts generally not being
collateralized. However, the Company is entitled to payment for work performed
and often has certain lien rights in that work. Additionally, management
continually monitors the financial condition of its customers to reduce risk
of loss.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable and debt approximate fair value. The Company's
cash equivalents are comprised of readily marketable, interest-bearing,
investment grade securities.
Marketable Securities
Marketable securities consist of investments in equity securities and are
classified as available for sale. The unrealized gains and losses, net of
applicable income taxes, are reported as an increase or decrease to
stockholders' equity. Realized gains and losses are included in other income.
The cost of securities sold is based on the specific identification method.
Property and Equipment
Property and equipment are stated at cost and depreciation is computed using
the straight-line method over the estimated useful lives of the assets ranging
from three to seven years for equipment, vehicles, and furniture and fixtures
and 30 years for buildings. Leasehold improvements and capital leases are
capitalized and amortized over the lesser of the life of the lease or the
estimated useful life of the asset.
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. No impairment has been recognized
through December 31, 1998.
Intangible Assets
Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method. Goodwill is being amortized on a
straight-line basis over 40 years which is the estimated period benefited. The
recoverability of the unamortized balance of goodwill is assessed on an
ongoing basis by comparing anticipated undiscounted future cash flows from
operations to net book value. If at such time these assessments indicate that
the future undiscounted cash flows from operations are not sufficient to
recover the net book value, the goodwill balance is adjusted to its fair
value. No such adjustments have been recognized through December 31, 1998.
Income Taxes
Income taxes have been computed utilizing the asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
tax consequences of temporary differences by applying enacted
37
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. Certain companies acquired in pooling-of-interests transactions
elected to be taxed as subchapter S corporations and, accordingly, no federal
income taxes were recorded by those companies for periods prior to their
acquisition by Building One.
Stock-Based Compensation
Building One measures compensation expense for its stock-based employee
compensation plans and warrants granted to employees using the intrinsic value
method and has provided in Note 14 the pro forma disclosures of the effect on
reported net income (loss) and net income (loss) per share as if the fair
value-based method had been applied in measuring compensation expense.
Net Income Per Share
Basic net income per share is determined by dividing net income by the
weighted average number of common shares outstanding during the periods.
Diluted net income per share reflects the potential dilution that could occur
if securities and other contracts to issue common stock were exercised or
converted into common stock at the beginning of the period.
Segment Data
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for reporting information about operating segments in annual and interim
financial statements. Operating segments are determined consistent with the
way management organizes and evaluates financial information internally for
making decisions and assessing performance. It also requires related
disclosures about products, geographic areas, and major customers. The Company
adopted SFAS No. 131 for the year ended December 31, 1998.
Comprehensive Income
Other comprehensive income refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but are excluded from net income as these amounts are
recorded directly as an adjustment to stockholders' equity. Building One's
other comprehensive income is attributed to adjustments related to marketable
securities available for sale. The amount included in 1998 other comprehensive
income represents an adjustment for unrealized losses on these marketable
securities totaling $742 ($445 after tax).
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
NOTE 3--TENDER OFFER PLAN
On February 7, 1999, the Company's Board of Directors approved a plan to
purchase 24,365,891 shares of its outstanding Common Stock at $25.00 per share
for cash. On March 23, 1999, the Company announced that it is modifying the
tender offer to repurchase 25,500,000 shares and reduce the price to $22.50
per share (the "Tender Offer"). The Tender Offer replaces the recapitalization
plan announced by the Company on December 23, 1998 (the "Recapitalization
Plan") under which the Company had intended to, among other things, repurchase
approximately 34.5 million shares of the Company's Common Stock. The Company
plans to finance the Tender Offer through the use of the Company's cash, the
planned issuance of $200,000 of senior
38
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
subordinated notes, the investment of $100,000 in exchange for convertible
subordinated notes by Boss Investment LLC, an affiliate of Apollo Management,
L.P. and borrowings under a new credit facility.
As a result of the announcement of the Recapitalization Plan and as required
by generally accepted accounting principles, the Company has restated its
consolidated financial statements for all periods to account for two
acquisitions originally accounted for under the pooling of interests method of
accounting to the purchase method of accounting. Additionally, the restatement
of these two business combinations as purchase transactions gave rise to
approximately $51,000 of goodwill.
One of the Company's directors is President and a principal stockholder of
Friedman, Billings, Ramsey Group, Inc. ("FBR"). In connection with the
aforementioned transactions, FBR acted as a financial advisor to the Company
and received a fee of $500. Additionally, FBR will receive a fee of up to
$2,100, contingent upon the completion of the Tender Offer.
NOTE 4--BUSINESS COMBINATIONS
Pooling-of-Interests Method
During 1998, the Company issued 1,405,840 shares of Common Stock to acquire
three companies in business combinations accounted for under the pooling-of-
interests method. The Company's consolidated financial statements give
retroactive effect to the acquisitions of the Pooled Companies for all periods
presented.
The following presents the separate results, in each of the periods
presented, of Building One (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the
dates on which they were acquired:
<TABLE>
<CAPTION>
Building Pooled
One Companies Combined
-------- --------- --------
<S> <C> <C> <C>
For the year ended December 31, 1998
Revenues......................................... $782,878 $26,723 $809,601
Net income....................................... $ 47,248 $ 215 $ 47,463
For the year ended December 31, 1997
Revenues......................................... $ -- $70,101 $ 70,101
Net income....................................... $ 7 $ 1,436 $ 1,443
For the year ended December 31, 1996
Revenues......................................... $ -- $63,202 $ 63,202
Net income....................................... $ -- $ 415 $ 415
</TABLE>
Purchase Method
During the year ended December 31, 1998, the Company completed 26 business
combinations that were accounted for under the purchase method of accounting.
The consolidated financial statements and related notes to consolidated
financial statements include the results of these acquired entities from their
respective dates of acquisition. The aggregate consideration paid for these
acquisitions consisted of 16,144,711 shares of the Company's Common Stock,
403,389 options assumed at an exercise price below fair market value, $259,021
in cash and the assumption of approximately $33,847 in debt which was paid at
closing. These amounts do not include contingent consideration of up to
approximately $135,945 in cash and in shares of Common Stock of the Company
based upon the performance of the various acquisitions through 2001. The
Company will record such contingent consideration as additional purchase price
when earned.
39
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The total purchase price was allocated to the fair value of the net assets
acquired resulting in goodwill of approximately $502,470. Allocation of
purchase price to the assets acquired and liabilities assumed has been
initially assigned and recorded based on preliminary estimates of fair value
and may be revised as additional information becomes available. However, the
Company does not expect any significant adjustments to the purchase price
allocations or amount of goodwill at December 31, 1998. For purposes of
computing the estimated purchase price for accounting purposes the value of
the shares on certain acquisitions was determined in consideration of
restrictions on the sale and transferability of the shares issued. The shares
generally will be subject to the following restrictions on resale: up to one-
third of the shares may be resold twelve months after their date of
acquisition, the first one-third and an additional one-third may be resold
beginning eighteen months after their date of acquisition and the first two-
thirds and the remaining one-third may be resold beginning twenty-four months
after their date of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for the years ended December 31, 1998 and 1997, respectively, as if
all of the Purchased Companies had been acquired as of January 1, 1997. The
pro forma results of operations reflect certain pro forma adjustments
primarily related to goodwill amortization and compensation adjustments for
shareholders.
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------
1998 1997
---------- ----------
(unaudited)
<S> <C> <C>
Revenues............................................... $1,312,264 $1,144,457
Net income............................................. $ 64,396 $ 39,185
Net income per share-basic............................. $ 1.34 $ 1.09
Net income per share-diluted........................... $ 1.31 $ 1.08
</TABLE>
The pro forma results of operations are prepared for comparative purposes
only and do not necessarily reflect the results that would have occurred had
the acquisitions occurred as of January 1, 1997 or the results that may occur
in the future.
NOTE 5--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for doubtful
accounts:
<TABLE>
<CAPTION>
For the Year
Ended December 31,
------------------
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
Balance at beginning of period............................ $ 104 $136 $120
Allowance amounts of acquired companies................... 1,680 -- --
Additions to costs and expenses........................... 732 5 16
Write-offs................................................ (525) (37) --
------ ---- ----
Balance at end of period.................................. $1,991 $104 $136
====== ==== ====
</TABLE>
40
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 6--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Costs incurred on uncompleted contracts......................... $ 842,203
Estimated earnings.............................................. 156,546
----------
998,749
Less: Billings to date.......................................... (1,032,081)
----------
$ (33,332)
==========
Included in the accompanying balance sheet under the following captions:
<CAPTION>
December 31,
1998
------------
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts.......................................... $ 25,441
Billings in excess of costs and estimated earnings on
uncompleted contracts.......................................... (58,773)
----------
$ (33,332)
==========
</TABLE>
NOTE 7--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
-------- ------
<S> <C> <C>
Equipment................................................... $ 15,645 $3,160
Office furniture and equipment.............................. 10,146 1,029
Autos and trucks............................................ 10,464 593
Buildings and improvements.................................. 9,126 1,107
Land........................................................ 1,259 53
-------- ------
46,640 5,942
Less: Accumulated depreciation.............................. (7,673) (3,349)
-------- ------
$ 38,967 $2,593
======== ======
Depreciation expense for years 1998, 1997 and 1996 was $5,522, $1,284 and
$1,268, respectively.
NOTE 8--INTANGIBLE ASSETS
Intangible assets consist of the following:
<CAPTION>
December 31,
----------------
1998 1997
-------- ------
<S> <C> <C>
Goodwill.................................................... $502,470 $ 151
Non-compete agreements...................................... 1,046 835
Other....................................................... 585 64
-------- ------
504,101 1,050
Less: Accumulated amortization.............................. (7,720) (898)
-------- ------
Net intangible assets..................................... $496,381 $ 152
======== ======
</TABLE>
41
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Amortization expense for years 1998, 1997 and 1996 was $7,720, $141 and $177,
respectively.
NOTE 9--CREDIT FACILITIES
Short-Term Debt
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------ ------
<S> <C> <C>
Credit facilities with banks, interest ranging from prime to
prime plus 1% (average rate of 8% at December 31, 1998)..... $ 61 $1,133
Payable to Pooled Company stockholder........................ -- 151
Current maturities of long-term debt......................... 2,106 269
------ ------
Total short-term debt...................................... $2,167 $1,553
====== ======
Long-Term Debt
Long-term debt consists of the following:
<CAPTION>
December 31,
--------------
1998 1997
------ ------
<S> <C> <C>
Notes payable to banks with average interest rates ranging
from 7.0% - 9.5%............................................ $2,549 $1,112
Notes payable, interest rates ranging from 7.0% - 10.0%
secured by certain assets of the Company.................... 2,234 768
Capital lease obligations.................................... 552 46
Other........................................................ 58 22
------ ------
5,393 1,948
Less: Current portion........................................ (2,106) (269)
------ ------
Total long-term debt......................................... $3,287 $1,679
====== ======
</TABLE>
Maturities of Long-Term Debt
Maturities of long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
1999............................................................... $2,106
2000............................................................... 1,800
2001............................................................... 888
2002............................................................... 357
2003............................................................... 131
Thereafter......................................................... 111
------
$5,393
======
</TABLE>
42
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 10--INCOME TAXES
The components of income tax expense are comprised as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------
1998 1997 1996
-------- ------------
<S> <C> <C> <C>
Income taxes currently payable:
Federal................................................ $ 31,388 $ 83 $ 5
State.................................................. 5,144 11 2
-------- ----- ----
$ 36,532 $ 94 $ 7
-------- ----- ----
Deferred income taxes:
Federal................................................ (360) -- 4
State.................................................. (52) -- 2
-------- ----- ----
(412) -- 6
-------- ----- ----
Total tax expense....................................... $ 36,120 $ 94 $ 13
======== ===== ====
</TABLE>
The deferred tax assets and liabilities reflected on the balance sheet
relate primarily to the following:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
------ ----
<S> <C> <C>
Deferred tax assets (liabilities):
Reserves and accrued liabilities............................... $3,755 $219
Cash to accrual conversion..................................... (675)
Property and equipment......................................... (234)
Other.......................................................... (661)
Deferred gain on marketable securities......................... (945)
------ ----
Net deferred tax asset.......................................... $1,240 $219
====== ====
</TABLE>
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------
1998 1997 1996
---- ----- -----
<S> <C> <C> <C>
U.S. federal statutory rate............................... 35.0% 34.0% 34.0%
State income taxes, net of federal tax benefit............ 3.6 0.6 1.0
Nondeductible goodwill amortization....................... 3.4
Subchapter S corporation income not subject to corporate
level taxation........................................... (.1) (30.8) (28.8)
Other..................................................... 1.3 2.3 (3.2)
---- ----- -----
Effective income tax rate................................. 43.2% 6.1% 3.0%
==== ===== =====
</TABLE>
Certain of the Pooled Companies were organized as subchapter S corporations
prior to being acquired by the Company and, as a result, the federal tax on
their income was the responsibility of their individual stockholders.
Accordingly, the Pooled Companies provided no federal income tax expense prior
to these acquisitions by the Company. The following unaudited pro forma income
tax information is presented as if the Pooled Companies had been subject to
applicable federal and state income taxes for 1997 and 1996:
43
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the
Year Ended
December
31,
-----------
1997 1996
------ ----
<S> <C> <C>
Net income as reported............................................. $1,537 $428
Pro forma income tax provision..................................... 615 171
------ ----
Pro forma net income............................................... $ 922 $257
====== ====
</TABLE>
NOTE 11--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases various office facilities and equipment under
noncancelable lease agreements which expire at various dates. Future minimum
lease payments under noncancelable capital and operating leases are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1999....................................................... $353 $10,733
2000....................................................... 193 9,089
2001....................................................... 42 7,576
2002....................................................... 24 6,077
2003....................................................... 9 4,936
Thereafter................................................. -- 9,789
---- -------
Total minimum lease payments............................... 621 $48,200
==== =======
Less: Amounts representing interest........................ 69
----
Present value of net minimum lease payments................ $552
====
</TABLE>
Rent expense for all operating leases for 1998, 1997 and 1996 was $7,614,
$339 and $514, respectively. Certain of the above leases are for equipment or
facilities which are owned by stockholder-employees. Total rent expense paid
to these affiliates totaled $954 in 1998.
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this
litigation will have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
NOTE 12--SEGMENT REPORTING
The Company has three reportable segments: electrical, mechanical and
janitorial. The electrical segment offers a single source for designing,
installing, maintaining and upgrading a facility's electrical systems. The
mechanical segment provides one source for all of a facility's mechanical,
HVAC and plumbing needs. The janitorial segment provides a wide variety of
facility cleaning and maintenance services nationwide.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on operating income and on Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA").
44
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The Company's reportable segments are strategic business units that offer
different products and services. Intersegment transactions are accounted for
as if they were to third parties, that is, at current market prices. All of
the Company's revenues are derived from domestic sources. Each of the acquired
companies were acquired as a unit, and the management at the time of the
acquisition was retained.
<TABLE>
<CAPTION>
Consolidating
Electrical Janitorial Mechanical Corporate Entries Consolidated
---------- ---------- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues 1998 $534,419 $159,912 $115,665 $ -- $(395)(1) $ 809,601
1997 -- 70,101 -- -- -- 70,101
1996 -- 63,202 -- -- -- 63,202
Operating income (loss) 1998 52,197 10,882 10,181 (8,076) -- 65,184
1997 -- (532) -- -- -- (532)
1996 -- 735 -- -- -- 735
EBITDA 1998 60,221 14,660 11,571 (8,026) -- 78,426
1997 -- 413 -- -- -- 413
1996 -- 1,661 -- -- -- 1,661
Total assets 1998 598,852 121,660 162,369 161,041 -- 1,043,922
1997 -- 10,094 -- 529,065 -- 539,159
1996 -- 9,629 -- -- -- 9,629
Working capital 1998 116,569 12,071 21,407 157,343 -- 307,390
1997 -- 958 -- 527,277 -- 528,235
1996 -- 67 -- -- -- 67
</TABLE>
- --------
(1) Elimination of Intersegment Revenues
A reconciliation of consolidated operating income to total consolidated
income before taxes, and of consolidated EBITDA to consolidated income before
taxes for the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Operating income (loss):
Total segment operating income....................... $65,184 $ (532) $ 735
Interest income (expense), net....................... 18,399 2,069 (307)
------- ------ ------
Consolidated income before taxes................... $83,583 $1,537 $ 428
======= ====== ======
EBITDA:
Total segment EBITDA................................. $78,426 $ 413 $1,661
Depreciation and amortization........................ (13,242) (945) (926)
Interest income (expense), net....................... 18,399 2,069 (307)
------- ------ ------
Consolidated income before taxes................... $83,583 $1,537 $ 428
======= ====== ======
</TABLE>
45
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 13--STOCKHOLDERS' EQUITY
Common Stock
On November 25, 1997, the Company effected a one-for-1.918159 reverse stock
split of the Company's Common Stock. Accordingly, all share data reflected in
these financial statements have been retroactively restated.
Ledecky Brothers L.L.C. ("LLC"), a limited liability corporation formed in
February 1997, merged with and into the Company in September 1997 (the
"Merger") to facilitate the public offering of shares of common stock. The
sole member of LLC received 2,300,000 shares of Common Stock of the Company in
connection with the Merger in exchange for his 100% ownership interest in LLC.
The sole member made contributions to LLC from time to time to fund expenses
in the aggregate amount of $126. These contributions were included in common
stock and additional paid-in capital.
The Company completed its IPO in December 1997, selling 27,850,000 shares of
Common Stock and 500,000 shares of Convertible Non-Voting Common Stock at
$20.00 per share and raising net proceeds of approximately $527,000. Proceeds
from the IPO, net of underwriting fees and other stock issuance costs, were
included in common stock and additional paid-in capital.
During 1998, the Company repurchased 2,990,000 shares of its common stock
for $41,835. These shares were repurchased in accordance with a stock
repurchase program covering 3,100,000 shares which was determined based upon
the number of shares issued in connection with acquisitions accounted for
under the purchase method of accounting.
Convertible Non-Voting Common Stock
In connection with the IPO, the Company sold 500,000 shares of Convertible
Non-Voting Common Stock to FBR, the representative of the underwriters in the
Company's IPO, for $20 per share. On November 25, 1998 these 500,000 shares
were converted to 500,000 shares of Common Stock.
Warrants
The Company has 1,130,000 shares of Common Stock reserved for issuance upon
exercise of warrants issued to FBR. The warrants have an exercise price per
share equal to the IPO price. These warrants become exercisable on the first
anniversary and will expire on the fifth anniversary of the IPO. FBR has the
right, as of November 25, 1998, to require the Company to register such shares
for sale.
Additionally, 1,950,000 shares of Common Stock have been reserved for
issuance upon the exercise of warrants issued to Jonathan Ledecky at the time
of the IPO. These warrants are exercisable for a period of ten years at an
exercise price equal to the IPO price. The Company has agreed that, at
Jonathan Ledecky's request, it will register the shares underlying his
warrants for a ten-year period following the IPO. In addition, the Company has
agreed to give Jonathan Ledecky the right to request that the Company include
the shares underlying his warrants on a registration statement filed by the
Company during a twelve-year period following the IPO.
46
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 14--STOCK PURCHASE AND AWARD PLANS
Long-Term Incentive Plan
The Company's Board of Directors adopted, and the Company's stockholders
approved a 1997 Long-Term Incentive Plan and a 1998 Long-Term Incentive Plan
(collectively, the "Incentive Plans"). The terms of the option awards under
these Incentive Plans are established by the compensation committee of the
Company's Board of Directors. The maximum number of shares that may be issued
under the Incentive Plans is equal to 14% of the number of shares of Common
Stock outstanding from time to time.
Options under the Incentive Plans generally vest 25% each on the first four
anniversaries of the date of grant and expire on the tenth anniversary of the
grant date. In the event of a change in control of the Company prior to normal
vesting, all options not already exercisable will become fully vested and
exercisable.
1997 Non-Employee Directors' Stock Plan
The Company's Board of Directors adopted, and the Company's stockholders
approved, the 1997 Non-Employee Directors' Stock Plan (the "Directors' Plan"),
which provides for the automatic grant to each non-employee director of an
option to purchase 20,000 shares on the date that such person commences
services as a director. Thereafter, each non-employee director will be
entitled to receive, on the day after each annual meeting of the Company's
stockholders, an option to purchase 5,000 shares of Common Stock. A maximum of
300,000 shares of Common Stock may be issued under the Directors' Plan.
Options granted under the Directors' Plan have an exercise price per share
equal to the fair market value of a share at the date of grant of the options
and expire at the earlier of 10 years from the date of grant or 90 days after
termination of service as a director. Options vest and become exercisable
ratably as to 50% of the shares underlying the option on the first and second
anniversaries of the date of grant, subject to acceleration by the Board. In
the event of a change in control of the Company prior to normal vesting, all
options not already exercisable will become fully vested and exercisable.
1997 Employee Stock Purchase Plan
The Company adopted, and the Company's stockholders approved, the 1997
Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan permits
eligible employees of the Company and its subsidiaries (generally all full-
time employees who have completed one year of service) to purchase shares of
Common Stock at a discount. Employees who elect to participate will have
amounts withheld through payroll deduction during purchase periods. At the end
of each purchase period, accumulated payroll deductions will be used to
purchase stock at a price equal to 85% of the market price at the beginning of
the period or the end of the period, whichever is lower. Stock purchased under
the Purchase Plan will be subject to a one-year holding period. The Company
has reserved 1,000,000 shares of Common Stock for issuance under the Purchase
Plan.
47
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Accounting for Stock Based Compensation
A summary of option and warrant transactions follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------- ---------------------------
Options Options
and Weighted Average and Weighted Average
Warrants Exercise Price Warrants Exercise Price
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Balance at December 31,
1996................... -- -- -- --
Granted............... 3,510,000 $20.00 1,950,000 $20.00
--------- ------ --------- ------
Balance at December 31,
1997................... 3,510,000 $20.00 1,950,000 $20.00
Granted............... 2,544,846 17.91 863,389 13.07
Exercised............. (7,930) 4.84 (7,930) 4.84
Canceled.............. (25,613) 22.27 -- --
--------- ------ --------- ------
Balance at December 31,
1998................... 6,021,303 $19.12 2,805,459 $17.91
========= ====== ========= ======
</TABLE>
The following table summarizes information about stock options and warrants
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------------------------------------------------------------------------------
Weighted Average
Range of Exercise Prices Options Remaining Weighted Average Options Weighted Average
----------------- and Warrants Contractual Life Exercise Price and Warrants Exercise Price
------------ ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$4.84--$4.84 395,459 9.5 years $ 4.84 395,459 $ 4.84
$8.38--$8.38 15,278 9.8 $ 8.38 -- --
$12.75--$18.38 745,438 9.8 $15.22 -- --
$19.25--$25.25 4,865,128 9.1 $21.55 2,410,000 $20.29
-------------- --------- ---- ------ --------- ------
$ 4.84--$25.25 6,021,303 9.2 $19.12 2,805,459 $17.91
============== ========= ==== ====== ========= ======
</TABLE>
Had compensation expense for the Company's stock-based compensation plans
and warrants issued to employees been determined based on the fair value at
the grant dates, the Company's net income and net income per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
Net income (loss):
As reported................................................. $47,463 $ 1,443
Pro forma................................................... $37,381 $(5,782)
Net income (loss) per share--Basic:
As reported................................................. $ 1.19 $ 0.25
Pro forma................................................... $ 0.94 $ (1.02)
Net income (loss) per share--Diluted:
As reported................................................. $ 1.16 $ 0.25
Pro forma................................................... $ 0.91 $ (1.02)
</TABLE>
48
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The weighted average fair value of options and warrants granted in 1998 and
1997 was $13.38 and $7.46, respectively. The fair value of options and
warrants granted (which is amortized to expense over the option vesting period
in determining the pro forma impact) is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997
------- -----------------
Options Options Warrants
------- ------- --------
<S> <C> <C> <C>
Expected life of option............................. 5 years 5 years 2 years
Risk-free interest rate............................. 5.3% 5.76% 5.69%
Expected volatility................................. 63.7% 45.0% 45.0%
</TABLE>
Other Employee Benefit Plans
Several of the Company's subsidiaries have defined contribution benefit
plans, such as 401(k) retirement plans, which allow eligible employees to make
contributions. Additionally, several of the subsidiaries also provide company
matching contributions up to specified levels. Company contribution expense to
these plans was $2,880 for the year ended December 31, 1998.
NOTE 15--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data of the
Company:
<TABLE>
<CAPTION>
1998 Quarters
--------------------------------------------
First Second Third Fourth Total
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................ $54,610 $171,661 $252,324 $331,006 $809,601
Gross profit.................... $10,377 $ 36,662 $ 55,238 $ 71,099 $173,376
Operating income................ $ 2,135 $ 12,485 $ 22,519 $ 28,045 $ 65,184
Net income...................... $ 5,081 $ 10,046 $ 15,164 $ 17,172 $ 47,463
Net income per share--Basic..... $ 0.15 $ 0.26 $ 0.35 $ 0.38 $ 1.19
Net income per share--Diluted
(1)............................. $ 0.15 $ 0.25 $ 0.34 $ 0.38 $ 1.16
<CAPTION>
1997 Quarters
--------------------------------------------
First Second Third Fourth Total
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................ $17,479 $ 17,393 $ 17,538 $ 17,691 $ 70,101
Gross profit.................... $ 2,807 $ 2,759 $ 2,732 $ 2,946 $ 11,244
Operating income (loss)......... $ 259 $ 426 $ 390 $ (1,607) $ (532)
Net income...................... $ 210 $ 434 $ 299 $ 500 $ 1,443
Net income per share--Basic
(1)............................ $ 0.10 $ 0.12 $ 0.08 $ 0.04 $ 0.25
Net income per share--Diluted
(1)............................ $ 0.09 $ 0.12 $ 0.08 $ 0.04 $ 0.25
</TABLE>
- --------
(1) The arithmetic total of the individual quarterly net income per share
amounts does not reconcile to the annual amount of net income per share
due to the timing of net income in relation to the issuance of common
shares during the course of the year.
NOTE 16--NET EARNINGS PER SHARE
The Company has adopted SFAS No. 128, "Earnings Per Share," which became
effective for financial statements issued for periods ending after December
15, 1997. SFAS No. 128 requires presentation of basic and diluted earnings per
share ("EPS") and restatement of EPS data for all prior periods. Basic EPS
includes no dilution and is computed by dividing net income by the Company's
weighted average shares of Common Stock outstanding. Diluted EPS is computed
by dividing net income by the Company's weighted average shares of Common
Stock outstanding and dilutive Common Stock equivalents. The following table
reconciles the
49
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
numerators and denominators of the basic and diluted EPS computations for the
three years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Basic earnings per share:
Net income................................. $ 47,463 $ 1,443 $ 415
Weighted average shares outstanding--
Basic..................................... 39,908,364 5,683,464 1,290,724
----------- ---------- ----------
Net income per share--Basic................ $ 1.19 $ 0.25 $ 0.32
=========== ========== ==========
Diluted earnings per share:
Net income................................. $ 47,463 $ 1,443 $ 415
Weighted average shares outstanding--
Basic..................................... 39,908,364 5,683,464 1,290,724
Convertible Non-Voting Common Stock........ 373,973 49,315 --
Common Stock equivalents from stock options
and warrants.............................. 342,903 132,771 115,116
Contingently issuable shares............... 303,212 -- --
----------- ---------- ----------
Total weighted average shares outstanding--
Diluted................................... 40,928,452 5,865,550 1,405,840
----------- ---------- ----------
Net income per share--Diluted.............. $ 1.16 $ 0.25 $ 0.30
=========== ========== ==========
</TABLE>
Outstanding stock options to purchase 1,945,439 shares of Common Stock as of
December 31, 1998 were not included in the computation of diluted shares per
share because the options' exercise prices were greater than the average
market price of the Common Stock during the period.
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to December 31, 1998 and through March 29, 1999, the Company
completed two business combinations in the electrical installation and
maintenance services business and four business combinations in the mechanical
installation and maintenance services business for total consideration of
$37,567 in cash and 772,019 shares of Common Stock. Additionally, there is the
potential for the payment of up to an additional $10,200 in cash and shares of
Common Stock in connection with contingent consideration agreements. Unaudited
pro forma financial information related to these acquisitions is not included
as the impact of these acquisitions is not deemed to be significant.
As of March 29, 1999, the Company has also entered into definitive
agreements to acquire four companies and the remaining 50% of a currently 50%
owned business for total consideration of $29,710 in cash and shares of Common
Stock.
50
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table lists the individuals who currently are our directors,
executive officers or key employees.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jonathan J. Ledecky..... 41 Chairman of the Board
Joseph M. Ivey.......... 40 President and Chief Executive Officer; Director
F. Traynor Beck......... 43 Executive Vice President, General Counsel and Secretary
Timothy C. Clayton...... 44 Executive Vice President, Chief Financial Officer and Treasurer
David Ledecky........... 38 Executive Vice President and Chief Administrative Officer; Director
William P. Love, Jr. ... 39 President--Building One Mechanical and Electrical Group; Director
Michael Sullivan........ 51 Chairman--Building One Service Solutions Group
Mary K. Bush............ 50 Director
Vincent W. Eades........ 38 Director
Thomas D. Heule......... 39 Director
W. Russell Ramsey....... 38 Director
M. Jude Reyes........... 42 Director
</TABLE>
As a result of our agreement with Boss Investment, the members of our Board
of Directors will change. See "--Members of the Board of Directors After the
Tender Offer."
Jonathan J. Ledecky founded our Company in February 1997 and serves as our
Chairman of the Board. He served as our Chief Executive Officer from November
25, 1997 through February 25, 1999. In October 1994, he founded U.S. Office
Products Company, a company that provides office products, office furniture
and office coffee and beverage services, and served as its Chairman of the
Board until June 10, 1998 and its Chief Executive Officer until November 5,
1997. Prior to founding U.S. Office Products Company, he served as the
President of The Legacy Fund, Inc. from 1989 to 1991 and from 1991 to
September 1994 as President and Chief Executive Officer of Legacy Dealer
Capital Fund, Inc., a wholly owned subsidiary of Steelcase Inc., the nation's
largest manufacturer of office furniture products. Jonathan J. Ledecky
currently serves as a director of USA Floral Products, Inc., UniCapital
Corporation, Aztec Technology Partners, Inc., School Specialty, Inc., Workflow
Management, Inc., the Ledecky Foundation, Navigant International, Inc. and
MicroStrategy Incorporated. He is also the general partner of Ironbound
Partners, LLC, a private investment management firm, and a director of the
United States Chamber of Commerce. He is a graduate of Harvard College and
Harvard Business School. Jonathan J. Ledecky is the brother of David Ledecky.
Joseph M. Ivey has served as our President and Chief Executive Officer since
February 25, 1999 and has been a director of our Company since October 8,
1998. From September 2, 1998 to February 25, 1999, Mr. Ivey served as the
President of the Building One Mechanical Group. Mr. Ivey has also served,
since October 1990, as the Chairman and Chief Executive Officer of Ivey
Mechanical Company, Inc., a mechanical services company that we acquired on
September 2, 1998. Mr. Ivey also serves as a director of 1st M&F Corp. Mr.
Ivey is a graduate of, and serves as a trustee of, Freed-Hardeman University.
F. Traynor Beck has served as Executive Vice President, General Counsel and
Secretary of our Company since November 25, 1997. Between January 1988 and
November 25, 1997, Mr. Beck was associated with the law firm of Morgan, Lewis
and Bockius LLP, most recently as a partner since October 1994. Mr. Beck's
practice was focused on mergers, acquisitions and general corporate matters,
including consolidation transactions. Mr. Beck is a graduate of the University
of Pennsylvania, Oxford University and Stanford Law School.
Timothy C. Clayton has served as Executive Vice President, Chief Financial
Officer and Treasurer of our Company since November 25, 1997. Between August
1976 and October 1997, Mr. Clayton was associated with Price Waterhouse LLP
(now PricewaterhouseCoopers LLP), most recently as a partner since July 1988.
In his capacity as a partner, Mr. Clayton focused his practice on, among
others, distribution, technology, financial services, business services and
manufacturing industries and was responsible for providing audit and business
advisory services to clients active in consolidating a variety of industries.
Mr. Clayton is a graduate of Michigan State University.
51
<PAGE>
David Ledecky joined us as Senior Vice President, Secretary and Treasurer in
September 1997 and was appointed Executive Vice President and Chief
Administrative Officer on November 25, 1997. David Ledecky has also served as
a director since November 25, 1997. Prior to this, he operated Ledecky
Brothers L.L.C., the predecessor to our Company, as its Vice President and
sole employee since its inception in February 1997. In that capacity, he
researched and analyzed industry consolidation and acquisition opportunities.
From 1992 to 1996, David Ledecky was an attorney at the Washington, DC law
firm of Comey, Boyd & Luskin. Prior to 1992, he was an attorney with the law
firm of Shearman & Sterling, and Vice President of The Legacy Fund, Inc., in
Washington, DC. He is a former consultant to the computer and
telecommunications industries. He is a graduate of Harvard College and Yale
Law School. David Ledecky is the brother of Jonathan J. Ledecky.
William P. Love, Jr. currently serves as the President of the Building One
Mechanical and Electrical Group and has been a director of our Company since
March 11, 1998. From September 1980 to March 11, 1998, Mr. Love served as the
President and Chief Executive Officer of SKC Electric, Inc., an electrical
installation and maintenance services company that Mr. Love founded and that
has been a wholly owned subsidiary of our Company since we acquired it on
March 11, 1998. Mr. Love is the director designee of the initial companies in
the electrical group pursuant to the agreements between our Company and each
company within the founding group.
Michael Sullivan has served as the Chairman of the Building One Service
Solutions Group since November 1998. From 1980 to 1998, Mr. Sullivan served as
President and Chief Executive Officer of Sullivan Service Company, a contract
management firm that Mr. Sullivan founded and that has been a wholly-owned
subsidiary of our Company since we acquired it on April 27, 1998 from United
Service Solutions. In 1980, Mr. Sullivan founded SPC Contract Management,
which specializes in outsourcing cleaning services for the specialty retailer,
and was acquired by our Company on April 27, 1998 from United Service
Solutions. From 1975 to 1980 he served as the President of Coastal Building
Maintenance, a contract cleaning company.
Mary K. Bush has been a director of our Company since September 15, 1998.
Ms. Bush has served as the President of Bush & Company, an international
financial consulting firm, since 1991. Prior to founding Bush & Company, she
served from 1989 to 1991 as Managing Director of the U.S. Federal Housing
Finance Board. Prior to that, she was Vice President--International Finance at
the Federal National Mortgage Associate (Fannie Mae). From 1984 to 1988, she
served as U.S. Alternate Executive Director of the International Monetary
Fund. Ms. Bush serves on a number of boards of directors and advisory boards,
including Texaco, Inc., Mortgage Guaranty Insurance Corporation, a number of
Pioneer mutual funds, Novecon Management Company, Washington Mutual Investors
Fund, March of Dimes, Hoover Institution, Wilberforce University, the Folger
Shakespeare Library, Project 2000, Inc. and the Bretton Woods Committee.
Vincent W. Eades has been a director of our Company since November 25, 1997.
Since May 20, 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 May 1995 and May
20, 1998, he served as the Senior Vice President of Sales and Marketing for
Starbucks Coffee Co., Inc. From November 1985 through May 1995, Mr. Eades was
employed by Hallmark Cards, Inc., most recently as a General Manager.
Additionally, he serves as a director of USA Floral Products, Inc. and
UniCapital Corporation.
Thomas D. Heule has been a director of our Company since May 27, 1998. Since
March 1997, Mr. Heule has served as a Managing Director of BACE Capital
Partners, LLC, an industry consolidation buyout firm based in Denver,
Colorado. Between November 1997 and May 1998, Mr. Heule also served as Vice
President of USS, a company we acquired in May 1998. Between 1991 and 1997,
Mr. Heule was a Managing Director in the Corporate Finance Department of Dain
Bosworth, Inc. He is a graduate of the University of Colorado, the College of
St. Thomas and the Wharton School of the University of Pennsylvania. Mr. Heule
is the director designee of the stockholders of United Service Solutions,
Inc., pursuant to the acquisition agreement between our Company and United
Service Solutions, Inc.
52
<PAGE>
W. Russell Ramsey has been a director of our Company since November 25,
1997. Mr. Ramsey is President, co-founder and a director of Friedman,
Billings, Ramsey Group, Inc., a holding company engaged in brokerage,
investment banking, corporate finance and asset management activities in the
Washington, DC area. He has served as President of Friedman, Billings, Ramsey
Group, Inc. and its predecessors since co-founding the company in 1989. Mr.
Ramsey holds a B.A. from the George Washington University and is director
designee of FBR pursuant to an agreement with us.
M. Jude Reyes has been a director of our Company since November 25, 1997.
Mr. Reyes has served as Chairman and President of Premium Distributors of
Virginia, L.L.C., a beverage distributor, since 1992. Between 1989 and 1992,
he served as President and Chairman of Harbor Distributing Company in Los
Angeles, California. He is also a director and investor in three other
beverage distributors and two wholesale food service distributors. Mr. Reyes
is a director designee of FBR pursuant to an agreement with us.
Members of the Board of Directors After the Tender Offer
In connection with our proposed sale of the convertible subordinated notes
to Boss Investment, we have agreed to increase the size of our Board to ten
persons, appoint three designees of Boss Investment to our Board and cause
changes in the current membership of the Board so that we have ten directors.
We expect that at least a majority of the members of our Board will be the
Boss Investment designees and persons named above. Information about Boss
Investment's designees is presented below:
Michael Gross, age 37, is one of the founding principals of Apollo Advisors,
L.P. (which, together with its affiliates, acts as the managing general
partner of several private securities investment funds) and of Lion Advisors,
L.P. (a financial advisor to, and representative of institutional investors
with respect to, securities investments). Mr. Gross is also a director of
Alliance Imaging, Inc., Allied Waste Industries, Inc., Breuners Home
Furnishings, Inc., Converse, Inc., Florsheim Group, Inc., United Rentals,
Inc., Saks Incorporated and SMT Health Services Inc.
Brooks Newmark, age 41, is a principal of Apollo Advisors, L.P. Mr. Newmark
has been associated with Apollo for more than five years and is Vice President
of Apollo Management (U.K.) L.L.C.
Andrew Africk, age 32, has been a principal of Apollo Advisors, L.P. and of
Lion Advisors, L.P. for more than five years. Mr. Africk is also a director of
Continental Graphics Holdings, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, executive officers and persons who own more than 10% of our
outstanding common stock to file with the SEC initial reports of ownership,
reports of changes in ownership and annual reports of ownership of common
stock and other equity securities of the Company. Specific due dates for these
reports have been established and we are required to report in this Annual
Report any failure to file by these dates in fiscal 1998. On October 5, 1998 a
Form 3 for Mary K. Bush was filed by counsel for the Company with the
Securities and Exchange Commission in a timely fashion. This Form 3 was later
rejected by the SEC for illegibility. The Form 3 was successfully re-filed and
accepted by the SEC on December 2, 1998 but, pursuant to the rules and
regulations of the SEC, was deemed to be filed late.
53
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table
The following table provides certain summary information concerning the cash
and non-cash compensation earned by or awarded to the persons who were our
executive officers during 1998. Our predecessor was organized in February
1997, with David Ledecky as its sole employee. We employed the remaining
executive officers as of November 25, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------ Awards
Annual Securities
Compensation Underlying
Fiscal Salary Options/SARS All Other
Name and Principal Position Year ($) (1) Bonus (#) (2) Compensation
- --------------------------- ------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jonathan J. Ledecky
Chief Executive Officer
and 1998 $ 750,000 $ 42,500 -- --
Chairman of the Board
(3).................... 1997 125,000 -- -- --
Timothy C. Clayton
Executive Vice
President, 1998 300,000 175,000 -- $ 110,295(4)
Chief Financial Officer
and Treasurer.......... 1997 223,000 -- 500,000 25,000
F. Traynor Beck
Executive Vice
President, 1998 300,000 175,000 -- 4,800(5)
General Counsel and
Secretary.............. 1997 223,000 -- 500,000 --
David Ledecky
Executive Vice President
and 1998 300,000 100,000 -- 4,800(5)
Chief Administrative
Officer, Director...... 1997 327,994(6) -- 500,000 --
</TABLE>
- --------
(1) The 1997 figures include bonus payments of $200,000 for Mr. Clayton, Mr.
Beck and David Ledecky, which were guaranteed for the first year of
employment pursuant to their employment agreements, declared in December
1997 and paid in January 1998.
(2) Represents options granted in 1997 with respect to our common stock, each
option to vest ratably on November 25, 1998, 1999, 2000 and 2001, unless
accelerated under certain conditions.
(3) On February 26, 1999, Building One appointed Joseph M. Ivey as president
and chief executive officer. Jonathan J. Ledecky currently serves as
chairman of the board.
(4) Represents a $4,800 contribution to the employee's 401(k) plan and
$105,495, the discounted value of the benefit to Mr. Clayton of the
premium paid by the company during 1998 for a split-dollar insurance
policy under which our company is entitled to a refund of the premiums
paid by it to the insurer at the time Mr. Clayton becomes the owner of the
policy at the end of 22 years or such earlier time as Mr. Clayton dies.
(5) Represents our company's matching contribution to the employee's 401(k)
plan.
(6) Includes payments made to David Ledecky by our predecessor.
Employment Agreements
Jonathan J. Ledecky. On November 25, 1997, we entered into an employment
agreement with Jonathan J. Ledecky. The agreement has a one-year term which
was automatically renewed for successive one-year terms pursuant to its terms
and is automatically renewable for each successive one-year term unless either
Jonathan J. Ledecky or our Company gives notice that they do not intend to
renew the contract at least 90 days prior to the end of the term. Non-renewal
of the contract is the equivalent of termination without "cause" (as defined
in the employment agreement). The agreement provides for an annual salary of
$750,000 and a discretionary bonus in an amount equal to up to 100% of his
base salary. If we terminate the agreement other than for "cause" (as defined
in the employment agreement), Jonathan J. Ledecky is entitled to receive an
amount equal to twice his base salary plus an amount equal to the bonus he
received in the prior year. The agreement prohibits Jonathan J. Ledecky from
competing with us during the term of his employment and for a period of one
year thereafter. The agreement also provides for certain executive
perquisites.
54
<PAGE>
Joseph M. Ivey. Effective February 25, 1999, we entered into an employment
agreement with Joseph M. Ivey, our President and Chief Executive Officer and a
Company director. The agreement has a two-year term and is automatically
renewable on the same terms for one-year terms thereafter, unless either we or
Mr. Ivey give notice of non-renewal at least six months prior to the end of
the term. According to the terms of the agreement, Mr. Ivey is obligated to
devote his full business time, attention and efforts to his duties as
President and Chief Executive Officer. The agreement provides for an annual
salary of $400,000 and a discretionary bonus in an amount equal to up to 150%
of his base salary. Pursuant to the agreement, Mr. Ivey received a grant of an
option to purchase 250,000 shares of common stock. This option vests ratably
on the first, second, third and fourth anniversaries of the date of the grant,
unless accelerated upon a "change in control" (as defined in the 1998 Long-
Term Incentive Plan) or upon termination of Mr. Ivey without "cause" (as
defined in the employment agreement). If we terminate the agreement other than
for "cause," Mr. Ivey will be entitled to receive an amount equal to twice his
base salary plus the amount of bonus he received in the prior year and to
participate in pension, insurance and other benefit programs on terms which
are identical to those of our other senior executive officers. Mr. Ivey's
employment agreement prohibits him from competing with us during the term of
his employment and, depending on the nature of his termination, for a period
of up to two years thereafter. The agreement also provides for certain
executive perquisites.
F. Traynor Beck, Timothy C. Clayton and David Ledecky. On November 25, 1997,
we entered into employment agreements with F. Traynor Beck, Timothy C. Clayton
and David Ledecky, the terms of which are substantially identical. Each of the
agreements has a two-year term and is automatically renewable for one-year
terms thereafter, unless either the employee or we give notice of non-renewal
at least six months prior to the end of the term. According to the terms of
the agreements, each is obligated to devote his full business time, attention
and efforts to his duties under the agreement. Each of the agreements provides
for an annual salary of $300,000, a guaranteed bonus of $200,000 for the first
year of the term and a bonus in an amount equal to up to 100% of his base
salary for each year thereafter. On November 25, 1997, each of these executive
officers received a grant of an option to purchase 500,000 shares of common
stock at an exercise price equal to our initial public offering price per
share ($20.00). This option vests ratably on the first, second, third and
fourth anniversaries of the date of grant, unless accelerated upon a "change
in control" (as defined in the employment agreement) or upon the termination
of the employee without "cause" (as defined in the employment agreement). If
we terminate the agreement other than for "cause," the executive officer will
be entitled to receive an amount equal to twice his base salary then in effect
plus the amount of the bonus he received in the prior year. The agreements
generally prohibit the executive officer from competing with us during the
term of his employment and for a period of up to one year thereafter. The
agreements also provide for certain executive benefits and perquisites.
William P. Love, Jr. On March 11, 1998, we entered into an employment
agreement with William P. Love, Jr., who is a director of our Company, and, as
of February 25, 1999, became the President of the Building One Mechanical and
Electrical Group. The agreement has a two-year term and may be extended
according to terms upon which we and Mr. Love mutually agree. The agreement
provides for an annual salary of $200,000 and a performance-based incentive
bonus. This bonus is payable in cash, stock options or other non-cash awards.
The compensation committee of your Board of Directors determines the form of
the bonus each year during the term of the agreement, beginning on January 1,
1999. If we terminate the agreement other than for "cause" (as defined in the
employment agreement), Mr. Love will receive his base salary and group health
benefits in effect at that time for either:
. one year from the date of termination; or
. the remaining length of time under the term of the agreement, whichever
is longer.
Mr. Love's employment agreement also prohibits him from competing with us
during the term of his employment and, depending on the nature of his
termination of employment, for a period of up to two years from the date of
termination.
55
<PAGE>
Upon a "change in control" (as defined in the employment agreement) whereby
Jonathan J. Ledecky does not remain as Chairman of the Board and Chief
Executive Officer of the successor entity, Mr. Love may choose to terminate
the employment agreement. In such case, Mr. Love will receive his base salary
and group health benefits in effect at the time of termination for either:
. six months from the date of termination; or
. the remaining length of time under the term of the agreement, whichever
is longer.
Mr. Love will also be subject to prohibitions on competing with us for a
period of one year from the date of his termination or the remaining length of
time under the term of the agreement, whichever is longer. In addition, Mr.
Love will be given the opportunity to exercise any or all of his vested
options under our Long-Term Incentive Plan, including any options with
accelerated vesting.
Upon a "change in control" whereby Jonathan J. Ledecky remains as Chairman
of the Board and Chief Executive Officer, the employment agreement will remain
in full force and effect.
Michael Sullivan. Effective November 6, 1998 we entered into an employment
agreement with Michael Sullivan, the chairman of the Building One Service
Solutions Group. The agreement has a two-year term and may be extended
according to terms that our company and Mr. Sullivan mutually agree upon. The
agreement provides for an annual salary of $250,000 and a performance-based
incentive bonus. Pursuant to the employment agreement, we granted Mr. Sullivan
an option to purchase 200,000 shares of our common stock, pursuant to the
terms of our Long-Term Incentive Plan. If we terminate the agreement without
"cause" (as defined in the employment agreement), Mr. Sullivan will receive
his base salary then in effect for the time period that remains under the term
of the agreement, any bonus declared but not paid prior to termination and
bonus compensation through the end of the fiscal year in which the termination
occurs. Upon termination for any reason, Mr. Sullivan's option will only be
exercisable to the extent that it was exercisable prior to termination. If,
however, the option is not exercisable at the end of the initial two-year term
of the employment agreement, it will be accelerated if the agreement is not
renewed for an additional term. The agreement prohibits Mr. Sullivan from
competing with us during the period of his employment and for a period of up
to two years thereafter.
Year-End Values of Options
The following table sets forth certain information concerning the exercise
and year-end values of options relating to our executive officers for the
fiscal year 1998.
Aggregated Options/SARs Exercised in 1998 and
Option/SAR Values at end of 1998
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-money
Options/SARs Options/SARs
Shares at End of 1998 at End of 1998
Acquired on Value (Exercisable/ (Exercisable/
Exercise Realized Unexercisable) Unexercisable)
Name (# of shares) ($)(1) (#) ($)(2)
---- ------------- -------- --------------- -----------------
<S> <C> <C> <C> <C>
Jonathan J. Ledecky... -- -- -- --
Timothy C. Clayton.... -- -- 125,000/375,000 $109,375/$328,125
F. Traynor Beck....... -- -- 125,000/375,000 109,375/ 328,125
David Ledecky......... -- -- 125,000/375,000 109,375/ 328,125
</TABLE>
- --------
(1) The "value realized" represents the difference between the base (or
exercise) price of the option shares and the market price of the option
shares on the date the option was exercised. The value realized was
determined without considering any taxes which may have been owed.
56
<PAGE>
(2) "In-the-money" options are options whose base (or exercise) price was less
than the market price of our common stock at December 31, 1998. The value
of such options is calculated assuming a stock price of $20, which was the
closing price of our common stock on the Nasdaq Stock Market on December
31, 1998.
Director Compensation
Directors who do not receive compensation as officers, our employees or
consultants of our Company are entitled to receive an annual retainer fee of
$25,000. In addition, pursuant to our 1997 Non-Employee Directors' Stock Plan,
each director who is not an employee automatically receives an initial grant
of an option to purchase 20,000 shares of our common stock on the date that
person is first elected to our Board of Directors. Such directors also receive
an automatic annual grant of an option to purchase 5,000 shares. The exercise
price of each option is equal to the fair market value on the date of grant of
one share of our common stock. In connection with the Company's negotiation of
the agreement with Boss Investment in December 1998, Messrs. Eades, Reyes and
Heule, members of the Special Committee to the Board of Directors, received
$19,500 each.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 29, 1999 by:
. each person (or group of affiliated persons) we know to be the
beneficial owner of more than five percent of the outstanding shares of
our common stock;
. each director;
. each executive officer; and
. all of our current directors and executive officers as a group. Each of
these stockholders possesses sole voting and investment power with
respect to the shares listed, unless otherwise noted.
<TABLE>
<CAPTION>
Amount and Nature Percentage of
of Beneficial Common Stock
Name and Address of Beneficial Owner Ownership Owned
------------------------------------ ----------------- -------------
<S> <C> <C>
Executive Officers and Directors
Jonathan J. Ledecky......................... 4,500,000(1) 9.8%
David Ledecky............................... 125,000(2) *
F. Traynor Beck............................. 125,000(2) *
Timothy C. Clayton.......................... 127,000(2) *
Joseph M. Ivey.............................. 624,131(3) 1.4%
William P. Love, Jr......................... 423,322(4) *
Michael Sullivan............................ 84,113(5) *
Thomas D. Heule............................. 208,831(6) *
Vincent W. Eades............................ 22,500(7) *
W. Russell Ramsey........................... 1,682,500(8) 3.7%
M. Jude Reyes............................... 42,500(9) *
Mary K. Bush................................ 10,000(7) *
All directors and executive officers as a
group (12 persons)......................... 7,974,897 17.3%
</TABLE>
- --------
* Less than one percent
(1) This includes 1,950,000 shares underlying a warrant issued to Jonathan J.
Ledecky in connection with our initial public offering. We have agreed
that, at Jonathan J. Ledecky's request, we will file a registration
statement under the Securities Act of 1933, as amended, for an offering of
the shares underlying the warrant during a ten-year period beginning on
November 25, 1997. In addition, we have agreed to give Jonathan J. Ledecky
the right to request that we include the shares underlying the warrant on
a registration statement filed by us during a twelve-year period beginning
on November 25, 1997. Mr. Ledecky's address is: c/o Building One Services
Corporation, 800 Connecticut Ave., N.W., Suite 1111, Washington, DC 20006.
(2) This figure includes 125,000 shares which may be acquired upon the
exercise of options that are exercisable within 60 days.
57
<PAGE>
(3) This figure includes 300,000 shares held in the Joseph M. Ivey, Jr.
Annuity Trust, of which Mr. Ivey is the trustee and 246,693 shares held by
Ivey National Corporation (the principal stockholder of which is Mr.
Ivey's father), which Mr. Ivey disclaims beneficial ownership of beyond
his pecuniary interest.
(4) This figure includes 207,428 shares owned by Mr. Love's wife and 1,200
shares owned by trusts established for the benefit of his children. Mr.
Love serves as one of four trustees of the SKC Electric, Inc. Profit
Sharing Plan. The number of shares shown as beneficially owned by Mr. Love
excludes shares that may be deemed to be beneficially owned by that plan.
(5) This figure represents 24,000 shares which may be acquired upon the
exercise of options that are exercisable within 60 days.
(6) This figure includes 174,430 shares held by Denargo Investments, L.L.C.,
of which Mr. Heule is the sole member.
(7) This figure represents shares which may be acquired upon the exercise of
options that are exercisable within 60 days.
(8) This figure includes 22,500 shares which may be acquired upon the exercise
of options that are exercisable within 60 days, 500,000 shares owned by
FBR Asset Investment Corporation, of which Mr. Ramsey is an officer,
director and indirect shareholder, and 1,130,000 shares underlying a
warrant owned by Friedman, Billings, Ramsey & Co., Inc., of which Mr.
Ramsey is an officer, director and shareholder.
(9) This figure includes 22,500 shares which may be acquired upon the exercise
of options that are exercisable within 60 days.
Item 13. Certain Relationships and Related Transactions
Set forth below is a description of certain transactions and relationships
between us and our officers, directors and principal stockholders.
Jonathan J. Ledecky, our Chairman and founder, is the brother of David
Ledecky, our Executive Vice President, Chief Administrative Officer and a
director.
Joseph M. Ivey, our President, Chief Executive Office and director, is an
officer and stockholder of two corporations which lease real property and an
airplane to our company. The leases provide for lease payments in the
aggregate amount of $8,200 per month, or $98,400 annually. In addition, our
company pays a fee based upon the use of the airplane. In 1998, we paid
$43,120 in usage fees for the airplane.
W. Russell Ramsey, a director, is President and a principal stockholder of
Friedman, Billings, Ramsey Group, Inc. FBR, a wholly owned indirect subsidiary
of Friedman, Billings, Ramsey Group, Inc., rendered investment banking
services to us in connection with our initial public offering. Friedman,
Billings, Ramsey Group, Inc., acted as a financial advisor to our company in
connection with the terminated merger with Boss Investment LLC and received a
fee of $500,000 as consideration for an opinion letter regarding the fairness
of the proposed merger to our stockholders from a financial point of view and
will receive a fee of up to $2.1 million, contingent upon the completion of
the tender offer.
On March 11, 1998, we completed the acquisition of SKC Electric, Inc. SKC
Electric, Inc. leases office, warehouse and storage space from SKC Properties,
L.L.C., a principal member of which is William P. Love, Jr. Mr. Love is one of
the former owners of SKC, Inc., a director, and the president of the Building
One electrical group. The lease provides for lease payments in the amount of
$8,095 per month, or $97,140 annually.
Thomas D. Heule, a director, is a managing director of BACE Capital
Partners, LLC, and is a member of BCP Partners, LLC, which owns an 80%
interest in BACE Capital Partners, LLC. We have entered into a consulting
agreement with BACE Capital Partners under which they will provide advisory
services in connection with the identification and closing of acquisitions of
building maintenance services businesses. As compensation for its services,
BACE Capital Partners will generally receive a fee equal to a percentage of
the consideration paid in connection with the acquisitions they have
identified. To date, we have not made any payments pursuant to this agreement.
In addition, we have agreed to pay to BACE Capital Partners in twelve equal
monthly installments a termination fee in the amount of $500,000 in connection
with the termination of a consulting agreement between United Service
Solutions, Inc. and BACE Capital Partners that was entered into prior to our
acquisition of United Service Solutions, Inc. In 1998, we paid $333,353 in
termination fees under the agreement with BACE Capital Partners. Generally,
any payments to be made under our consulting agreement with BACE Capital
Partners will be offset by payments made pursuant to this termination fee.
58
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K.
(a) Financial Statements, Schedules and Exhibits.
1. Financial Statements (See Item 8 hereof.)
Reports of Independent Accountants.
Balance Sheet as of December 31, 1998.
Statement of Income for the period ended December 31, 1998.
Statement of Stockholders' Equity for the period ended December 31,
1998.
Statement of Cash Flows for the period ended December 31, 1998.
Notes to Financial Statements.
2. Financial Statement Schedules (See Item 8 hereof.)
All schedules are omitted as the information is not required or is
otherwise furnished.
3. Exhibits
<TABLE>
<C> <S>
2.01 Agreement and Plan of Reorganization, dated February 27, 1998, by
and among the Company, CCC2 Acquisition Co., SKC Electric, Inc. and
the stockholders named therein (Exhibit 2.01 of the Company's
Registration Statement on Form S-1 (File No. 333-42317) is hereby
incorporated by reference).
2.02 Agreement and Plan of Reorganization, dated February 27, 1998, by
and among the Company, CCC3 Acquisition Co., Riviera Electric, Inc.
and the stockholders named therein (Exhibit 2.02 of the Company's
Registration Statement on Form S-1 (File No. 333-42317) is hereby
incorporated by reference).
2.03 Agreement and Plan of Reorganization, dated February 27, 1998, by
and among the Company, CCC4 Acquisition Co., Garfield Electric
Company and the stockholders named therein (Exhibit 2.03 of the
Company's Registration Statement on Form S-1 (File No. 333-42317)
is hereby incorporated by reference).
2.04 Agreement and Plan of Reorganization, dated February 27, 1998, by
and among the Company, CCC5 Acquisition Co., Indecon, Inc. and the
stockholders named therein (Exhibit 2.04 of the Company's
Registration Statement on Form S-1 (File No. 333-42317) is hereby
incorporated by reference).
2.05 Agreement and Plan of Reorganization, dated February 27, 1998, by and
among the Company, CCC6 Acquisition Co., Tri-City Electrical
Contractors, Inc. and the stockholders named therein (Exhibit 2.05 of
the Company's Registration Statement on Form S-1 (File No. 333-42317)
is hereby incorporated by reference).
2.06 Agreement and Plan of Reorganization, dated February 27, 1998, by
and among the Company, CCC Acquisition Co. 6, Town & Country
Electric, Inc. and the stockholders named therein (Exhibit 2.06 of
the Company's Registration Statement on Form S-1 (File No. 333-
42317) is hereby incorporated by reference).
2.07 Agreement and Plan of Reorganization, dated February 27, 1998, by
and among the Company, CCC 8 Acquisition Co., Wilson Electric, Inc.
and the stockholders named therein (Exhibit 2.07 of the Company's
Registration Statement on Form S-1 (File No. 333-42317) is hereby
incorporated by reference).
</TABLE>
59
<PAGE>
<TABLE>
<C> <S>
2.08 Agreement and Plan of Reorganization, dated January 29, 1998, by
and among the Company, CCC Acquisition Corp. 1., Service Management
USA and the stockholder named therein (Exhibit 2.1 of the Company's
Current Report on Form 8-K dated February 4, 1997 is hereby
incorporated by reference).
2.09 Agreement and Plan of Reorganization, dated March 15, 1998, by and
among the Company, CCC Acquiring Co., No. 10, Walker Engineering,
Inc. and the shareholders named therein (Exhibit 2.09 of the
Company's Annual Report on Form 10-K for the year ended December
31, 1997 (File No. 000-23241) is hereby incorporated by reference).
2.10 Agreement and Plan of Reorganization, dated May 8, 1998, by and
among the Company, CCC 12 Acquisition Corporation, Taylor Electric,
Inc. and the shareholders named therein (Exhibit 2.01 of the
Company's Current Report on Form 8-K dated May 22, 1998 is hereby
incorporated by reference).
2.11 Agreement and Plan of Reorganization, dated June 1, 1998, by and
among the Company, RECI Acquisition Corp., Regency Electric
Company, Inc. and the stockholders named therein. (Exhibit 2.11 of
the Company's Post-Effective Amendment No. 4 to the Registration
Statement on Form S-1 (File No. 333-42317) is hereby incorporated
by reference).
2.12 Agreements and form of Indenture dated March 22, 1999, by and
between the Company and Boss Investment LLP, an affiliate of Apollo
Management, L.P. (Exhibit 99.2 of the Company's Current Report on
Form 8-K, dated March 23, 1999, is hereby incorporated by
reference).
3.01 Restated Certificate of Incorporation of Building One Services
Corporation (Exhibit 3.01 of the Company's Current Report on Form
8-K, dated September 15, 1998, is hereby incorporated by
reference).
3.02 Amended and Restated Bylaws of Building One Services Corporation
(Exhibit 3.02 of the Company's Registration Statement on Form S-1
(File No. 333-36193) is hereby incorporated by reference).
*10.01 The Company's 1997 Long-Term Incentive Plan (Exhibit 10.01 of the
Company's Registration Statement on Form S-1 (File No. 333-36193)
is hereby incorporated by reference).
*10.02 The Company's 1997 Non-Employee Directors' Stock Plan (Exhibit
10.02 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 000-23241) is hereby incorporated
by reference).
*10.03 The Company's 1997 Employee Stock Purchase Plan (Exhibit 10.03 of
the Company's Registration Statement on Form S-1 (File No. 333-
36193) is hereby incorporated by reference).
*10.04 The Company's 1997 Section 162(m) Bonus Plan (Exhibit 10.04 of the
Company's Registration Statement on Form S-1 (File No. 333-36193)
is hereby incorporated by reference).
*10.05 The Company's Executive Deferred Compensation Plan (Exhibit 10.05
of the Company's Registration Statement on Form S-1 (File No. 333-
36193) is hereby incorporated by reference).
*10.06 Employment Agreement between the Company and Jonathan J. Ledecky
(Exhibit 10.05 of the Company's Registration Statement on Form S-1
(File No. 333-36193) is hereby incorporated by reference).
*10.07 Employment Agreement between the Company and Timothy C. Clayton
(Exhibit 10.06 of the Company's Registration Statement on Form S-1
(File No. 333-36193) is hereby incorporated by reference).
*10.08 Employment Agreement between the Company and F. Traynor Beck
(Exhibit 10.07 of the Company's Registration Statement on Form S-1
(File No. 333-36193) is hereby incorporated by reference).
</TABLE>
60
<PAGE>
<TABLE>
<C> <S>
*10.09 Employment Agreement between the Company and David Ledecky (Exhibit
10.08 of the Company's Registration Statement on Form S-1 (File No.
333-36193) is hereby incorporated by reference).
*10.10 Form of Indemnity Agreement for Executive Officers and Directors of
the Company (Exhibit 10.09 of the Company's Registration Statement
on Form S-1 (File No. 333-36193) is hereby incorporated by
reference).
*10.11 Employment Agreement between the Company and William P. Love, Jr.
(Exhibit 10.11 of the Company's Annual Report of Form 10-K for the
fiscal year ended December 31, 1997 (File No. 000-23241) is hereby
incorporated by reference).
10.12 Form of Warrant Agreement, dated November 25, 1997, between the
Company and Friedman, Billings, Ramsey & Co., Inc. (Exhibit 4.10 of
the Company's Registration Statement on Form S-1 (File No. 333-
36193) is hereby incorporated by reference).
10.13 Form of Warrant Agreement, dated November 25, 1997, between the
Company and Jonathan J. Ledecky (Exhibit 10.10 of the Company's
Registration Statement on Form S-1 (File No. 333-36193) is hereby
incorporated by reference).
*10.14 Building One Services Corporation 1998 Long-Term Incentive Plan
(Exhibit A of the Company's Proxy Statement on Schedule 14A (File
No. 000-23241) is hereby incorporated by reference).
*10.15 Employment Agreement between the Company and Joseph M. Ivey
(Exhibit 10.15 of the Company's Post-Effective Amendment No. 1 to
the Registration Statement on Form S-4 (File No. 333-60053) is
hereby incorporated by reference).
*10.16 Employment Agreement between the Company and Michael Sullivan.
*10.17 Employment Agreement between the Company and Joseph M. Ivey.
11.01 Statement Regarding Computation of Net Income Per Share.
21.01 List of Subsidiaries of Building One Services Corporation (Exhibit
21.01 of the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 (File No. 333-60053) is hereby
incorporated by reference).
23.01 Consent of PricewaterhouseCoopers LLP.
23.02 Consent of Shinners, Hucovski and Company, S.C.
23.03 Consent of Frazier & Deeter, LLC.
24.01 Power of Attorney (included on the signature page of this Annual
Report on Form 10-K).
27.01 Financial Data Schedule.
99.01 Consent of Michael Gross.
99.02 Consent of Brooks Newmark.
99.03 Consent of Andrew Africk.
</TABLE>
- --------
* Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K. We filed a Current Report on Form 8-K on December
24, 1998 in which we reported an agreement and plan of merger with Apollo
Management, L.P., pursuant to which a subsidiary of Apollo would merge into
Building One, with Building One as the surviving corporation. On February 8,
1999, Building One announced that it mutually terminated the agreement and
plan of merger with Apollo.
61
<PAGE>
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Washington, District of Columbia, on March 29, 1998.
Building One Services Corporation
/s/ Joseph M. Ivey
By: _________________________________
Name: Joseph M. Ivey
Title: President and Chief
Executive Officer
Each person whose signature appears below hereby appoints Joseph M. Ivey and
F. Traynor Beck, and both of them, either of whom may act without the joinder
of the other, as his true and lawful attorneys- in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K, and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Commission, granting
unto said attorneys-in-fact and agents full power and authority to perform
each and every act and thing appropriate or necessary to be done, as fully and
for all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or their
substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joseph M. Ivey President and Chief March 26, 1999
______________________________________ Executive Officer
Joseph M. Ivey (Principal Executive
Officer)
/s/ Jonathan J. Ledecky Chairman of the Board March 29, 1999
______________________________________
Jonathan J. Ledecky
/s/ Timothy C. Clayton Executive Vice President, March 29, 1999
______________________________________ Chief Financial Officer
Timothy C. Clayton and Treasurer (Principal
Financial and Accounting
Officer)
/s/ David Ledecky Executive Vice President, March 29, 1999
______________________________________ Chief Administrative
David Ledecky Officer and Director
/s/ Mary K. Bush Director March 29, 1999
______________________________________
Mary K. Bush
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
______________________________________ Director
Vincent E. Eades
/s/ W. Russell Ramsey Director March 29, 1999
______________________________________
W. Russell Ramsey
/s/ M. Jude Reyes Director March 29, 1999
______________________________________
M. Jude Reyes
/s/ William P. Love, Jr. Director March 29, 1999
______________________________________
William P. Love, Jr.
/s/ Thomas D. Heule Director March 29, 1999
______________________________________
Thomas D. Heule
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
2.01 Agreement and Plan of Reorganization, dated February 27, 1998, by and
among the Company, CCC2 Acquisition Co., SKC Electric, Inc. and the
stockholders named therein (Exhibit 2.01 of the Company's Registration
Statement on Form S-1 (File No. 333-42317) is hereby incorporated by
reference).
2.02 Agreement and Plan of Reorganization, dated February 27, 1998, by and
among the Company, CCC3 Acquisition Co., Riviera Electric, Inc. and
the stockholders named therein (Exhibit 2.02 of the Company's
Registration Statement on Form S-1 (File No. 333-42317) is hereby
incorporated by reference).
2.03 Agreement and Plan of Reorganization, dated February 27, 1998, by and
among the Company, CCC4 Acquisition Co., Garfield Electric Company and
the stockholders named therein (Exhibit 2.03 of the Company's
Registration Statement on Form S-1 (File No. 333-42317) is hereby
incorporated by reference).
2.04 Agreement and Plan of Reorganization, dated February 27, 1998, by and
among the Company, CCC5 Acquisition Co., Indecon, Inc. and the
stockholders named therein (Exhibit 2.04 of the Company's Registration
Statement on Form S-1 (File No. 333-42317) is hereby incorporated by
reference).
2.05 Agreement and Plan of Reorganization, dated February 27, 1998, by and
among the Company, CCC6 Acquisition Co., Tri-City Electrical
Contractors, Inc. and the stockholders named therein (Exhibit 2.05 of
the Company's Registration Statement on Form S-1 (File No. 333-42317)
is hereby incorporated by reference).
2.06 Agreement and Plan of Reorganization, dated February 27, 1998, by and
among the Company, CCC Acquisition Co. 6, Town & Country Electric,
Inc. and the stockholders named therein (Exhibit 2.06 of the Company's
Registration Statement on Form S-1 (File No. 333-42317) is hereby
incorporated by reference).
2.07 Agreement and Plan of Reorganization, dated February 27, 1998, by and
among the Company, CCC 8 Acquisition Co., Wilson Electric, Inc. and
the stockholders named therein (Exhibit 2.07 of the Company's
Registration Statement on Form S-1 (File No. 333-42317) is hereby
incorporated by reference).
2.08 Agreement and Plan of Reorganization, dated January 29, 1998, by and
among the Company, CCC Acquisition Corp. 1., Service Management USA
and the stockholder named therein (Exhibit 2.1 of the Company's
Current Report on Form 8-K dated February 4, 1997 is hereby
incorporated by reference).
2.09 Agreement and Plan of Reorganization, dated March 15, 1998, by and
among the Company, CCC Acquiring Co., No. 10, Walker Engineering, Inc.
and the shareholders named therein (Exhibit 2.09 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 (File
No. 000-23241) is hereby incorporated by reference).
2.10 Agreement and Plan of Reorganization, dated May 8, 1998, by and among
the Company, CCC 12 Acquisition Corporation, Taylor Electric, Inc. and
the shareholders named therein (Exhibit 2.01 of the Company's Current
Report on Form 8-K dated May 22, 1998 is hereby incorporated by
reference).
2.11 Agreement and Plan of Reorganization, dated June 1, 1998, by and among
the Company, RECI Acquisition Corp., Regency Electric Company, Inc.
and the stockholders named therein. (Exhibit 2.11 of the Company's
Post-Effective Amendment No. 4 to the Registration Statement on Form
S-1 (File No. 333-42317) is hereby incorporated by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
2.12 Agreement dated March 22, 1999, by the Company and Boss Investment
LLP, an affiliate of Apollo Management, L.P. (Exhibit 99.2 of the
Company's Current Report on Form 8-K, dated March 23, 1999, is hereby
incorporated by reference).
3.01 Restated Certificate of Incorporation of Building One Services
Corporation (Exhibit 3.01 of the Company's Current Report on Form 8-K,
dated September 15, 1998, is hereby incorporated by reference).
3.02 Amended and Restated Bylaws of Building One Services Corporation
(Exhibit 3.02 of the Company's Registration Statement on Form S-1
(File No. 333-36193) is hereby incorporated by reference).
10.01 The Company's 1997 Long-Term Incentive Plan (Exhibit 10.01 of the
Company's Registration Statement on Form S-1 (File No. 333-36193) is
hereby incorporated by reference).
10.02 The Company's 1997 Non-Employee Directors' Stock Plan (Exhibit 10.02
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (File No. 000-23241) is hereby incorporated by
reference).
10.03 The Company's 1997 Employee Stock Purchase Plan (Exhibit 10.03 of the
Company's Registration Statement on Form S-1 (File No. 333-36193) is
hereby incorporated by reference).
10.04 The Company's 1997 Section 162(m) Bonus Plan (Exhibit 10.04 of the
Company's Registration Statement on Form S-1 (File No. 333-36193) is
hereby incorporated by reference).
10.05 The Company's Executive Deferred Compensation Plan (Exhibit 10.05 of
the Company's Registration Statement on Form S-1 (File No. 333-36193)
is hereby incorporated by reference).
10.06 Employment Agreement between the Company and Jonathan J. Ledecky
(Exhibit 10.05 of the Company's Registration Statement on Form S-1
(File No. 333-36193) is hereby incorporated by reference).
10.07 Employment Agreement between the Company and Timothy C. Clayton
(Exhibit 10.06 of the Company's Registration Statement on Form S-1
(File No. 333-36193) is hereby incorporated by reference).
10.08 Employment Agreement between the Company and F. Traynor Beck (Exhibit
10.07 of the Company's Registration Statement on Form S-1 (File No.
333-36193) is hereby incorporated by reference).
10.09 Employment Agreement between the Company and David Ledecky (Exhibit
10.08 of the Company's Registration Statement on Form S-1 (File No.
333-36193) is hereby incorporated by reference).
10.10 Form of Indemnity Agreement for Executive Officers and Directors of
the Company (Exhibit 10.09 of the Company's Registration Statement on
Form S-1 (File No. 333-36193) is hereby incorporated by reference).
10.11 Employment Agreement between the Company and William P. Love, Jr.
(Exhibit 10.11 of the company's Annual Report of Form 10-K for the
fiscal year ended December 31, 1997 (File No. 000-23241) is hereby
incorporated by reference).
10.12 Form of Warrant Agreement, dated November 25, 1997, between the
Company and Friedman, Billings, Ramsey & Co., Inc. (Exhibit 4.10 of
the Company's Registration Statement on Form S-1 (File No. 333-36193)
is hereby incorporated by reference).
10.13 Form of Warrant Agreement, dated November 25, 1997, between the
Company and Jonathan J. Ledecky (Exhibit 10.10 of the Company's
Registration Statement on Form S-1 (File No. 333-36193) is hereby
incorporated by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
10.14 Building One Services Corporation 1998 Long-Term Incentive Plan
(Exhibit A of the Company's Proxy Statement on Schedule 14A (File No.
000-23241) is hereby incorporated by reference).
10.15 Employment Agreement between the Company and Joseph M. Ivey (Exhibit
10.15 of the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 (File No. 333-60053) is hereby
incorporated by reference).
10.16 Employment Agreement between the Company and Michael Sullivan.
10.17 Employment Agreement between the Company and Joseph M. Ivey.
11.01 Statement Regarding Computation of Net Income Per Share.
21.01 List of Subsidiaries of Building One Services Corporation (Exhibit
21.01 of the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 (File No. 333-60053) is hereby
incorporated by reference).
23.01 Consent of PricewaterhouseCoopers LLP.
23.02 Consent of Shinners, Hucovski and Company, S.C.
23.03 Consent of Frazier & Deeter, LLC.
24.01 Power of Attorney (included on the signature page of this Annual
Report on Form 10-K).
27.01 Financial Data Schedule.
99.01 Consent of Michael Gross.
99.02 Consent of Brooks Newmark.
99.03 Consent of Andrew Africk.
</TABLE>
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement, dated as of the 6th day of November, 1998, is
by and between Building One Services Corporation, Inc., a Delaware corporation
(the "Company") and Michael Sullivan, a resident of the State of Florida
-------
("Employee").
R E C I T A L S
The Company desires to employ Employee and to have the benefit of his
skills and services, and Employee desires to accept employment with the Company,
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. The term of this Agreement shall begin on the date
----------------
hereof and continue for two (2) years (the "Term"), and, unless terminated as
herein provided, may be extended on such terms and conditions as the parties
hereto mutually agree.
2. Position and Duties. The Company hereby employs Employee as Chairman
--------------------
of its contract management/janitorial group. Employee shall have such
responsibilities, duties and authority as are accorded to such office and as are
otherwise assigned to him by the Board of Directors (the "Board") of the
Company. Employee shall report directly to the Chief Executive Officer of the
Company.
3. Compensation. For all services rendered by Employee, the Company shall
------------
compensate Employee as follows:
(a) Base Salary. Effective on the date, hereof, the base salary payable
to Employee shall be Two Hundred and Fifty Thousand Dollars ($250,000) per year,
payable on a regular basis in accordance with the Company's standard payroll
procedures, but not less than monthly. On at least an annual basis, the Board
will review Employee's performance and may make increases to such base salary
if, in its discretion, any such increase is warranted.
(b) Incentive Bonus Plan. Company agrees to establish an Incentive Bonus
Plan ("Incentive Bonus Plan"). Employee shall be eligible to receive a
performance-based incentive bonus for each calendar year during the Term
beginning
<PAGE>
EMPLOYMENT AGREEMENT - Page 2
January 1, 1999, based upon the achievement of the criteria specified in the
Incenctive Bonus Plan.
(c) Stock Options. Employee shall be granted on the date hereof options
to purchase 200,000 shares of Building One Services Corporation pursuant to the
Incentive Plan (as such term is defined in Section 6(g) hereof.
4. Expense Reimbursement. The Company shall reimburse employee for (or,
---------------------
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. Place of Performance. Employee shall carry out his duties and
--------------------
responsibilities hereunder principally in and from Key Largo, Florida. The
Company agrees that it may not request or require, for any reason whatsoever,
Employee to relocate from his present residence to another geographic location.
6. Termination; Rights on Termination. Employee's employment may be
----------------------------------
terminated in any one of the following ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the Term,
and no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been unable to perform the material
duties of his position on a full-time basis for a period of four (4) consecutive
months, or for six months out of any twelve month period, then 30 days after
written notice to the Employee (which notice may be given before or after the
end of the aforementioned periods, but which shall not be effective earlier than
the last day of the applicable period), the Company may terminate Employee's
employment hereunder if Employee is unable to resume his full-time duties at the
conclusion of such notice period. Also, Employee may terminate his employment
hereunder if his health should become impaired to the extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided further, that, at the Company's request made within 30 days from the
date of such written statement, Employee shall submit to an examination by a
doctor selected by the Company who is reasonably acceptable to Employee or
Employee's doctor and such doctor shall have concurred in the conclusion of
Employee's doctor.
(c) Termination by the Company "For Cause." The Company may terminate the
Agreement ten (10) days after written notice to Employee for good cause,
<PAGE>
EMPLOYMENT AGREEMENT - Page 3
which shall be: (1) Employee's willful, material and irreparable breach of this
Agreement; (2) Employee's gross negligence in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of written notice of
need to cure) of any of employee's duties and responsibilities hereunder;
(3) Employee's unwillingness or failure to perform his duties satisfactorily (as
determined by the Board) in accordance with the provisions specified herein and
such unwillingness or failure is not cured by Employee within ten (10) days of
written notice thereof; (4) Employee's dishonesty, fraud or misconduct with
respect to, or disparagement of, the business or affairs of the Company which
materially and adversely affects the operations or reputation of the Company;
(5) Employee's conviction of a felony; or (6) alcohol or illegal drug abuse by
Employee. In the event of a termination for good cause, as enumerated above,
Employee shall have no right to any severance compensation.
(d) Without Cause. At any time after the commencement of employment, the
Company may, without cause, terminate the Term and Employee's employment,
effective thirty (30) days after written notice is provided to the Employee.
Should Employee be terminated by the Company without cause, subject to Sections
6(f) and 6(g) below, Employee shall receive from the Company the base salary at
the rate then in effect, for whatever time period is remaining under the Term.
Such payments shall be made in accordance with the Company's regular payroll
cycle.
(e) Termination by Employee for Good Reason. Employee may resign or
terminate his employment hereunder for "Good Reason". As used herein, "Good
Reason" shall mean the continuance, after ten (10) days' prior written notice by
Employee to the Company, specifying the basis for such Employee's having Good
Reason to terminate this Agreement, any material breach of this Agreement by the
Company, including the failure to pay Employee on a timely basis the amounts to
which he is entitled under this or any other Agreement. If Employee resigns or
otherwise terminates his employment for any reason other than Good Reason as
defined herein, Employee shall receive no severance compensation. If Employee
resigns for Good Reason, Employee shall be entitled to severance as if he had
been terminated without cause.
(f) Payment Through Termination. Upon termination of Employee's
employment for any reason provided above, Employee shall be entitled to receive
all compensation earned and all benefits and reimbursements (including payments
for accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not paid prior to
termination. In addition, in the event of a termination under Section 6(d) or
6(e), Employee shall be entitled to receive incentive bonus compensation through
the end of the Company's fiscal year in which termination occurs, calculated as
if Employee had remained employed by the Company through the end of such fiscal
year, and paid in such
<PAGE>
EMPLOYMENT AGREEMENT - Page 4
amounts, at such times, and in such forms as are determined pursuant to Section
3(b) above. In the event of a termination under Section 6(b), Employee shall be
entitled to receive incentive bonus compensation for the fiscal year in which
termination occurs, calculated only through the date of Employee's termination,
and paid in such amounts, at such times, and in such forms as are determined
pursuant to Section 3(b) above. Except as specified in the preceding three (3)
sentences, Employee shall not be entitled to receive any incentive bonus
compensation after the effective date of termination of his employment. All
other rights and obligations of the Company and Employee under this Agreement
shall cease as of the effective date of termination, except that the Company's
obligations under Section 11 below and Employee's obligations under Sections 7,
8, 9 and 10 below shall survive such termination in accordance with their terms.
(g) Options. The rights relating to Employee's stock options shall be
governed by the terms and conditions of Building One Service Corporation's Long-
Term Incentive Plan (the "Incentive Plan"), it being understood and agreed that
upon or after Employee's termination of employment with the Company for any
reason, including termination without cause, his options shall only be
exercisable if and to the extent that they had become exercisable before such
termination and shall remain exercisable only to the extent provided by that
plan. Notwithstanding the provisions of the preceding sentence, any options
that are not exercisable on the two year anniversary of the date of this
Agreement shall become exercisable on such date if this Agreement is not renewed
for an additional period.
7. Restrictions on Competition.
---------------------------
(a) For the purposes of this Section 7, references to "the Company" shall
mean Building One Services Corporation and its subsidiaries.
(b) During the Term, and thereafter, if Employee continues to be employed
by the Company, for the duration of such period, and thereafter for the
Restricted Period (defined below), Employee shall not, directly or indirectly,
for himself or on behalf of or in conjunction with any other person, company,
partnership, corporation, business, group, or other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner, partner,
member, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant, advisor, or sales representative, in any
business selling any products or services in direct competition with Building
Once Service Corporation ("BOSC") and/or any of BOSC's subsidiaries and
affiliates with whom Employee has had personal contact for the purpose of
soliciting or selling products or services in direct competition with BOSC
and/or BOSC's subsidiaries and affiliates, within 100 miles of any office of the
BOSC and/or any of BOSC's subsidiaries and affiliates (the "Territory");
<PAGE>
EMPLOYMENT AGREEMENT - Page 5
(ii) call upon any Person who is, at that time, within the Territory,
an employee of the Company in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the Company
and/or any of the Company's subsidiaries;
(iii) call upon any Person within the Territory who is, at the time,
or has been, within one year prior to that time, a customer of the Company
and/or the Company's subsidiaries for the purpose of soliciting or selling
products or services in direction competition with the Company and/or any of the
Company's subsidiaries within the Territory;
(iv) call upon any Person who is, at the time, or has been, within one
year prior to that time, a customer of Building Once Service Corporation
("BOSC") and/or any of BOSC's subsidiaries and affiliates with whom Employee has
had personal contact for the purpose of soliciting or selling products or
services in direct competition with BOSC and/or BOSC's subsidiaries and
affiliates;
(v) on employee's own behalf or on behalf of any competitor, call upon
any Person as a prospective acquisition candidate who is or, during Employee's
employment by the Company, was, to Employee's knowledge, either called upon by
the Company as a prospective acquisition candidate or was the subject of an
acquisition analysis conducted by the Company. Employee, to the extent lacking
the knowledge described in the preceding sentence, shall immediately cease all
contact with any prospective acquisition candidate upon being informed, in
writing, that the Company had so called upon such candidate or made an
acquisition analysis thereof.
(c) The foregoing covenants shall not be deemed to prohibit Employee
from acquiring as an investment not more than one percent (1%) of the capital
stock of a competing business, whose stock is traded on a national securities
exchange or through the automated quotation system of a registered securities
association.
(d) It is further agreed that, in the event that Employee shall cease to
be employed by the Company and enters into a business or pursues other
activities that, at such time, are not in competition with the Company, Employee
shall not be chargeable with a violation of this Section 7 if the Company
subsequently enters the same (or a similar) competitive business or activity or
commences competitive operations within 100 miles of the Employee's new business
or activities. In addition, if Employee has no actual knowledge that his actions
violate the terms of this Section 7, Employee shall not be deemed to have
breached the restrictive covenants contained herein if, promptly after being
notified by the Company of such breach, Employee ceases the prohibited actions.
(e) The covenants in this Section 7 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any provision of this Section 7 relating to the time period
or geographic area of the restrictive covenants shall be declared by a court of
competent jurisdiction to
<PAGE>
EMPLOYMENT AGREEMENT - Page 6
exceed the maximum time period or geographic area, as applicable, that such
court deems reasonable and enforceable, said time period or geographic area
shall be deemed to be, and thereafter shall become, the maximum time period or
largest geographic area that such court deems reasonable and enforceable and
this Agreement shall automatically be considered to have been amended and
revised to reflect such determination.
(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
the termination of Employee's employment by Employee for Good Reason pursuant to
Section 6(e) hereof, the Employee may, upon 30 days' prior written notice to the
Company, waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the Restricted Period defined in this Section
7, during which the agreements and covenants of Employee made in this Section 7
shall be effective, shall be computed by excluding from such computation any
time during which Employee is in violation of any provision of this Section 7.
(g) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and its officers, directors,
employees, and stockholder. It is further agreed that the Company and Employee
intend that such covenants be construed and enforced in accordance with the
changing activities, business, and locations of the Company throughout the term
of these covenants.
(h) Nothing contained in the Agreement shall be deemed to prevent
Employee's present ownership of Coastal Building Maintenance (New Jersey).
Employee agrees to sell such company either to Company or to the existing
management of such company by June 1, 1999.
(i) As used herein, the "Restricted Period" shall be defined as follows:
(1) in the event Employee's employment hereunder is terminated for cause as
defined in Section 6(c), the "Restricted Period" shall mean two (2) years from
the date of termination; (2) in the event Employee's employment hereunder is
terminated without cause pursuant to Section 6(d), or for good reason as defined
in Section 6(e), the "Restricted Period" shall mean that period of time equal to
the longer of: (i) one (1) year from the date following the termination of his
employment under this Agreement or (ii) whatever time period is remaining under
the Term; or (3) in the event Employee terminates his employment for any reason
other than for "good reason" as defined in Section 6(e), the "Restricted Period"
shall be two (2) years from the date Employee terminates his employment
hereunder.
<PAGE>
EMPLOYMENT AGREEMENT - Page 7
8. Confidential Information. Employee is employed hereunder by the
------------------------
Company in a confidential relationship wherein Employee, in the course of his
employment with the Company, has and will continue to become familiar with and
aware of information as to the Company's customers, specific manner of doing
business, including the processes, techniques and trade secrets utilized by the
Company and its future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company. This
information is confidential and constitutes the valuable good will of the
Company. Employee therefor agrees that he will not, during or after the term of
his employment with the Company, disclose the specific terms of the Company's
relationships or agreements with its significant vendors or customers or any
other significant and material trade secret of the Company whether in existence
or proposed, to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever, with the exception that the provisions of this
Section will not apply to Confidential Information that otherwise becomes
generally known in the industry or to the public through no act of the Employee
or any person or entity acting by or on the Employee's behalf, or which is
required to be disclosed by court order or applicable law.
9. Inventions. Employee shall disclose promptly to the Company any
----------
and all significant conceptions and ideas for inventions, improvements and
valuable discoveries, whether patentable or not, which are conceived or made by
Employee, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Employee conceives as a result of his
employment by the Company. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
10. Return of Company Property. All records, designs, patents,
--------------------------
business plans, financial statements, manuals, memoranda, lists and other
property delivered to or compiled by Employee by or on behalf of the Company
(including the respective subsidiaries thereof) or their representatives,
vendors or customers which pertain to the business of the Company (including the
respective subsidiaries or affiliates thereof) shall be and remain the property
of the Company, and be subject at all times to its discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company which is collected by Employee shall be delivered promptly to the
Company without request by it upon termination of Employee's employment.
11. Indemnification. In the event Employee is made a party to any
---------------
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement then the
<PAGE>
EMPLOYMENT AGREEMENT - Page 8
Company shall indemnify Employee against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, as actually and
reasonably incurred by Employee in connection therewith to the fullest extent
provided by law and in accordance with the Company's By-laws.
12. No Prior Agreements. Employee hereby represents and warrants to
-------------------
the Company that the execution of this Agreement by Employee and his employment
by the Company and the performance of his duties hereunder will not violate or
be a breach of any agreement with a former employer, client or any other person
or entity. Further, Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
13. Assignment; Binding Effect. Employee understands that he has
--------------------------
been selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences, this Agreement shall be binding upon, inure to
the benefit of and be enforceable by the parties hereto and their respective
heirs, legal representatives, successors and assigns.
14. Complete Agreement; Waiver; Amendment. This Agreement is not a
-------------------------------------
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof, and cannot be varied, contradicted, or supplemented by
evidence of any prior or contemporaneous oral of written agreements. This
written Agreement may not be later modified except by a further writing signed
by a duly authorized officer of the Company and Employee, and no term of this
agreement may be waived except by a writing signed by the party waiving the
benefit of such term.
15. Notice. Whenever any notice is required hereunder, it shall be
------
be given in writing addressed as follows:
To the Company: Building One Services Corporation
800 Connecticut Avenue, N.W.
Suite 1111
Washington, DC 20006
Attn: General Counsel
To the Employee: Michael Sullivan
_____________________________
_____________________________
<PAGE>
EMPLOYMENT AGREEMENT - Page 9
16. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. Equitable Remedy. Because of the difficulty of measuring
----------------
economic losses to the Company as a result of a breach of the restrictive
covenants set forth in Sections 7, 8, 9 and 10, and because of the immediate and
irreparable damage that would be caused to the Company for which monetary
damages would not be a sufficient remedy, it is hereby agreed that in addition
to all other remedies that may be available to the Company at law or in equity,
the Company shall be entitled to specific performance and any injunctive or
other equitable relief as a remedy for any breach or threatened breach of the
aforementioned restrictive covenant.
18. Arbitration. Any unresolved dispute or controversy arising under
-----------
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted in accordance with the rules of the American Arbitration
Association then in effect. The arbitrators shall not have the authority to add
to, detract from, or modify any provision hereof nor to award punitive damages
to any injured party. The arbitrators shall have the authority to order back-
pay, severance compensation, reimbursement of costs, including those incurred to
enforce this Agreement, and interest thereon in the event the arbitrators
determine that Employee was terminated without disability or good cause, as
defined herein, or that the Company has otherwise materially breached this
Agreement. A decision by a majority of the arbitration panel shall be final and
binding. Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The direct expense of any arbitration proceeding shall be split
equally by the Company and the Employee. The arbitration proceeding shall be
held in the city where the Company's corporate headquarters is located.
Notwithstanding the foregoing, the Company shall be entitled to seek injunctive
or other equitable relief, as contemplated by Section 17 above, from any court
of competent jurisdiction, without the need to resort to arbitration.
19. Governing Law. This Agreement shall in all respects be
-------------
construed according to the laws of the State of Deleware.
<PAGE>
EMPLOYMENT AGREEMENT - Page 10
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed as of the date first written above.
BUILDING ONE SERVICES CORPORATION, INC.
/s/ F. Traynor Beck
---------------------------------------
By: F. Traynor Beck
/s/ Michael Sullivan
---------------------------------------
Michael Sullivan
<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of February 25, 1999, between
BUILDING ONE SERVICES CORPORATION, a Delaware corporation (the "Company"), and
Joseph Ivey, a resident of the State of Mississippi (the "Executive").
W I T N E S S E T H:
-------------------
WHEREAS, the Company wishes to secure the services of the Executive and the
Executive wishes to furnish such services to the Company pursuant to the terms
and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Employment: Term. The Company hereby agrees to employ the Executive,
----------------
and the Executive hereby agrees to enter into such employment, as President and
Chief Executive Officer of the Company, for the period commencing on the date
stated above (the "Commencement Date") and ending on the date two years from the
Commencement Date, unless terminated sooner pursuant to Section 5 hereof. The
initial two year term shall be extended for additional successive periods of one
year each, on the same terms and conditions contained herein, unless six months
prior written notice is given by the Company of its intention to terminate the
term of this Agreement without cause. For purposes hereof, the period of
Executive's employment hereunder is referred to as the "Term."
2. Duties and Extent of Services.
-----------------------------
(a) During the Term, the Executive shall serve as President and Chief
Executive Officer of the Company with such duties and responsibilities as are
consistent with such positions, and shall so serve faithfully and to the best of
his ability, under the direction and supervision of the Company's Board of
Directors (the "Board").
(b) The Executive shall serve as a Director of the Company if elected to
such position in accordance with law and hold such other positions and executive
offices of the Company and/or of any of the Company's subsidiaries or affiliates
as may from time to time be authorized by the Board, provided that each such
position shall be commensurate with the Executive's standing in the business
community as President and Chief Executive Officer of the Company. The
Executive shall not be entitled to any compensation other than the compensation
provided for herein for serving during the Term as a Director of the Company or
in any other office or position of the Company, or
<PAGE>
any of its subsidiaries or affiliates, unless the Board shall have specifically
approved such additional compensation.
(c) The Executive shall devote his full business time, attention and
efforts to his duties hereunder. The Executive shall diligently perform to the
best of his ability all of the duties required of him as President and Chief
Executive Officer of the Company, and in the other positions or offices of the
Company or its subsidiaries or affiliates required of him hereunder. The
Executive shall faithfully adhere to, execute and fulfill all policies
established by the Company. Notwithstanding the foregoing provisions of this
Section, the Executive may participate in charitable, civic, political, social,
trade, or other non-profit organizations to the extent such participation does
not materially interfere with the performance of his duties hereunder, and may
serve as a non-management director of business corporations (or in a like
capacity in other for-profit organizations) so long as it does not materially
interfere with the Executive's obligations hereunder.
3. Compensation
------------
(a) Base Salary. Effective as of the Commencement Date, the Company shall
-----------
pay the Executive a base salary (the "Base Salary") equal to Four Hundred
Thousand Dollars ($400,00.00) per year, payable on a regular basis in accordance
with the Company's regular payroll policies in effect from time to time, but not
less frequently than monthly. On at least an annual basis, the Board will
review the Executive's performance and may make increases to such Base Salary
if, in its sole discretion, any such change is warranted.
(b) Incentive Bonus. The Company will develop a written Incentive Bonus
---------------
Plan (the "Bonus Plan") setting forth the criteria under which the Executive and
other officers and key employees of the Company will be eligible to receive
year-end incentive bonus compensation. The Bonus Plan will provide for the
Executive to earn up to 150% of his Base Salary in bonus compensation, payable
out of a bonus pool determined by the Board or a compensation committee thereof.
Subject to the provisions of Section 3(e) hereof, such bonus payments shall be
made to the Executive as soon as practicable after the end of each calendar year
during the Term.
(c) Employee Stock Purchase Plan. The Executive shall be entitled to
----------------------------
participate in the Company's 1997 Employee Stock Purchase Plan in accordance
with the terms set forth therein.
(d) 1998 Long-Term Incentive Plan. The Executive shall be entitled to
-----------------------------
participate in the Company's 1998 Long-Term Incentive Plan in accordance with
the terms set forth therein.
-2-
<PAGE>
(e) Deferral. The Executive may elect to defer payment of all or any part
--------
of the incentive bonus compensation amount payable in accordance with Section
3(b) hereof with respect to any calendar year during the Term, by giving the
Company written notice thereof not later than June 30 of such year.
Additionally, in the event that in respect of any fiscal year of the Company any
amount of Base Salary, incentive bonus compensation or any other amount payable
to the Executive hereunder or otherwise, shall, either alone or in combination
with other amounts payable hereunder or otherwise, result in a payment by the
Company that shall not be currently deductible by it pursuant to the provisions
of Section 162(m) of the Internal Revenue Code, as amended, or like or successor
provisions (a "Non-Deductible Amount"), the Company may elect to defer the
payment of the Non-Deductible Amount. Any amounts, so deferred, either by
election of the Executive or by election of the Company, shall be credited to a
bookkeeping account in the name of the Executive as of the date scheduled for
payment hereunder. Such amounts shall be credited with interest as of each June
30 during the term of deferral, compounded annually, at a rate per annum equal
to the annual rate of interest announced by Citibank, N.A. in New York, New York
as its base rate in effect on such June 30, but in no event shall such rate
exceed 9%. The entire amount credited to such bookkeeping account shall be paid
to the Executive on a date to be chosen by the Company, but in no event later
than the first anniversary of the termination of the Executive from employment
with the Company.
(f) Option Grant. In connection with the execution and delivery of this
------------
Agreement, and pursuant to the terms of the Company's 1998 Long-Term Incentive
Plan (the "Option Plan"), the Executive will be granted options (the "Options")
to purchase two hundred fifty thousand (250,000) shares of the Company's Common
Stock (the "Common Stock"), on and pursuant to the terms of the Option Plan and
an award agreement. Each Option will be granted at a price equal to the closing
price of shares of Common Stock on NASDAQ on the day prior to the date hereof.
Subject to the next sentence hereof, the Options will be exercisable with
respect to 25% of the shares underlying the Options on each anniversary of the
date of grant. Notwithstanding the foregoing, the vesting of the Options will
accelerate, (i) upon a Change In Control (as defined in the Option Plan) in
which case all Options will be exercisable immediately, and (ii) upon the
expiration of the Term for any reason other than "for cause" pursuant to Section
5(c) hereunder, in which case all Options will be exercisable immediately.
(g) Car Allowance. The Executive shall receive a monthly car allowance of
-------------
$750 during the Term of this Agreement.
-3-
<PAGE>
4. Benefits.
--------
(a) Standard Benefits. During the Term, the Executive shall be entitled to
-----------------
participate in any and all benefit programs and arrangements now in effect and
hereinafter adopted and generally made available by the Company to its senior
officers, including but not limited to, 4 weeks of paid vacation during each
year of the Term in accordance with the policies and procedures of the Company
as in effect from time to time for its senior officers, pension plans,
contributory and non-contributory Company welfare and benefit plans, disability
plans, and medical, death benefit and life insurance plans for which the
Executive shall be eligible, or may become eligible during the Term.
(b) Expense Reimbursement/Provision of Equipment. The Company agrees to
--------------------------------------------
reimburse the Executive for all reasonable and necessary travel, business
entertainment and other business out-of-pocket expenses incurred or expended by
him in connection with the performance of his duties hereunder, including
expenses incurred in travel to the Company's headquarters upon presentation of
proper expense statements or vouchers or such other supporting information as
the Company may reasonably require of the Executive. The Company will, at its
sole cost and expense, provide to the Executive a computer, computer printer,
copier, facsimile machine and such other office equipment as Executive shall
reasonably request from time to time for use by the Executive to carry out his
duties hereunder.
(c) Other Executive Perquisites. The Company shall provide the Executive
---------------------------
with other executive perquisites as may be available to or deemed appropriate
for the Executive by the Board or a compensation committee thereof.
5. Termination. This Agreement and the Executive's employment with the
-----------
Company may be terminated in any one of the following ways:
(a) Death. In the event of the death of the Executive during the Term,
-----
this Agreement shall automatically terminate, and the Company shall have no
further obligations hereunder except as provided in Section 5(g) below.
(b) Disability. In the event of the "permanent disability" (as hereinafter
----------
defined) of the Executive during the Term, the Company shall have the right,
upon written notice to the Executive, to terminate the Executive's employment
hereunder, effective upon the giving of such notice (or such later date as shall
be specified in such notice). In the event of such termination, and subject to
the provisions of Section 5(g) below, the Company shall have no further
obligations hereunder, except that the Executive shall be entitled to be paid
his Base Salary under Section 3(a) hereof for a period of two (2) years from the
effective date of termination; provided, however, that the Company shall only
-------- -------
be required to pay that amount of the Executive's Base Salary which shall not be
covered by long-term disability payments, if any, to the Executive. In
addition, upon termination for permanent disability, the Executive shall
continue to
-4-
<PAGE>
participate in any and all pension, insurance and other benefit plans and
programs of the Company during the period the Executive is continuing to receive
his Base Salary. Thereafter, the Executive's rights to participate in such
programs and plans, or to receive similar coverage, if any, shall be as
determined under such programs. For purposes of this Section, "permanent
disability" means any disability as defined under the Company's applicable
disability insurance policy or, if no such policy is available, any physical or
mental disability or incapacity that renders the Executive incapable of
performing the services required of him in accordance with his obligations under
Section 2 hereof for a period of four (4) consecutive months or for shorter
periods aggregating six (6) months during any twelve-month period.
(c) Cause. The Company shall have the right, upon written notice to the
-----
Executive, to terminate the Executive's employment under this Agreement for
"Cause" (as hereinafter defined), effective upon the giving of such notice (or
such later date as shall be specified in such notice), and the Company shall
have no further obligations hereunder, except to pay the Executive any amounts
otherwise payable pursuant to Section 5(g) below. It is understood and agreed
that notwithstanding anything contained in this Agreement to the contrary, in
the case of termination by the Company of the Executive for Cause, any bonus
payment for the calendar year in which termination occurs shall be forfeited.
The Executive's right to participate in any of the Company's retirement,
insurance and other benefit plans and programs shall be as determined under such
programs and plans. For purposes of this Agreement, "Cause" means:
(i) fraud, embezzlement or gross insubordination on the part of the
Executive or material breach by the Executive of his obligations under
Sections 6 or 7 hereof;
(ii) a material breach of, gross negligence with respect to, or the
willful failure or refusal by the Executive to perform and discharge, his
duties, responsibilities or obligations under this Agreement (other than
under Sections 6 and 7 hereof, which shall be governed by clause (i) above,
and other than by reason of disability or death) that is not corrected
within ten (10) days following written notice thereof to the Executive by
the Company, such notice to state with specificity the nature of the
breach, failure or refusal; provided that if such breach, failure or
--------
refusal cannot reasonably be corrected within ten (10) days of written
notice thereof, correction shall be commenced by the Executive within such
period and may be corrected within a reasonable period thereafter;
(iii) conviction of or the entry of a plea of nolo contendere by the
---- ----------
Executive of any felony; or
(iv) illegal drug use or alcohol abuse by the Executive.
-5-
<PAGE>
(d) Without Cause. The Company shall have the right, upon thirty (30)
-------------
days' written notice given to the Executive, to terminate this Agreement for any
reason whatsoever. In the event of a termination without cause, the Executive
shall be entitled (i) to receive from the Company an amount equal to two times
his Base Salary at the rate then in effect plus any bonus he received during the
previous year payable in a single lump sum at the time of termination without
cause and (ii) to participate in all pension, insurance and other benefit plan
programs or arrangements on terms identical to those applicable to other senior
officers of the Company. In the event this Agreement is terminated pursuant to
this Section 5(d), the Executive shall be released from his obligations under
Section 6 or Section 7 hereof and all options previously granted to the
Executive that have not yet vested shall immediately vest and be exercisable.
(e) By Executive. The Executive shall have the right, exercisable at any
------------
time during the Term, to terminate this Agreement for any reason whatsoever,
upon six (6) months written notice to the Company. In such event, and other
than as provided by the terms of Section 5(g) below, the Company shall have no
further obligations hereunder and the Executive shall not be entitled to receive
any severance compensation. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a termination by the Executive, the
amount of any unpaid bonus payment for the calendar year in which the
termination occurs shall be forfeited.
(f) Effect of Termination. Upon the termination of the Executive's
---------------------
employment hereunder for any reason, the Company shall have no further
obligations hereunder, except as otherwise provided herein. The Executive,
however, shall continue to have the obligations provided in Sections 6 and 7
hereof, except as otherwise provided herein. Without limiting the generality of
the foregoing, all Options granted to the Executive shall immediately vest and
be exercisable as of the date of any termination of this Agreement, other than a
termination pursuant to Section 5(c) or Section 5(e) hereof. Furthermore, upon
such termination, the Executive shall be deemed to have resigned immediately
from all offices and directorships held by him in the Company or any of its
subsidiaries.
(g) General Provisions. Upon termination of this Agreement for any reasons
------------------
provided above, the Executive (or his estate or personal representative, as
applicable) shall be entitled to receive all compensation earned and all
benefits and reimbursements accrued and due through the effective date of
termination. Without limiting the generality of the foregoing, all Options
granted to the Executive shall immediately vest and be exercisable upon any
termination of this Agreement, other than a termination pursuant to Section 5(c)
or Section 5(e) hereof. Additional compensation subsequent to termination, if
any, will be due and payable to the Executive only to the extent and in the
manner expressly provided above. In the event that the Executive secures
employment with another entity during the period that any payment is continuing
pursuant to the provisions of this Section 5, the amounts to be paid hereunder
shall be reduced by the amount of the Executive's earnings from such other
employment.
-6-
<PAGE>
6. Confidentiality. The Executive acknowledges that, by reason of his
---------------
employment by the Company, he will have access to confidential information of
the Company and its subsidiaries and affiliates, including, without limitation,
information and knowledge pertaining to products, inventions, discoveries,
improvements, innovations, designs, ideas, trade secrets, proprietary
information, manufacturing, packaging, advertising, distribution and sales
methods, sales and profit figures, customer and client lists and relationships
between the Company, any of its subsidiaries or affiliates and dealers,
distributors, sales representatives, wholesalers, customers, clients, suppliers
and others who have business dealings with them ("Confidential Information").
The Executive acknowledges that such Confidential Information is a valuable and
unique asset of the Company and its subsidiaries and affiliates and covenants
that, both during and after the Term, he will not disclose any Confidential
Information to any person (except as his duties as an employee of the Company
may require) without the prior written authorization of the Board. The
obligation of confidentiality imposed by this Section 6 shall not apply to
Confidential Information that otherwise becomes generally known in the industry
or to the public through no act of the Executive in breach of this Agreement or
any other party in violation of an existing confidentiality agreement with the
Company or any subsidiary or affiliate or which is required to be disclosed by
court order or applicable law.
7. Covenant Not to Compete.
-----------------------
(a) Scope of Covenant. The Executive agrees that during the Term and for a
-----------------
period equal to the longer of (i) one (1) year commencing upon the expiration or
termination of the Executive's employment hereunder (for any reason whatsoever)
or (ii) the period during which the Executive is entitled to receive and is
receiving any payment pursuant to Section 5 hereof, the Executive shall not,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature, without the prior written consent of the Company:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
business selling any products or services in direct competition with the
Company within 100 miles of the principal executive offices or the
principal operations of the Company (the "Territory");
(ii) call upon any person who is at that time, or who was at any time
within one (1) year prior to that time, an employee of the Company
(including the respective subsidiaries thereof) in a managerial capacity
for the purpose or with the intent of enticing such employee away from or
out of the employ of the Company (including the respective subsidiaries
thereof), provided
-7-
<PAGE>
that the Executive shall be permitted to call upon and hire any member of
his immediate family;
(iii) call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to that time, a customer of the Company
(including the respective subsidiaries thereof) within the Territory for
the purpose of soliciting or selling products or services in direct
competition with the Company (including the respective subsidiaries
thereof) within the Territory; or
(iv) call upon any prospective acquisition candidate, on the Executive's
own behalf or on behalf of any competitor, which candidate was either
called upon by the Company (including the respective subsidiaries thereof)
or for which the Company (including the respective subsidiaries thereof)
made an acquisition analysis, for the purpose of acquiring such entity;
provided, however, that nothing in this Section 7(a) shall be construed to
- -------- -------
preclude the Executive from making any investments in the securities of any
business enterprise whether or not engaged in competition with the Company or
any of its subsidiaries, to the extent that such securities are actively traded
on a national securities exchange or in the over-the-counter market in the
United States or on any foreign securities exchange.
(b) Reasonableness. It is agreed by the parties that the foregoing
--------------
covenants in this Section 7 impose a reasonable restraint on the Executive in
light of the activities and business of the Company (including the Company's
subsidiaries) on the date of the execution of this Agreement and the current
plans of the Company (including the Company's subsidiaries); but it is also the
intent of the Company and the Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations of
the Company (including the Company's other subsidiaries) throughout the term of
this covenant.
(c) Severability. The covenants in this Section 7 are severable and
------------
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable,
and this Agreement shall thereby be reformed.
(d) Enforcement by the Company not Limited. All of the covenants in this
--------------------------------------
Section 7 shall be construed as an agreement independent of any other provision
in this Agreement, and the existence of any claim or cause of action of the
Executive against the Company, whether predicated in this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
such covenants. It is specifically agreed that the period of one (1) year
stated at the beginning of this Section 7, during which the agreements and
covenants of the Executive made in this Section 7 shall be effective, shall
-8-
<PAGE>
be computed by excluding from such computation any time during which the
Executive is in violation of any provision of this Section 7.
(e) Change of Relevant Law. Notwithstanding any of the foregoing, if any
----------------------
applicable law shall reduce the time period during which the Executive shall be
prohibited from engaging in any competitive activity described in Section 7(a)
hereof, the period of time for which the Executive shall be prohibited from
engaging in competitive activities pursuant to Section 7(a) hereof shall be the
maximum time permitted by law. However, in the event that the time period
specified by Section 7(a) shall be so reduced, then, notwithstanding the
provisions of Section 5 hereof, the Executive shall be entitled to receive from
the Company his Base Salary at the rate then in effect solely for the longer of
(i) the time period during which the provisions of Section 7(a) shall be
enforceable under the provisions of such applicable law, or (ii) the time period
during which the Executive is not engaging in any competitive activity, but in
no event longer than the term provided in Section 5.
8. Specific Performance. The Executive acknowledges that the services to
--------------------
be rendered by the Executive are of a special, unique and extraordinary
character and, in connection with such services, the Executive will have access
to confidential information vital to the Company's business and the business of
the Company's subsidiaries and affiliates. By reason of this, the Executive
consents and agrees that if the Executive violates any of the provisions of
Section 6 or 7 hereof, the Company and its subsidiaries and affiliates would
sustain irreparable injury and that monetary damages would not provide adequate
remedy to the Company or any of its subsidiaries or affiliates. Therefore, the
Executive hereby agrees that the Company and any affected subsidiary and
affiliate shall be entitled to have Sections 6 or 7 hereof specifically enforced
(including, without limitation, by injunctions and restraining orders) by any
court having equity jurisdiction. Nothing contained herein shall be construed
as prohibiting the Company or any of its subsidiaries or affiliates from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages from the Executive.
9. Deductions and Withholding. The Executive agrees that the Company or
--------------------------
its subsidiaries or affiliates, as applicable, shall withhold from any and all
compensation paid to and required to be paid to the Executive pursuant to this
Agreement, all Federal, state, local and/or other taxes which the Company
determines are required to be withheld in accordance with applicable statutes or
regulation from time to time in effect and all amounts required to be deducted
in respect of the Executive's coverage under applicable employee benefit plans.
For purposes of this Agreement and calculations hereunder, all such deductions
and withholdings shall be deemed to have been paid to and received by the
Executive.
10. No Conflicts. The Executive hereby represents and warrants to the
------------
Company that his execution, delivery and performance of this Agreement and any
other
-9-
<PAGE>
agreement to be delivered pursuant to this Agreement will not (a) require the
consent, approval or action of any other person or (b) violate, conflict with or
result in the breach of any of the terms of, or constitute (or with notice or
lapse of time or both, constitute) a default under, any agreement, arrangement
or understanding with respect to the Executive's employment to which the
Executive is a party or by which the Executive is bound or subject including,
without limitation, any non-competition or non-disclosure provisions in
agreements to which the Executive is or was a party. The Executive hereby agrees
to indemnify and hold harmless the Company and its directors, officers,
employees, agents, representatives, subsidiaries and affiliates (and each such
subsidiary's and affiliate's directors, officers, employees, agents and
representatives) from and against any and all losses, liabilities or claims
(including interest, penalties and attorneys' fees, disbursements and related
charges) based upon or arising out of the Executive's breach of any of the
foregoing representations and warranties.
11. Complete Agreement. This Agreement is not a promise of future
------------------
employment. This Agreement embodies the entire agreement of the parties with
respect to the Executive's employment, compensation, perquisites and related
items and supersedes any other prior oral or written agreements, arrangements or
understandings between the Executive and the Company or any of its subsidiaries
or affiliates, and any such prior agreements, arrangements or understandings are
hereby terminated and of no further effect. This Agreement may not be changed
or terminated orally but only by an agreement in writing signed by the parties
hereto.
12. Waiver. The waiver by the Company of a breach of any provision of
------
this Agreement by the Executive shall not operate or be construed as a waiver of
any subsequent breach by him. The waiver by the Executive of a breach of any
provision of this Agreement by the Company shall not operate or be construed as
a waiver of any subsequent breach by the Company.
13. Governing Law; Jurisdiction.
---------------------------
(a) This Agreement shall be subject to, and governed by, the laws of the
State of Delaware.
(b) Any action to enforce any of the provisions of this Agreement shall be
brought in a local or federal court within the District of Columbia. The
Parties consent to the jurisdiction of such court and to the service of process
in any manner provided by District of Columbia law. Each party irrevocably
waives any objection which it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in such court and any claim
that such suit, action or proceeding brought in such court has been brought in
an inconvenient forum and agrees that service of process in accordance with the
foregoing sentences shall be deemed in every respect effective and valid
personal service of process upon such party.
-10-
<PAGE>
(c) Assignability. The obligations of the Executive may not be delegated
-------------
and, except with respect to the designation of beneficiaries in connection with
any of the benefits payable to the Executive hereunder, the Executive may not,
without the Company's written consent thereto, assign, transfer, convey, pledge,
encumber, hypothecate or otherwise dispose of this Agreement or any interest
herein. Any such attempted delegation or disposition shall be null and void and
without effect. The Company and the Executive agree that this Agreement and all
of the Company's rights and obligations hereunder may be assigned or transferred
by the Company to and shall be assumed by and be binding upon any successor to
the Company. The term "successor" means, with respect to the Company or any of
its subsidiaries, any corporation or other business entity which, by merger,
consolidation, purchase of the assets or otherwise acquires all or a material
part of the assets of the Company.
15. Severability. If any provision of this Agreement of any part thereof,
------------
including, without limitation, Sections 6 and 7 hereof, as applied to either
party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way affect any
other provision of this Agreement or remaining part thereof, which shall be
given full effect without regard to the invalid or unenforceable part thereof,
or the validity or enforceability of this Agreement.
If any court construes any of the provisions of Sections 6 or 7 hereof, or
any part thereof, to be unreasonable because of the duration of such provision
or the geographic scope thereof, such court may reduce the duration or restrict
or redefine the geographic scope of such provision and enforce such provision so
reduced, restricted or redefined.
16. Notices. All notices to the Company or the Executive permitted or
-------
required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day delivery or sent by
registered or certified mail, return receipt requested, to the following
addresses:
-11-
<PAGE>
If to the Company:
Building One Services Corporation
800 Connecticut Avenue, NW
Suite 1111
Washington, D.C. 20006
Fax: 202-261-6020
With a required copy to:
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
Attn: Linda L. Griggs, Esq.
Fax: (202) 467-7176
If to the Executive:
Joseph Ivey
211 South Madison Street
Kosciusko, MS
Phone: (601) 289-6136
Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party. Any such notice
shall be deemed given, if delivered personally, upon receipt; if telecopied,
when telecopied; if sent by courier service providing for next-day delivery, the
next business day following deposit with such courier service; and if sent by
certified or registered mail, three days after deposit (postage prepaid) with
the U.S. mail service.
17. Section Headings. The section headings contained in this Agreement
----------------
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
BUILDING ONE SERVICES CORPORATION
/s/ F. Traynor Beck
-------------------------------------
By: F. Traynor Beck
Its: Excutive Vice President, General
Counsel and Secretary
EXECUTIVE
/s/ Joseph M. Ivey
-------------------------------------
-13-
<PAGE>
EXHIBIT 11.01
BUILDING ONE SERVICES CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Basic earnings per share:
Net income................................................ $ 47,463 $ 1,443 $ 415
Weighted average shares outstanding - Basic............... 39,908,364 5,683,464 1,290,724
----------- ----------- -----------
Net income per share - Basic.............................. $ 1.19 $ 0.25 $ 0.32
=========== =========== ===========
Diluted earnings per share:
Net income................................................ $ 47,463 $ 1,443 $ 415
----------- ----------- -----------
Weighted average shares outstanding - Basic............... 39,908,364 5,683,464 1,290,724
Convertible Non-Voting Common Stock....................... 373,973 49,315
Common stock equivalents from stock options and warrants.. 342,903 132,771 115,724
Contingently issuable shares.............................. 303,312
----------- ----------- -----------
Total weighted average shares outstanding - Diluted....... 40,928,452 5,865,550 1,405,840
----------- ----------- -----------
Net income per share - Diluted............................ $ 1.16 $ 0.25 $ 0.30
=========== =========== ===========
</TABLE>
Outstanding stock options and warrants to purchase 1,945,439 shares of common
stock as of December 31, 1998 were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the common shares during the period.
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-4 (Registration No.
333-60053) and to the incorporation by reference in the Registration Statements
on Form S-8 (Registration Nos. 333-43659 and 333-59205) of Building One Services
Corporation of our report dated February 12, 1999, except for Note 3, which is
as of March 23, 1999, appearing in the Annual Report on Form 10-K for the year
ended December 31, 1998. We also consent to the references to us under the
heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 26, 1999
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-4 (Registration No.
333-60053) and to the incorporation by reference in the Registration Statements
on Form S-8 (Registration Nos. 333-43659 and 333-59205) of Building One Services
Corporation of our report dated February 17, 1998, relating to the financial
statements of Crest International, LLC appearing in the Annual Report on Form
10-K for the year ended December 31, 1998. We also consent to the references to
us under the heading "Experts" in such Prospectus.
/s/ Shinners, Hucovski and Company, S.C.
Shinners, Hucovski and Company, S.C.
Green Bay, Wisconsin
March 26, 1999
<PAGE>
Exhibit 23.03
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-4 (Registration No.
333-60053) and to the incorporation by reference in the Registration Statements
on Form S-8 (Registration Nos. 333-43659 and 333-59205) of Building One Services
Corporation of our report dated February 19, 1998 appearing in the Annual Report
on Form 10-K for the year ended December 31, 1998. We also consent to the
references to us under the heading "Experts" in such Prospectus.
/s/ Frazier & Deeter, LLC
Frazier & Deeter, LLC
Atlanta, Georgia
March 26, 1999
<PAGE>
EXHIBIT 99.01
The undersigned hereby consents to being named as Director of Building One
Services Corporation (the "Company") and to the filing of this consent together
with the Company's Annual Report on Form 10-K and any other documents.
March 29, 1999 /s/ Michael Gross
- --------------------- ------------------------
Date Michael Gross
<PAGE>
EXHIBIT 99.02
The undersigned hereby consents to being named as Director of Building One
Services Corporation (the "Company") and to the filing of this consent together
with the Company's Annual Report on Form 10-K and any other documents.
March 29, 1999 /s/ Brooks Newmark
- --------------------- ------------------------
Date Brooks Newmark
<PAGE>
EXHIBIT 99.03
The undersigned hereby consents to being named as Director of Building One
Services Corporation (the "Company") and to the filing of this consent together
with the Company's Annual Report on Form 10-K and any other documents.
March 29, 1999 /s/ Andrew Africk
- --------------------- ------------------------
Date Andrew Africk
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 213,096 528,972
<SECURITIES> 2,697 0
<RECEIVABLES> 248,614 5,297
<ALLOWANCES> 1,991 104
<INVENTORY> 0 0
<CURRENT-ASSETS> 502,268 536,230
<PP&E> 46,640 5,942
<DEPRECIATION> 7,673 3,349
<TOTAL-ASSETS> 1,043,922 539,159
<CURRENT-LIABILITIES> 194,878 7,995
<BONDS> 0 0
0 0
0 0
<COMMON> 45 32
<OTHER-SE> 837,492 529,448
<TOTAL-LIABILITY-AND-EQUITY> 1,043,922 539,159
<SALES> 809,601 70,101
<TOTAL-REVENUES> 809,601 70,101
<CGS> 636,225 58,857
<TOTAL-COSTS> 636,225 58,857
<OTHER-EXPENSES> 108,192 11,776
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,054 208
<INCOME-PRETAX> 83,583 1,537
<INCOME-TAX> 36,120 94
<INCOME-CONTINUING> 47,463 1,443
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 47,463 1,443
<EPS-PRIMARY> 1.19 0.25
<EPS-DILUTED> 1.16 0.25
</TABLE>
