<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-Q
----------------
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-23241
BUILDING ONE SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-2054952
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
110 Cheshire Lane, Suite 210
Minnetonka, MN 55305
(Address of principal executive offices) (Zip Code)
</TABLE>
(612) 249-4900
(Registrant's telephone number, including area code)
800 Connecticut Avenue, NW, Suite 1111
Washington, D.C.
(Former name, former address and former fiscal year, if changed since last
report)
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 for 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 [_]
As of August 13, 1999, there were 25,229,198 shares of common stock
outstanding.
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<PAGE>
BUILDING ONE SERVICES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1999 and December 31,
1998............................................................... 1
Consolidated Statement of Operations for the three and six months
ended June 30, 1999 and 1998....................................... 2
Consolidated Statement of Stockholders' Equity for the six months
ended June 30, 1999................................................ 3
Consolidated Statement of Cash Flows for the six months ended June
30, 1999 and 1998.................................................. 4
Notes to Consolidated Financial Statements.......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 20
PART II--OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..................... 21
Item 5. Other Information............................................. 21
Item 6. Exhibits and Reports on Form 8-K.............................. 21
Signatures............................................................ 22
Exhibit Index......................................................... (i)
</TABLE>
(i)
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 18,032 $ 213,096
Accounts receivable, net............................ 315,843 246,623
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 42,238 25,441
Prepaid expenses and other current assets........... 28,688 17,108
---------- ----------
Total current assets.............................. 404,801 502,268
Property and equipment, net........................... 52,456 38,967
Intangible assets, net................................ 651,325 496,381
Other assets.......................................... 6,037 6,306
---------- ----------
Total assets...................................... $1,114,619 $1,043,922
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt..................................... $ 4,332 $ 2,167
Accounts payable.................................... 85,283 75,029
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 70,376 58,773
Accrued compensation................................ 35,480 27,737
Accrued liabilities................................. 47,878 31,172
---------- ----------
Total current liabilities......................... 243,349 194,878
Long-term debt........................................ 506,547 3,287
Other liabilities..................................... 4,448 8,220
---------- ----------
Total liabilities................................. 754,344 206,385
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 11,000,000 autho-
rized; none issued or
outstanding........................................ -- --
Common stock, $.001 par value; 250,000,000 shares
authorized; 22,254,167 and 45,258,946 shares issued
and outstanding, respectively ..................... 22 45
Additional paid-in capital.......................... 288,393 832,514
Treasury stock...................................... -- (41,832)
Retained earnings................................... 71,951 47,255
Accumulated other comprehensive income (loss)....... (91) (445)
---------- ----------
Total stockholders' equity........................ 360,275 837,537
---------- ----------
Total liabilities and stockholders' equity........ $1,114,619 $1,043,922
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues...................... $ 436,804 $ 171,661 $ 787,646 $ 226,271
Cost of revenues.............. 350,713 134,999 631,405 179,232
---------- ---------- ---------- ----------
Gross profit.............. 86,091 36,662 156,241 47,039
Selling, general and adminis-
trative expenses............. 49,775 22,530 92,489 30,448
Goodwill amortization......... 3,804 1,647 7,273 1,971
Restructuring and recapitali-
zation charges (Note 6)...... 8,020 -- 8,020 --
---------- ---------- ---------- ----------
Operating income.......... 24,492 12,485 48,459 14,620
Other (income) expense:
Interest income............. (1,698) (5,107) (4,206) (11,763)
Interest expense............ 8,122 227 8,218 326
Other, net.................. (118) (207) (399) (318)
---------- ---------- ---------- ----------
Income before provision for
income taxes................. 18,186 17,572 44,846 26,375
Provision for income taxes.... 8,223 7,526 20,150 11,248
---------- ---------- ---------- ----------
Net income.................... $ 9,963 $ 10,046 $ 24,696 $ 15,127
========== ========== ========== ==========
Net income per Common Share--
Basic........................ $ 0.29 $ 0.26 $ 0.61 $ 0.42
========== ========== ========== ==========
Net income per Common Share--
Diluted...................... $ 0.28 $ 0.25 $ 0.59 $ 0.41
========== ========== ========== ==========
Weighted average shares out-
standing--Basic.............. 34,553,258 38,674,147 40,231,809 35,846,420
========== ========== ========== ==========
Weighted average shares out-
standing-- Diluted........... 38,289,669 39,661,566 42,989,205 36,884,151
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the six months ended June 30, 1999
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------
Accumulated
Additional Other Total Total
Shares Paid-in- Treasury Retained Comprehensive Stockholders' Comprehensive
Outstanding Amount Capital Stock Earnings Income (loss) Equity Income
----------- ------ ---------- -------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1998................... 45,258,946 $45 $832,514 $(41,832) $47,255 $(445) $837,537
Stock issued upon
exercise of options.... 27,302 132 132
Issuance of common stock
for acquisitions....... 1,525,549 2 22,112 22,114
Stock issued under
employee stock purchase
plan................... 60,210 802 802
Contingently Issuable
Shares................. 35,015 35,015
Repurchase of shares in
Tender Offer (See Note
3)..................... (24,617,840) (25) (562,979) (563,004)
Compensation expense
related to options
repurchased in Tender
Offer.................. 2,629 2,629
Cancellation of Treasury
Stock.................. (41,832) 41,832
Unrealized gain on
marketable securities--
net of tax of $237..... 354 354 $ 354
Net income.............. 24,696 24,696 24,696
-------
Total comprehensive
income................. $25,050
----------- --- -------- -------- ------- ----- -------- =======
Balance, June 30, 1999.. 22,254,167 $22 $288,393 $ -- $71,951 $ (91) $360,275
=========== === ======== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 24,696 $ 15,127
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 13,107 3,515
Amortization of debt issuance costs...................... 609 --
Compensation expense related to options exercised........ 2,629 --
Changes in operating assets and liabilities:
Accounts receivable..................................... (40,734) (10,818)
Costs and estimated earnings in excess of billings...... (10,497) 3,858
Prepaid expenses and other current assets............... (9,897) (935)
Billings in excess of costs and estimated earnings...... 4,780 6,616
Accounts payable........................................ 1,897 3,171
Accrued liabilities..................................... 6,092 668
Change in other assets................................... 866 (523)
-------- --------
Net cash (used in) provided by operating activities.... (6,452) 20,679
-------- --------
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired.......... (57,005) (163,631)
Payment of contingent consideration....................... (31,124) --
Purchases of property and equipment....................... (13,043) (3,513)
Proceeds on sale of equipment............................. 253 674
Other..................................................... (324) 52
-------- --------
Net cash used in investing activities.................. (101,243) (166,418)
-------- --------
Cash flows from financing activities:
Net proceeds (payments) on short-term debt................ (1,873) (29,184)
Payments on long-term debt................................ (3,530) (26,670)
Proceeds from long-term debt.............................. 504,648 1,897
Payment of debt issuance costs............................ (22,219) --
Repurchase of common stock including related expenses..... (564,407) --
Distribution of S-Corp earnings........................... -- (446)
Proceeds (payments) on related party loans................ (80) 666
Distribution to Minority Shareholders..................... (842) --
Proceeds from stock options exercised..................... 132 217
Proceeds from issuance of stock under employee stock
purchase plan............................................ 802 --
-------- --------
Net cash used in financing activities.................. (87,369) (53,520)
-------- --------
Net decrease in cash and cash equivalents.................. (195,064) (199,259)
Cash and cash equivalents, beginning of period............. 213,096 528,972
-------- --------
Cash and cash equivalents, end of period................... $ 18,032 $329,713
======== ========
The Company issued shares of common stock and cash in connection with certain
business combinations during the six months ended June 30, 1999 and 1998,
respectively. The fair values of the assets acquired and liabilities assumed
at the dates of acquisition are as follows:
Accounts receivable........................................ $ 28,378 $109,961
Inventories................................................ 753 1,317
Costs and earnings in excess of billings................... 6,643 17,913
Prepaid expenses and other current assets.................. 745 4,790
Property and equipment..................................... 6,756 18,407
Intangible assets.......................................... 60,949 347,730
Other assets............................................... 2,686 6,839
Short-term debt............................................ (3,771) (23,103)
Accounts payable........................................... (8,376) (28,041)
Accrued liabilities........................................ (7,572) (30,882)
Billings in excess of costs and estimated earnings......... (6,667) (36,874)
Long-term debt............................................. (1,163) (37,774)
Other long-term liabilities................................ (242) (2,800)
-------- --------
Net assets acquired........................................ $ 79,119 $347,483
======== ========
These acquisitions were funded as follows:
Common stock, 1,525,549 and 12,344,726 shares,
respectively.............................................. $ 22,114 $183,852
Cash, net of cash acquired................................. 57,005 163,631
-------- --------
$ 79,119 $347,483
======== ========
</TABLE>
During the six months ended June 30, 1999 the Company accrued $9,905 as
additional purchase price under contingent consideration arrangements.
See accompanying notes to consolidated financial statements.
4
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 1--BUSINESS AND ORGANIZATION
Building One Services Corporation, ("Building One" or the "Company") is a
leading provider of integrated facilities services in the United States.
Currently, the Company provides mechanical and electrical installation and
maintenance services, and janitorial and maintenance management services. The
Company's goal is to become the preeminent single-source provider of
facilities services in the United States.
The interim financial data as of June 30, 1999 and for the three and six
month periods ended June 30, 1999 and June 30, 1998 is unaudited; however, in
the opinion of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the results for the interim periods. Operating results for
interim periods are not necessarily indicative of results that may be expected
for the year as a whole. It is suggested that these consolidated financial
statements be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1998.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There were no significant changes in the accounting policies of the Company
during the interim periods presented. For a description of these policies,
refer to Note 2 of the Notes to Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
NOTE 3--RECAPITALIZATION PLAN
On May 11, 1999, the Company completed its Recapitalization Plan which
included the repurchase of 24,617,840 shares of its common stock ("Common
Stock") at $22.50 per share for cash and 883,573 shares of the Company's
Common Stock underlying stock options at $22.50 per share less the exercise
price per share of the options in a tender offer (the "Tender Offer"). Funds
utilized for the repurchase totaled $560,084, which were obtained from the
Company's available cash, the net proceeds of $195,492 from the issuance of
$200,000 of 10 1/2% senior subordinated notes, $100,000 from the issuance of 7
1/2% convertible junior subordinated debentures to Boss Investment LLC, an
affiliate of Apollo Management, L.P. and borrowings under a new credit
facility. See Note 5 for unaudited pro forma statement of operations data for
the three and six month periods ended June 30, 1999 and June 30, 1998 which
assumes that the Recapitalization Plan was consummated on January 1, 1998.
As a result of the Company allowing for the exchange of employee stock
options in the Tender Offer, compensation expense of $2,770 ($1,578 after the
associated tax benefit) was recognized and is included in the restructuring
and recapitalization charges recorded in the three months ended June 30, 1999.
Additionally, $4,323 of expenses were incurred in connection with the Tender
Offer which have been reflected as a reduction of stockholders' equity.
NOTE 4--BUSINESS COMBINATIONS
Purchase Acquisitions
During the six months ended June 30, 1999, the Company completed twelve
business combinations that were accounted for under the purchase method of
accounting. The consolidated financial statements include the results of these
acquired businesses from their respective dates of acquisition. The aggregate
consideration paid for these acquisitions consisted of 1,525,549 shares of the
Company's Common Stock and $60,976 in cash, including applicable
5
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
professional fees. The aggregate purchase price does not include the potential
payment of contingent consideration of up to approximately $15,650 in cash and
shares of the Company's Common Stock based upon the performance of the
businesses acquired.
The total purchase price was allocated to the fair value of the net assets
acquired, resulting in goodwill of approximately $60,838. Such allocations are
preliminary in nature, pending the outcome of a detailed analysis being
performed by the Company of the assets and liabilities acquired. For purposes
of computing the estimated purchase price for accounting purposes, the value
of the shares on certain acquisitions was determined in consideration of
various restrictions on the sale and transferability of the shares issued.
Contingently Issuable Shares
In conjunction with acquisitions consummated in 1998, the Company entered
into certain contingent consideration agreements which provide for the payment
of approximately $137,437 in cash and shares of common stock based on the
performance of such acquired companies. During the six months ended June 30,
1999, $79,935 of consideration under these agreements had been earned
consisting of 2,288,070 shares of common stock and $41,029 of cash.
Accordingly, additional goodwill in the amount of $75,695 was recorded. During
the six months ended June 30, 1999, $31,124 of cash was paid under these
agreements. The remaining cash amount payable of $9,905 has been reflected as
a liability as of June 30, 1999 and the additional paid-in capital associated
with the shares to be issued has been reflected as Contingently Issuable
Shares in the Statement of Stockholders' Equity. These Contingently Issuable
Shares have been included in the weighted average shares outstanding for
purposes of computing basic and diluted earnings per share for the three and
six months ended June 30, 1999.
6
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 5--UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
The following unaudited pro forma results of operations give effect to the
Company's Recapitalization Plan, including the Tender Offer, the financing of
the Tender Offer, acquisitions completed during the year ended December 31,
1998 and the six months ended June 30, 1999 as if they had been consummated on
January 1, 1998, and the effects of certain other pro forma adjustments to the
historical financial statements. Additionally, net income per common share is
also presented excluding the restructuring and recapitalization charges.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues...................... $ 436,804 $ 366,332 $ 810,062 $ 702,443
Cost of revenues.............. 350,713 293,196 649,653 568,711
---------- ---------- ---------- ----------
Gross profit.............. 86,091 73,136 160,409 133,732
Selling, general and
administrative expenses...... 49,775 40,137 95,477 79,534
Goodwill amortization......... 3,804 3,316 7,458 6,624
Restructuring and
recapitalization charges..... 8,020 8,020
---------- ---------- ---------- ----------
Operating income.......... 24,492 29,683 49,454 47,574
Other (income) expense:
Interest income............. (229) (246)
Interest expense............ 11,085 10,973 21,914 21,946
Other, net.................. (118) (557) (615) (2,883)
---------- ---------- ---------- ----------
Income before taxes........... 13,754 19,267 28,401 28,511
Provision for income taxes.... 6,450 8,906 13,646 13,778
---------- ---------- ---------- ----------
Net income.................... $ 7,304 $ 10,361 $ 14,755 $ 14,733
========== ========== ========== ==========
Net income per common share--
Basic........................ $ 0.31 $ 0.48 $ 0.65 $ 0.68
========== ========== ========== ==========
Net income per common share--
Diluted...................... 0.29 0.43 0.60 0.64
========== ========== ========== ==========
Weighted average shares
outstanding--Basic........... 23,732,230 21,578,216 22,826,346 21,578,216
========== ========== ========== ==========
Weighted average shares
outstanding--Diluted......... 28,982,682 26,611,923 28,492,774 26,509,298
========== ========== ========== ==========
Excluding restructuring and
reacapitalization charges:
Net income per common share -
Basic........................ $ 0.51 $ 0.86
========== ==========
Net income per common share -
Diluted...................... $ 0.46 $ 0.77
========== ==========
</TABLE>
Net income per common share--Basic is calculated based upon the weighted
average shares outstanding assuming the repurchase of 24,617,840 shares
occurred as of January 1, 1998. Net income per common share--Diluted is
calculated based upon net income adjusted for a reduction in interest expense
assuming conversion of the convertible junior subordinated debentures and
weighted average shares outstanding adjusted for the conversion of the
convertible junior subordinated debentures into 4,444,444 shares of common
stock plus the dilution attributable to options and warrants and contingently
issuable shares.
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 Recapitalization Plan, the Tender Offer and the acquisitions occurred as
of January 1, 1998 or the results that may occur in the future.
7
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 6--RESTRUCTURING AND RECAPITALIZATION CHARGES
During the three months ended June 30, 1999, the Company incurred
restructuring and recapitalization charges of $8,020.
Recapitalization charges
As discussed in Note 3, the Company completed its Recapitalization Plan
involving the repurchase of 24,617,840 shares of its Common Stock and 883,573
shares of Common Stock underlying stock options. In conjunction with the
recapitalization, compensation expense of $2,770 was recognized for stock
options exercised and the underlying shares of Common Stock repurchased by the
Company.
Restructuring charges
In the second quarter of 1999, the Company's Board of Directors approved and
the Company announced a restructuring plan which included a relocation of the
Company's corporate headquarters and integration of the janitorial and
maintenance management operations. Over the three months ended June 30, 1999
and continuing into the third quarter, the corporate headquarters was
relocated from Washington, D.C. to Minneapolis, Minnesota. In addition,
certain back office operations of the janitorial and maintenance management
service operations are being consolidated into two locations.
The restructuring costs include costs directly related to the Company's
restructuring in accordance with EITF No. 94-3 which provides specific
requirements as to the appropriate recognition of costs associated with
employee termination benefits and other exit costs.
As a result of these restructuring plans, the Company has incurred severance
costs for certain employees, identified certain assets which are no longer of
service and incurred certain lease termination costs.
The following table sets forth a summary of these restructuring costs for
the period.
<TABLE>
<CAPTION>
Corporate Janitorial
Headquarters Operations Total
------------ ---------- ------
<S> <C> <C> <C>
Severance........................................ $3,530 $900 4,430
Impaired assets.................................. 55 520 575
Lease costs...................................... 205 40 245
------ ------ ------
Total............................................ $3,790 $1,460 $5,250
====== ====== ======
</TABLE>
Included in the $5,250 restructuring charge are $4,600 of cash costs and
$650 in non-cash related costs. Approximately $1,600 of the restructuring
change had not been paid as of June 30, 1999 but is anticipated to be paid by
the end of 1999. The Company anticipates annual savings of approximately
$2,800 as a result of the restructuring.
NOTE 7--LONG TERM DEBT
In connection with the repurchase of Common Stock under the Recapitalization
Plan and Tender Offer, the Company issued $200,000 of 10 1/2% senior
subordinated notes, $100,000 of 7 1/2% convertible junior subordinated
debentures and entered into a new credit facility to fund the repurchase. The
following is a summary of these financing sources obtained in connection with
the Recapitalization Plan.
8
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
10 1/2% Senior Subordinated Notes
In April 1999, the Company completed a private placement offering of
$200,000 of 10 1/2% senior subordinated notes. The senior subordinated notes
are unsecured, guaranteed by our domestic subsidiaries, require interest to be
paid semi-annually on May 1 and November 1 of each year and mature on May 1,
2009. The senior subordinated notes were issued at 97.746%, or a discount of
$4,508, which is being amortized over the term of the notes. Additionally,
debt issuance costs of $8,147 were incurred in connection with the offering,
are classified as intangible assets and are being amortized over the 10-year
term of the notes.
The Company may redeem the senior subordinated notes, in whole or in part,
at any time on or after May 1, 2002 at specified redemption prices, plus
accrued interest. At any time before May 1, 2002, the Company can 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 in control of
the Company, the holders of the senior subordinated notes will have the right
to sell the notes to the Company at 101% of the face amount plus accrued
interest.
The indenture governing the senior subordinated notes contains certain
covenants that restrict, among other things, the Company's ability to incur
indebtedness, pay dividends or repurchase capital stock, incur liens, sell or
otherwise dispose of a substantial portion of its assets or merge or
consolidate with another entity.
The Company is offering to exchange the unregistered notes for registered
notes.
7 1/2% Convertible Junior Subordinated Debentures
The convertible junior subordinated debentures mature on May 1, 2012 and
provide for interest payments at a rate of 7 1/2% to be paid in additional
convertible junior subordinated debentures or cash, at the Company's 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
junior subordinated debentures, 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 junior subordinated debentures. In
addition, the provisions of the credit facility and the indenture for the
senior subordinated notes limit the Company's ability to pay cash interest
payments. Additionally, debt issuance costs of $4,634 were incurred in
connection with the debentures, are classified as intangible assets and are
being amortized over the 13-year term of the debentures.
The convertible junior subordinated debentures will be convertible into
shares of Common Stock at an initial conversion price of $22.50 per share plus
all accrued and unpaid interest. If the convertible junior subordinated
debentures 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 junior subordinated debentures. 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. The
Company will adjust the conversion price under certain circumstances,
including the issuance of shares at a price below the conversion price of the
convertible junior subordinated debentures or below the then fair market value
of a share.
The indenture for the convertible junior subordinated debentures limits the
Company's ability to, among other things, incur additional indebtedness, pay
dividends, repurchase securities or repay certain other indebtedness. The
Company's amended and restated certificate of incorporation authorizes the
holders of the convertible junior subordinated debentures to vote together
with the holders of shares on all of the matters submitted to stockholders for
a vote and to elect as a class three of the Company's directors (or, if the
Board has
9
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
more than ten directors, no less than 30% of the directors). The holders of
the convertible junior subordinated debentures will be entitled to cast the
number of votes that they would be entitled to cast if they had converted the
convertible junior subordinated debentures into shares of Common Stock.
Credit Facility
The Company's credit facility, which is with a syndicate of banks led by
Bankers' Trust Company, consists of a $125,000 term loan and a $225,000
revolving credit facility and matures in April 2004. As of June 30, 1999 the
Company had $207,188 of borrowings under this facility. The revolving credit
facility bears interest at various rates which are subject to change based on
certain levels of financial performance. The weighted average interest rate on
the borrowings outstanding under the credit facility was 7.76% as of June 30,
1999. Debt issuance costs of $9,438 were incurred in connection with this new
credit facility and are being amortized over the 5-year term of the credit
facility. The credit facility includes a number of significant covenants
including, among others, restrictions on the Company's ability to incur
additional indebtedness, restrictions on mergers, acquisitions and the
disposition of assets, sale and leaseback transactions and capital lease
payments, dividends and other distributions and voluntary prepayments on
indebtedness. Additionally, the Company is required to comply with certain
financial covenants with respect to minimum interest coverage and maximum
leverage ratios. As of June 30, 1999, the Company was in compliance with all
covenants.
The fair value of the senior subordinated notes as of June 30, 1999
approximated $189,000. The estimated fair value of the convertible junior
subordinated debentures and the credit facility approximates its carrying
value.
NOTE 8--COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
June 30, 1999
-------------
<S> <C>
Costs incurred on uncompleted contracts.......................... $ 1,091,964
Estimated earnings............................................... 192,595
-----------
1,284,559
Less: Billings to date........................................... (1,312,697)
-----------
$ (28,138)
===========
</TABLE>
Included in the accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
June 30, 1999
-------------
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts.......................................... $ 42,238
Billings in excess of costs and estimated earnings on
uncompleted contracts.......................................... (70,376)
--------
$(28,138)
========
</TABLE>
NOTE 9--SEGMENT DATA
The Company has two reportable segments: mechanical/electrical and
janitorial. The mechanical/electrical segment offers a single source for
designing, installing, maintaining and upgrading a facility's electrical
systems as well as providing a facility's mechanical, HVAC and plumbing needs.
The janitorial segment provides a wide variety of facility cleaning and
maintenance management services nationwide.
10
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
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").
The Company's reportable segments 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 was acquired as a unit,
and the management at the time of the acquisition was retained.
Prior to January 1, 1999, the Company had three reportable segments:
mechanical, electrical and janitorial. Effective January 1, 1999, the Company
changed the structure of its internal organization and as a result the
mechanical and electrical segments have been combined into one reportable
segment.
<TABLE>
<CAPTION>
Mechanical
and Electrical Janitorial Corporate Consolidated
-------------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Revenues
Three months ended:
June 30, 1999............... $ 378,731 $ 58,073 $ -- $ 436,804
June 30, 1998............... 132,421 39,240 -- 171,661
Six months ended:
June 30, 1999............... 675,363 112,283 -- 787,646
June 30, 1998............... 164,392 61,879 -- 226,271
Operating income (loss)
Three months ended:
June 30, 1999............... 31,071 3,248 (9,827) 24,492
June 30, 1999 (before
restructuring
and recapitalization
charges)................... 31,071 4,708 (3,267) 32,512
June 30, 1998............... 12,233 2,592 (2,340) 12,485
Six months ended:
June 30, 1999............... 54,920 6,568 (13,029) 48,459
June 30, 1999 (before
restructuring
and recapitalization
charges)................... 54,920 8,028 (6,469) 56,479
June 30, 1998............... 14,878 2,722 (2,980) 14,620
EBITDA
Three months ended:
June 30, 1999............... 36,714 4,559 (9,789) 31,484
June 30, 1999 (before
restructuring
and recapitalization
charges)................... 36,714 6,019 (3,229) 39,504
June 30, 1998............... 14,406 3,663 (2,870) 15,199
Six months ended:
June 30, 1999............... 65,307 9,221 (12,961) 61,567
June 30, 1999 (before
restructuring
and recapitalization
charges)................... 65,307 10,681 (6,401) 69,587
June 30, 1998............... 17,562 4,084 (3,510) 18,136
Total assets
June 30, 1999............... 908,145 133,390 73,084 1,114,619
June 30, 1998............... 387,912 105,639 409,482 903,033
Working capital
June 30, 1999............... 143,672 10,015 7,765 161,452
June 30, 1998............... 68,781 8,897 294,542 372,220
</TABLE>
11
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
A reconciliation of consolidated EBITDA to consolidated income before taxes
is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
EBITDA:
Total segment EBITDA............... $ 31,484 $ 15,199 $ 61,568 $ 18,136
Depreciation and amortization...... (6,992) (2,714) (13,109) (3,516)
Interest (expense) income, net..... (6,306) 5,087 (3,613) 11,755
--------- --------- -------- --------
Consolidated income before income
taxes........................... $ 18,186 $ 17,572 $ 44,846 $ 26,375
========= ========= ======== ========
</TABLE>
NOTE 10 -- EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the basic
and diluted earnings per share computations for the three and six-month
periods ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income................... $ 9,963 $ 10,046 $ 24,696 $ 15,127
Weighted average shares
outstanding--Basic.......... 34,553,258 38,674,147 40,231,809 35,846,420
----------- ----------- ----------- -----------
Net income per share--Basic.. $ 0.29 $ 0.26 0.61 0.42
=========== =========== =========== ===========
Diluted earnings per share:
Net income................... $ 9,963 $ 10,046 $ 24,696 $ 15,127
Plus: Interest expense on 7
1/2% convertible junior
subordinated debentures and
related amortization expense
on debt issue costs net of
applicable income taxes..... 785 785
----------- ----------- ----------- -----------
Net income on an as if
converted basis............. 10,748 10,046 25,481 15,127
=========== =========== =========== ===========
Weighted average shares
outstanding--Basic.......... 34,553,258 38,674,147 40,231,809 35,846,420
Convertible non-voting common
stock....................... 500,000 500,000
Common stock equivalents from
stock options and warrants.. 98,139 391,078 187,116 489,560
Contingently issuable
shares...................... 707,869 96,341 1,096,984 48,171
Convertible junior
subordinated debentures, on
an as if converted basis 2,930,403 1,473,296
----------- ----------- ----------- -----------
Total weighted average shares
outstanding--Diluted........ 38,289,669 39,661,566 42,989,205 36,884,151
----------- ----------- ----------- -----------
Net income per share--
Diluted..................... $ 0.28 $ 0.25 $ 0.59 $ 0.41
=========== =========== =========== ===========
</TABLE>
Outstanding stock options and warrants to purchase 6,155,464 shares of
Common Stock as of June 30, 1999 were not included in the computation of
diluted earnings per share because the options' exercise prices were higher
than the average market price of the Common Stock during the period.
NOTE 11 - SUBSEQUENT EVENTS
Subsequent to June 30, 1999 and through August 13, 1999, the Company
completed five business combinations for an aggregate consideration of
1,407,626 shares of Common Stock and approximately $30,540 in cash.
Additionally, there is the potential for the payment of up to an additional
$23,900 in cash and shares of Common Stock in connection with contingent
consideration arrangements.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
INTRODUCTION
The following discussion should be read in conjunction with the consolidated
historical financial statements, including the related notes thereto,
appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the
Company's audited consolidated financial statements for the year ended
December 31, 1998 as filed on Form 10-K with the Securities and Exchange
Commission on March 29, 1999.
Founded in February 1997, Building One Services Corporation is a leading
provider of facilities services in the United States. The Company completed
its initial public offering ("IPO") in December 1997 raising net proceeds of
approximately $527 million. The proceeds have been used by the Company
primarily in its acquisition program and to finance the Company's repurchase
of shares of Common Stock in its Tender Offer further discussed below.
On May 11, 1999, the Company completed the repurchase of 24,617,840 shares
of its Common Stock at $22.50 per share for cash and 883,573 shares of Common
Stock underlying stock options at $22.50 per share less the exercise price of
the options. Total funds utilized for the repurchase excluding associated fees
totaled $560.1 million, which were obtained from the Company's available cash,
the net proceeds of $195.5 million from the issuance of $200 million of 10
1/2% senior subordinated notes, $100 million from the issuance of 7 1/2%
convertible junior subordinated debentures to Boss Investment, LLC, an
affiliate of the private investment firm of Apollo Management, L.P. and
borrowings under a new revolving credit facility (the "Credit Facility").
As a result of the Company's acquisition program, its financial condition
and results of operations have changed dramatically from its inception and IPO
in December 1997 to June 30, 1999. The Company completed 41 business
combinations since its inception. Thirty-eight of these business combinations
have been accounted for under the purchase method of accounting (the
"Purchased Companies") and three of these business combinations consummated
during the second quarter of fiscal 1998 have been accounted for under the
pooling-of-interests method of accounting (the "Pooled Companies"). The
Company's consolidated financial statements give retroactive effect to the
three business combinations accounted for under the pooling-of-interests
method and include the results of the companies acquired in business
combinations accounted for under the purchase method from their respective
acquisition dates. Due to the Company's growth through acquisitions,
comparisons of the historical results of the Company's operations have been
and will continue to be affected by the addition of acquired companies.
Increases in the various revenues and expense components of the Company's
results are, to a large degree, due to growth from acquisitions. Neither the
magnitude nor the source of such changes is necessarily indicative of changes
that will occur in the future.
The Company's revenues are recognized as services are performed for
maintenance and service contracts. Additionally, the Company utilizes 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,
anticipated contract losses 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 and will continue to realize savings from
the consolidation of insurance and bonding programs, consolidation of certain
back office functions for some of its operations and volume purchase discounts
from vendors of commodity services and materials and service vehicles. These
savings may be partially offset by costs associated with our corporate
operations and costs of integrating acquired businesses.
CONSOLIDATED RESULTS OF OPERATIONS
Three months ended June 30, 1999 compared to the three months ended June 30,
1998
Revenues. Consolidated revenues for the three months ended June 30, 1999
increased $265.1 million, or 154.5%, to $436.8 million from $171.7 million for
the three months ended June 30, 1998. Of this increase,
13
<PAGE>
$246.3 million pertains to the mechanical and electrical operations and $18.8
million to the janitorial operations. Approximately $210 million of the
increase in mechanical and electrical revenues relates to incremental revenue
contributed in the three months ended June 30, 1999 by companies acquired
during or subsequent to June 30, 1998. The remaining $36.3 million in
increased mechanical and electrical revenues and $18.8 million in janitorial
revenues relates to organic growth.
Gross profit. Gross profit for the three months ended June 30, 1999
increased $49.4 million, or 134.8%, to $86.1 million from $36.7 million for
the three months ended June 30, 1998. Of this increase, $45.3 million relates
to the mechanical and electrical operations and $4.1 million to the janitorial
operations.
Gross profit as a percentage of revenues ("gross margin") decreased to 19.7%
for the three months ended June 30, 1999 from 21.4% for the three months ended
June 30, 1998 primarily as a result of the mechanical companies acquired
subsequent to June 30, 1998 which traditionally have lower gross margins than
electrical companies.
Selling, general and administrative. Selling, general and administrative
expenses for the three months ended June 30, 1999 increased $27.2 million, or
120.9%, to $49.8 million from $22.5 million for the three months ended June
30, 1998. Of this increase, $23.6 million relates to an increase in the
mechanical and electrical operations, $2.7 million in the janitorial
operations and $.9 million to corporate general and administrative expenses.
Selling, general and administrative expenses as a percentage of revenues
decreased to 11.4% for the three months ended June 30, 1999 from 13.1% for the
three months ended June 30, 1998. This decrease is due primarily to the
leverage of corporate selling, general and administrative expenses and our
acquired companies' selling, general and administrative expenses over the
increase in revenues.
Goodwill amortization. Goodwill amortization for the three months ended June
30, 1999 increased $2.2 million, or 131.0%, to $3.8 million from $1.6 million
for the three months ended June 30, 1998. This increase was a result of the
increase in acquired companies.
Restructuring and recapitalization charges. Restructuring and
recapitalization charges were $8.0 million for the three months ended June 30,
1999. These charges, as discussed in Note 6 to the financial statements,
included $2.8 million relating to compensation expense for stock options
exercised and the underlying shares of Common Stock repurchased in the
Company's recapitalization plan, and $5.2 million of restructuring charges
pertaining to the relocation of the Company's corporate headquarters and
integration of the janitorial and maintenance management operations. The
Company anticipates annual savings of approximately $2.8 million as a result
of the restructuring.
Other income/expense, net. Other expense, net for the three months ended
June 30, 1999 changed $11.4 million, to $6.3 million of other expense from
other income of $5.1 million for the three months ended June 30, 1998. The
increase in other expense is primarily attributable to the increase in net
interest expense as a result of the use of the Company's cash funds and the
financing obtained to provide the necessary funds for the repurchase of Common
Stock in the Tender Offer.
Provision for income taxes. The provision for income taxes for the three
months ended June 30, 1999 increased to $8.2 million from $7.5 million for the
three months ended June 30, 1998, reflecting an effective tax rate of 45.2%
and 42.8% respectively. 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 companies acquired under the pooling-
of-interests method which had elected to be treated as subchapter S
corporations for tax purposes prior to their being acquired by the Company.
Additionally, the 45.2% effective rate reflects the non-deductibility of
goodwill amortization associated with certain acquisitions.
Six months ended June 30, 1999 compared to the six months ended June 30, 1998
Revenues. Consolidated revenues for the six months ended June 30, 1999
increased $561.4 million, or 248.1%, to $787.6 million from $226.3 million for
the six months ended June 30, 1998. Of this increase, $511 million pertains to
the mechanical and electrical operations and $50.4 million to the janitorial
operations.
14
<PAGE>
Approximately $460.3 million of the increase in mechanical and electrical
revenues and $25.4 million of the increase in janitorial revenues relates to
incremental revenue contributed in the six months ended June 30, 1999 by
companies acquired during or subsequent to the six months ended June 30, 1998.
The remaining $50.6 million in increased mechanical and electrical revenues
and $25.0 million in janitorial revenues relates to organic growth.
Gross profit. Gross profit for the six months ended June 30, 1999 increased
$109.2 million, or 232.2%, to $156.2 million from $47.0 million for the six
months ended June 30, 1998. Of this increase, $97.8 million relates to the
mechanical and electrical operations and $11.4 million to the janitorial
operations.
Gross profit as a percentage of revenues ("gross margin") decreased to 19.8%
for the six months ended June 30, 1999 from 20.8% for the six months ended
June 30, 1998 primarily as a result of the mechanical companies acquired
subsequent to June 30, 1998 which traditionally have lower gross margins than
electrical companies.
Selling, general and administrative. Selling, general and administrative
expenses for the six months ended June 30, 1999 increased $62.0 million, or
203.8%, to $92.5 million from $30.4 million for the six months ended June 30,
1998. Of this increase, $52.0 million relates to an increase in the
mechanical and electrical operations and $6.5 million to the janitorial
operations. $3.5 million relates to corporate general and administrative
expenses including corporate management and infrastructure costs to support
the Company's operations.
Selling, general and administrative expenses as a percentage of revenues
decreased to 11.7% for the six months ended June 30, 1999 from 13.5% for the
six months ended June 30, 1998. This decrease is due primarily to the leverage
of corporate's selling, general and administrative expenses and the Company's
acquired companies' selling, general and administrative expenses over an
increase in revenues.
Goodwill amortization. Goodwill amortization for the six months ended
June 30, 1999 increased $5.3 million, or 269% to $7.3 million from
$2.0 million for the six months ended June 30, 1998. This increase was a
result of the increase in acquired companies.
Restructuring and recapitalization charges. Restructuring and
recapitalization charges were $8.0 million for the six months ended June 30,
1999. These charges, as discussed in Note 6 to the financial statements,
included $2.8 million relating to compensation expense for stock options
exercised and the underlying shares of Common Stock repurchased in the
Company's recapitalization plan, and $5.2 million of restructuring charges
pertaining to the relocation of the Company's corporate headquarters and
integration of the janitorial and maintenance management operations.
Other income, net. Other expense, net for the six months ended June 30, 1999
changed $15.4 million, to $3.6 million of other expense from other income of
$11.8 million for the six months ended June 30, 1998. The increase in other
expense is primarily attributable to the increase in net interest expense as a
result of the use of the Company's cash funds and the financing obtained to
provide the necessary funds for the repurchase of Common STock under the
Tender Offer.
Provision for income taxes. The provision for income taxes for the six
months ended June 30, 1999 increased to $20.2 million from $11.2 million for
the six months ended June 30, 1998, reflecting an effective tax rate of 44.9%
and 42.6% respectively. 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 companies acquired under the pooling-
of-interests method which had elected to be treated as subchapter S
corporations for tax purposes prior to their being acquired by the Company.
Additionally, the 44.9% effective rate reflects the non-deductibility of
goodwill amortization associated with certain acquisitions.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1999, net cash used in operating
activities was approximately $65.3 million. Net cash used in investing
activities for the six months ended was $70.0 million, which primarily
consisted of $57.0 million used for acquisitions and $13 million for purchases
of property and equipment. Net cash used in financing activities for the six
months ended June 30, 1999 was $59.8 million, which consisted primarily of
$560.1 million used to repurchase the Company's stock in the Tender Offer net
of proceeds from long-term debt of $506.7 million, including the issuance of
the senior subordinated notes, the convertible junior subordinated debentures
and the borrowings under the new credit facility.
The Company acquired twelve businesses during the six months ended June 30,
1999. Aggregate consideration for these acquisitions consisted of 1,525,549
shares of Common Stock and $61.0 million in cash. In conjunction with the
acquisitions consummated during the six months ended June 30, 1999 and during
the year ended 1998, the Company has entered into contingent consideration
agreements of up to an estimated $148.6 million in cash and shares of Common
Stock based upon the performance of certain of the businesses acquired. As of
June 30, 1999 $79 million of consideration has been earned, of which $30.1
million has been paid in cash. The Company expects that approximately $33
million of additional contingent consideration will become payable in 1999, of
which approximately $14 million will be payable in cash.
As previously discussed, on May 11, 1999, the Company completed the
repurchase of 24,617,840 shares of its common stock at $22.50 per share for
cash and 883,573 shares of common stock underlying stock options at $22.50 per
share less the exercise price per share of the options. Total funds utilized
for the repurchase totaled $560.1 million, which were obtained from the
Company's available cash, the net proceeds of $195.5 million from the issuance
of $200 million of 10 1/2% senior subordinated notes, $100 million from the
issuance of 7 1/2% convertible junior subordinated debentures to Boss
Investment, LLC, an affiliate of Apollo Management, L.P., and borrowings under
a new credit facility.
Interest on the senior subordinated notes in the amount of 10 1/2% will be
paid semi-annually on May 1 and November 1 of each year and the notes will
mature on May 1, 2009. The senior subordinated notes are unsecured and
guaranteed by our domestic subsidiaries and rank junior to the Credit
Facility.
The Company may redeem the senior subordinated notes, in whole or in part,
at any time on or after May 1, 2002 at specified redemption prices, plus
accrued interest. At any time (which may be more than once) before May 1,
2002, the Company can 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 the Company
at 101% of the face amount plus accrued interest.
Additionally, the indenture governing the senior subordinated notes contains
certain covenants that restrict, among other things, the Company's ability to
incur indebtedness, pay dividends or repurchase capital stock, incur liens,
sell or otherwise dispose of a substantial portion of its assets or merge or
consolidate with another entity.
The convertible junior subordinated debentures will mature on May 1, 2012
and provide for interest payments at a rate of 7 1/2% to be paid in additional
convertible junior subordinated debentures or cash, at the Company's 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
junior subordinated debentures, 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 junior subordinated debentures. In
addition, the provisions of the Credit Facility and the indenture for the
senior subordinated notes limit our ability to pay cash interest payments.
The convertible junior subordinated debentures will be convertible into
shares of the Company's Common Stock at an initial conversion price of $22.50
per share plus all accrued and unpaid interest. Assuming conversion
16
<PAGE>
of the principal amount of the convertible junior subordinated debentures and
considering the first interest payment on August 1, 1999 was in additional
convertible debentures, Boss Investment will have the right to acquire upon
conversion 4,528,666 shares or 15% of the shares outstanding as of August 13,
1999. If the convertible junior subordinated debentures 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
junior subordinated debentures. 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. The Company will adjust the conversion price
under certain circumstances, including the issuance of shares at a price below
the conversion price of the convertible junior subordinated debentures or
below the then fair market value of a share of the Company's Common Stock.
The indenture for the convertible junior subordinated debentures limits the
Company's ability to, among other things, incur additional indebtedness, pay
dividends, repurchase securities or repay certain other indebtedness.
The Credit Facility consists of a $125.0 million term loan and a $225.0
million revolving credit facility, in each case maturing five years after the
date of the borrowing. The Credit Facility provides for certain mandatory
repayments of the outstanding indebtedness. As of August 13, 1999, the Company
had $113.5 million of availability under its Credit Facility.
The Credit Facility bears 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 in the credit facility). The base rate will be
the higher of (i) the rate that Bankers Trust Company announces from time to
time as its prime lending rate, as in effect from time to time, and (ii) 1/2
of 1% in excess of the overnight federal funds rate. The applicable margin
will be a percentage per annum equal to (i) in the case of term loans
maintained as (x) base rate loans, 2.00%, and (y) eurodollar rate loans,
3.00%, and (ii) in the case of revolving loans maintained as (x) base rate
loans, 1.50%, and (y) eurodollar rate loans, 2.50%, in each case subject to
step-downs to be determined based on certain levels of financial performance.
The Company must also pay a commitment fee in the amount of 0.50% per year on
the daily average unused portion of the Credit Facility, subject to step-downs
based upon financial performance. In addition, the commitment fee percentage
will be increased by 0.25% at all times that the total unutilized commitments
under the revolving Credit Facility exceed 75% of the sum of (x) the total
revolving commitment then in effect plus (y) the aggregate outstanding
principal amount of the term loan. The Credit Facility will provide for
certain mandatory repayments of the outstanding indebtedness.
The Credit Facility includes a number of significant covenants that impose
restrictions on us and its subsidiaries. These covenants include, among
others, restrictions on the Company's ability to incur additional indebtedness
and pay the interest on Boss Investment's convertible junior subordinated
debentures 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, the Company is required to comply with financial
covenants with respect to minimum interest coverage and maximum leverage
ratios.
Subsequent to June 30, 1999 and through August 13, 1999, the Company
completed five business combinations for an aggregate consideration of
1,407,626 shares of Common Stock and approximately $30.5 million in cash.
Additionally, there is the potential for the payment of up to an addtional
$23.9 million in cash and shares of Common Stock in connection with contingent
consideration arrangements.
The Company needs funds for general corporate purposes, including to pay
interest on the senior subordinated notes, the convertible junior subordinated
debenture and the Credit Facility, to pay contingent consideration required by
the terms of certain acquisition agreements and to make future acquisitions
and capital expenditures. The Company anticipates that its cash flow from
operations and borrowings available under the Credit Facility will be
sufficient to meet these liquidity requirements over the next twelve months.
17
<PAGE>
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
Quarterly results may be materially affected by the timing of acquisitions,
the timing and magnitude of costs related to such acquisitions, variations in
services provided by the Company and the timing of these services, and general
economic conditions. Moreover, the operating margins of companies acquired by
the Company may differ substantially from those of the Company, which could
contribute to the further fluctuation in its quarterly operations. Therefore,
results for any quarter are not necessarily indicative of the results that the
Company may achieve for any subsequent fiscal quarter or for a full fiscal
year.
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations during the six months ended June 30, 1999.
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. 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.
State of Readiness. Since its IPO in December 1997, the Company has acquired
41 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
addressed the Year 2000 issue, but are in different phases of assessment and
remediation. During the second quarter the Company began the process of
completing a comprehensive survey to be completed by management of the
Company's operating subsidiaries to ensure that the Company's operating
subsidiaries are adequately addressing, or have adequately addressed, the Year
2000 issue.
The survey mentioned above covered the following areas: (i) the Company's
information technology and operating systems, including job-costing, billing,
payroll and accounting systems; (ii) the Company's non-information technology
systems, such as buildings, plant, equipment and other infrastructure systems
that may contain embedded microcontroller technology; (iii) the systems of its
major vendors, insofar as they relate to the Company's business; and (iv) the
systems of its major customers for which the Company has performed
installation and maintenance services. The Company is currently in the process
of accumulating and assessing the results of the surveys.
Costs Related to the Year 2000 Issue. As part of the survey mentioned above,
the Company has requested an estimate from each operating subsidiary of the
material historical and estimated costs of assessment and remediation. Such
costs, including, among other things, the costs of assessment, software
upgrade fees, hardware changes and general implementation of a Year 2000
action plan, have not been finalized at this time. Approximately $800,000 has
been expended to date and the Company currently estimates that an additional
$500,000 to $1,000,000 will be incurred to fully comply. The projected effort
for the majority of the systems is expected to include sending letters to
substantially all of the Company's 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.
18
<PAGE>
The Company is also embarking on an initiative to develop standard
information systems for use throughout the organization for its overall
information needs that will be free of any Year 2000 limitations. However, no
assurances can be made that such systems will be in place prior to the Year
2000.
Contingency Plan. Until the Company completes the survey described above,
the Company will not be able to develop its most reasonably likely worst case
Year 2000 scenarios. The Company intends to complete its determination of
worst case scenarios after it has received and analyzed responses to the
survey and to all of the inquiries it has made to its vendors.
Risks Related to the Year 2000 Issue. Although the Company's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
the Company's business and operations, the actual effects of the issue cannot
be known until the Year 2000. Due to the fact that the Company's operations
are primarily service oriented and are not heavily dependent on complex
information systems, the Company believes 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, the
Company's operations do not include capital intensive equipment with embedded
microcontrollers.
However, failure by the Company or its major vendors and customers to
adequately address their respective Year 2000 issues generally in a timely
manner (insofar as they relate to the Company's business) could result in,
among other things, the Company's inability to obtain equipment that it is
obligated to install in a timely manner, reductions in the quality of
materials used in the Company's 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 the
Company's business, results of operations and financial condition.
FACTORS AFFECTING THE COMPANY'S BUSINESS
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. When used in this Report, the words
"anticipate," "believe," "estimate," "intend," "may," "will," "expect" and
similar expressions as they relate to the Company or its management are
intended to identify such forward-looking statements. The Company's actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences include those discussed under
the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 and in other public filings. The Company does not
undertake any obligation to revise these forward-looking statements to reflect
any future events or circumstances.
19
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement." The
Company's major market risk exposure is changing interest rates. All items
described are non-trading and are stated in U.S. dollars (in thousands).
<TABLE>
<CAPTION>
Fair Value
At June 30,
1999 2000 2001 2002 2003 Thereafter Total 1999
------ ------ ------ ------ ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Term Loan Facility $625 $1,250 $1,250 $1,250 $1,250 $119,063 $124,688 $124,688
Average Rate.......... (a)
Revolving Credit
Facility............... -- -- -- -- -- $82,500 $82,500 $82,500
Average Rate.......... (a)
Senior Subordinated
Notes.................. -- -- -- -- -- $200,000 $200,000 $189,000
Average Rate.......... (b)
Convertible Junior
Subordinated
Debentures............. -- -- -- -- $100,000 $100,000 $100,000
Average Rate.......... 7.5%
Other Secured Debt...... $3,054 $2,704 $1,333 $ 536 $ 251 $ 247 8,125 8,125
Average Rate.......... 9.0%
</TABLE>
- --------
(a) The Credit Facility bears 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 in the Credit Facility). The base rate will
be the higher of (i) the rate that Bankers Trust Company announces from
time to time as its prime lending rate, as in effect from time to time,
and (ii) 1/2 of 1% in excess of the overnight federal funds rate. The
applicable margin will be a percentage per annum equal to (i) in the case
of term loans maintained as (x) base rate loans, 2.00%, and (y) eurodollar
rate loans, 3.00%, and (ii) in the case of revolving loans maintained as
(x) base rate loans, 1.50%, and (y) eurodollar rate loans, 2.50%, in each
case subject to step-downs to be determined based on certain levels of
financial performance. At June 30, 1999, the weighted average interest
rate in effect for the Credit Facility borrowings, including amortization
of related debt issue costs of $9,438 was 8.67%.
(b) The Senior Subordinated Notes are unsecured, mature May 2009 and bear
interest at 10.5% payable semi-annually. These Senior Subordinated Notes
were issued at a discount of 97.746% or $4,508 which is being amortized to
interest expense along with approximately $8,147 in related debt issuance
costs over the ten year life of the Notes, increasing the effective
interest rate to 11.28%.
20
<PAGE>
PART II-OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable
(b) In connection with the Company's recently completed Tender Offer, on
April 30, 1999, the Company issued $100 million of its 7 1/2% Convertible
Junior Subordinated Debentures (the "Debentures") to Boss Investment LLC, an
affiliate of Apollo Management, L.P. On July 8, 1999, the Company's
stockholders approved an amendment to the Company's certificate of
incorporation which gave the holders of the Debentures the right to elect as a
class three directors to the Company's board of directors (or if the board has
more than ten directors, no less than 30% of the board) and to vote on an as
converted basis with the Common Stock on all matters submitted to the holders
of the Common Stock. As of June 30, 1999, the holders of the Debentures would
have the right to vote on an as converted basis with respect to 4,444,444
shares of Common Stock. These rights and certain other rights of the holders
of the Debentures have been previously reported in the Company's Current
Report on Form 8-K, filed with the Securities and Exchange Commission on July
15, 1999.
(c) The Company issued the Debentures without registration under the
Securities Act of 1933, as amended, in reliance upon the exemption provided by
Section 4(2) of the Securities Act.
(d) As of June 30, 1999, the Company had used all of the remaining proceeds
from its initial public offering in connection its recently completed Tender
Offer.
Item 5. Other Information.
On June 25, 1999, the Company entered into a letter agreement with Jonathan
J. Ledecky whereby Mr. Ledecky's employment agreement was terminated. In
accordance with the terms of the employment agreement, Mr. Ledecky was paid
$1,376,338. Mr. Ledecky remains as the Chairman of the Company's Board of
Directors.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Termination Letter Agreement between the Company and Jonathan J.
Ledecky.
10.2 Employment Agreement between the Company and William P. Love, Jr.
11.1 Statement regarding computation of net income per share.
27 Financial Data Schedule.
(b) Reports on Form 8-K. During the period covered by this report, the
Company filed the following Current Reports on Form 8-K:
(i) Form 8-K dated April 9, 1999 and filed with the Commission on April
9, 1999 reporting information under Item 7. The Company filed its
unaudited pro forma financial statements as of and for the year
ended December 31, 1998 giving effect to (i) the Company's
repurchase of approximately 25.5 million shares of its Common Stock
in the Company's Tender Offer and the related financing
transactions to fund the Tender Offer, and (ii) the businesses the
Company acquired in 1998 and 1999 as if they had been acquired on
January 1, 1998.
(ii) Form 8-K dated June 28, 1999 and filed with the Commission on June
28, 1999 reporting information under Item 7. The Company filed the
financial statements for Regency Electric Company, Inc. as of
December 31, 1997 and 1996 and for the three year period ended
December 31, 1997.
21
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Building One Services Corporation
/s/ Joseph M. Ivey
August 16, 1999 By:__________________________________
- -----------
Joseph M. Ivey
Date
Chief Executive Officer
/s/ Timothy C. Clayton
August 16, 1999 By:__________________________________
- -----------
Timothy C. Clayton
Date
Chief Financial Officer
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Exhibit Page
--- ----------------------------------------------------------------- ----
<C> <S> <C>
10.1 Termination Letter Agreement between the Company and Jonathan J.
Ledecky
10.2 Employment Agreement between the Company and William P. Love, Jr.
11.1 Statement regarding computation of net income per share
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 10.1
Building One Services Corporation
800 Connecticut Avenue, NW
Suite 1111
Washington, D.C. 20006
June 25, 1999
Jonathan J. Ledecky
1400 34th Street, N.W.
Washington, D.C. 20007
Dear Mr. Ledecky:
This is to confirm that as mutually agreed, your employment with
Building One Services Corporation (the "Company") will terminate on the date
hereof "without cause" (as defined in the Employment Agreement by and between
you and the Company dated as of November 25, 1997 (the "Employment Agreement")).
This Termination Agreement (the "Termination Agreement") constitutes a
termination of the Employment Agreement. Notwithstanding anything to the
contrary in Section 5(d) of the Employment Agreement, Sections 6 through 18 of
the Employment Agreement shall survive the termination of the Employment
Agreement and shall continue to be in full force and effect. This Termination
Agreement constitutes a waiver by you of the ninety days' notice provision and
the thirty days' notice provision contained in Section 1 and 5(d) of the
Employment Agreement, respectively. Without limiting the foregoing, all
payments made to you under this Termination Agreement are made in lieu of any
payments due to you or obligations owing to you under the Employment Agreement.
Pursuant to this Termination Agreement, you shall receive the
following from the Company:
1. A cash payment of $1,376,338, payable to you in a single lump sum
promptly after the Termination Date (subject to applicable
withholding taxes); and
2. For a period of 24 months from the Termination Date you shall have
the right to participate in all pension, insurance and other
benefit plan programs or arrangements on terms identical to those
applicable to senior officers of the Company to the extent
permitted by applicable law and under the terms and conditions set
forth in such programs or arrangements.
<PAGE>
Mr. Jonathan J. Ledecky
June 25, 1999
Page 2 of 6
3. As specified in Section 4(b) of the Employment Agreement, the
Company shall reimburse you for all reasonable and necessary
travel, business entertainment and other business out-of-pocket
expenses incurred or expended by you in connection with the
performance of your duties under the Employment Agreement upon
presentation of proper expense statements or such other supporting
information as the Company may reasonably require of you. The
Company agrees to advance to you $100,000 of such expenses
promptly after mutual execution and delivery of this Termination
Agreement, which shall be offset against reimbursement due to you
or repaid by you if you do not present proper expense statements
or other reasonable supporting information.
You represent and warrant that from and after the date hereof, the
Company will have no liability or obligation to you in respect of any bonus,
profit sharing retirement or equity incentives or any cash or other benefits
except as expressly set forth herein.
You hereby acknowledge that the Company is under no obligation to
retain you as a director of the Company and the Company is not under any
obligation to retain you as Chairman of the Board of Directors (the "Board").
Without limiting the foregoing, you will be entitled to the same compensation
and benefits as other non-employee directors of the Company while you remain a
member of the Board.
You agree not to disclose the terms of this Termination Agreement or
the content of any discussions held in relation to this Termination Agreement,
or to otherwise provide a copy of this Termination Agreement to anyone, except
your immediate family, professional advisors and except as required by
applicable law.
You and the Company hereby grant the releases and make the agreements
set forth in the Exhibit to this Termination Agreement, which Exhibit is
incorporated herein and made a part hereof.
You and the Company hereby agree that this Termination Agreement shall
be governed in accordance with the laws of the State of New York and the
exclusive jurisdiction for enforcing this Termination Agreement shall be the
state courts and the federal courts of the United States located in the City of
New York. This Termination Agreement may be executed in one or more
counterparts.
<PAGE>
Mr. Jonathan J. Ledecky
June 25, 1999
Page 3 of 6
IN WITNESS WHEREOF, the parties hereto have executed this Termination
Agreement as of the day and year first written above.
BUILDING ONE SERVICES
CORPORATION
By: _____________________________
Name:
Title:
Accepted and agreed as of
the date first written above:
____________________________
Name: Jonathan J. Ledecky
<PAGE>
Mr. Jonathan J. Ledecky
June 25, 1999
Page 4 of 6
EXHIBIT
Releases
- --------
<TABLE>
<S> <C>
a. You hereby agree to accept the payment and benefits
provided for in the Termination Agreement in full
resolution and satisfaction of, and hereby
IRREVOCABLY AND UNCONDITIONALLY RELEASE, REMISE AND
FOREVER DISCHARGE the Company, its past, present
and future direct and indirect parents,
subsidiaries, affiliates, divisions, predecessors,
successors, and assigns, and their respective
current and former officers, directors,
shareholders, representatives, agents and
employees, in their official and individual
capacities, jointly and individually (the
"Releasees") from, any and all agreements,
promises, liabilities, claims and demands of any
kind whatsoever, in law or equity, whether known or
unknown, suspected or unsuspected, fixed or
contingent, apparent or concealed, which you, your
respective heirs, executors, administrators,
successors or assigns ever had, now have or in the
future may have, including any and all claims
relating in any way to the Company, your ownership
interest therein, or arising out of or relating to
your employment, the Employment Agreement, your
compensation and benefits with the Company and/or
the termination thereof, and any and all contract,
tort or fraud claims, claims for defamation or
other personal injury, claims under any federal,
state or municipal wage payment, discrimination or
fair employment practices law, statute or
regulation and claims for costs, expenses and
attorneys' fees with respect thereto, arising from
the beginning of the world through the effective
date of this Letter Agreement, in each case,
against the Company or any of the Releasees, other
than any claims with respect to the Company's
breach of this Termination Agreement. However, it
is agreed that you do not waive your rights for
coverage or indemnification under any directors &
officers policy, or pursuant to the Articles of
Incorporation or bylaws of the Company for acts or
omissions occurring during your employment.
b. By signing the Termination Agreement and by
acceptance of the payment and benefits provided for
therein, you hereby WAIVE, RELEASE AND COVENANT NOT
TO SUE the Company or the Releasees with respect to
any matter relating to or arising out of any claims
being released hereunder, and you agree that you
will not (i) file, charge, claim, sue or cause or
permit to be filed any civil action, suit or legal
proceeding for any claims which are being
</TABLE>
<PAGE>
Mr. Jonathan J. Ledecky
June 25, 1999
Page 5 of 6
<TABLE>
<S> <C>
released hereunder against the Company or the
Releasees, whether in the form of a federal, state
or municipal court lawsuit or administrative agency
action, an arbitration proceeding or otherwise,
(ii) seek reinstatement or any other monetary,
equitable or personal relief of any kind from the
Company or the Releasees, however that relief might
be called, on the basis of any such claim, or (iii)
accept any such relief (as described in subclause
(ii) above) on the basis of any claims which are
being released hereunder if sought by any person,
organization or other entity other than you or
acting for you or on your behalf. You represent and
warrant as of the date hereof (i) that you have not
filed any claim or demand for relief against the
Company or Releasees, (ii) that there are no
outstanding claims, or other claims or demands for
relief within the meaning of this Section and (iii)
that there has been no assignment of any such
claims.
c. By signing this Termination Agreement and in
consideration for the releases granted by you in
Sections (a) and (b) above, the Company, its past,
present and future direct and indirect parents,
subsidiaries, affiliates, divisions,
representatives, agents, predecessors, successors,
and assigns, jointly and individually, hereby
IRREVOCABLY AND UNCONDITIONALLY WAIVE, RELEASE,
REMISE, FOREVER DISCHARGE AND COVENANT NOT TO SUE
you, your executors, heirs, administrators, and
legal representatives with respect to any and all
claims and demands of any kind whatsoever, in law
or equity, whether known or unknown, suspected or
unsuspected, fixed or contingent, apparent or
concealed, arising out of or related to your
Employment Agreement and your status and role as an
employee, officer, director, agent, trustee, or
representative of the Company and its past, present
and future direct and indirect parents,
subsidiaries, affiliates, divisions, predecessors,
successors and assigns, arising from the beginning
of the world through the effective date of this
Termination Agreement, other than (x) any claims
with respect to your breach of this Termination
Agreement, (y) any claim pursuant to Sections 6 or
7 of the Employment Agreement and (z) any claims
relating to any liability under Section 174 of the
Delaware General Corporate Law. The Company further
agrees that it will not (i) file, charge, sue, or
cause or permit to be filed any civil action, suit
or legal proceeding for any claims which are being
released hereunder against you, whether in the form
of a federal, state or municipal court lawsuit or
administrative agency action, an arbitration
proceeding or
</TABLE>
<PAGE>
Mr. Jonathan J. Ledecky
June 25, 1999
Page 6 of 6
<TABLE>
<S> <C>
otherwise, (ii) seek reinstatement or any other
monetary, equitable or personal release of any kind
from you, however that relief might be called, on
the basis of any such released claim, or (iii)
accept any such relief (as described in subclause
(ii) above) on the basis of any claims which are
being released hereunder if sought by any person,
organization or other entity other than the
Company, acting for the Company or on its behalf.
The Company represents and warrants that as of the
date hereof (i) it has not filed any claim or
demand for relief against you, (ii) that there are
no outstanding claims or demands for relief within
the meaning of this Section (c) and (iii) that
there has been no assignment of any such claims.
</TABLE>
No Admission. Nothing contained in this Termination Agreement shall be deemed
- -------------
to constitute an admission or evidence of any wrongdoing or liability on the
part of you or the Company or the Releasees.
Future Cooperation. You further agree that upon the Company's reasonable
- -------------------
request you will use reasonable efforts to assist and cooperate with the Company
and the Releasees in connection with the defense or prosecution of any claim
that may be made against or by the Company or the Releasees, or in connection
with any ongoing or future investigation or dispute or claim of any kind
involving the Company or the Releasees, including any proceeding before any
arbitral, administrative, regulatory, self-regulatory, judicial, legislative, or
other body or agency. In the event of the cooperation as contemplated by this
Section 3, the Company shall reimburse you for all of your reasonable costs and
expenses incurred by you in providing such cooperation.
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of July 8, 1999, between BUILDING
ONE SERVICES CORPORATION, a Delaware corporation (the "Company"), and William P.
Love, Jr., a resident of the State of Missouri (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 of
the Company's mechanical and electrical group 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 of the
Company's mechanical and electrical group 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
President and Chief Executive Officer (the "CEO").
(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 CEO, provided that each such
position shall be commensurate with the Executive's standing in the business
community as President of the Company's mechanical and electrical group. The
Executive shall not be entitled to any compensation other than the compensation
provided
<PAGE>
for herein for serving during the Term as a Director of the Company or in any
other office or position of the Company, or any of its subsidiaries or
affiliates, unless the CEO 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 of the
Company's mechanical and electrical group, 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 Three Hundred
Thirty Thousand Dollars ($330,000.00) 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
CEO 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 100% 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) Long-Term Incentive Plan. The Executive shall be entitled to
------------------------
participate in the Company's 1999 or 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 1999 Long-Term
Incentive Plan (the "Option Plan"), the Executive will be granted options (the
"Options") to purchase two hundred fiftteen (215,000) 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 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.
-4-
<PAGE>
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.
(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
-5-
<PAGE>
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. 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
-6-
<PAGE>
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 CEO. 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 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
-7-
<PAGE>
(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 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
-8-
<PAGE>
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 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.
-9-
<PAGE>
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 State of Minnesota. The
Parties consent to the jurisdiction of such court and to the service of process
in any manner provided by Minnesota 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.
(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
-10-
<PAGE>
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:
If to the Company:
Building One Services Corporation
110 Cheshire Lane
Suite 210
Minnetonka, MN 55305
Fax: 612-249-4910
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:
William P. Love, Jr.
10711 Oakcrest
Olathe, KS 66061
Phone: (913) 393-3306
Fax: (913) 393-3342
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.
-11-
<PAGE>
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.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
BUILDING ONE SERVICES CORPORATION
__________________________________
By:
Its:
EXECUTIVE
__________________________________
William P. Love, Jr.
-12-
<PAGE>
EXHIBIT 11.1
BUILDING ONE SERVICES CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, June 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income................................................ $ 9,963 $ 10,046 $ 24,696 $ 15,127
Weighted average shares outstanding - Basic............... 34,553,258 38,674,147 40,231,809 35,846,420
----------- ----------- ----------- -----------
Net income per share - Basic.............................. $ 0.29 $ 0.26 $ 0.61 $ 0.42
=========== =========== =========== ===========
Diluted earnings per share:
Net income................................................ $ 9,963 $ 10,046 $ 24,696 $ 15,127
----------- ----------- ----------- -----------
Plus: Interest expense on 7.5% convertible subordinated
debentures and related amortization expense on debt
issue costs net of applicable income taxes.............. 785 -- 785 --
----------- ----------- ----------- -----------
Net income on an as if converted basis.................... 10,748 10,046 25,481 15,127
=========== =========== =========== ===========
Weighted average shares outstanding - Basic............... 34,553,258 38,674,147 40,231,809 35,846,420
Convertible non-voting common stock....................... -- 500,000 -- 500,000
Common stock equivalents from stock options and warrants.. 98,139 391,078 187,116 489,560
Contingently issuable shares.............................. 707,869 96,341 1,096,984 48,171
Convertible subordinated debentures, on an as if converted
basis.................................................. 2,930,403 -- 1,473,296 --
----------- ----------- ----------- -----------
Weighted average shares outstanding - Diluted....... 38,289,669 39,661,566 42,989,205 36,884,151
----------- ----------- ----------- -----------
Net income per share - Diluted............................ $ 0.28 $ 0.25 $ 0.59 $ 0.41
=========== =========== =========== ===========
</TABLE>
Outstanding stock options and warrants to purchase 6,155,464 shares of common
stock as of June 30, 1999 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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 18,032 18,032
<SECURITIES> 3,289 3,289
<RECEIVABLES> 317,952 317,952
<ALLOWANCES> 2,109 2,109
<INVENTORY> 0 0
<CURRENT-ASSETS> 404,801 404,801
<PP&E> 66,657 66,657
<DEPRECIATION> 14,201 14,201
<TOTAL-ASSETS> 1,114,619 1,114,619
<CURRENT-LIABILITIES> 243,349 243,349
<BONDS> 506,547 506,547
0 0
0 0
<COMMON> 22 22
<OTHER-SE> 360,275 360,275
<TOTAL-LIABILITY-AND-EQUITY> 1,114,619 1,114,619
<SALES> 436,804 787,646
<TOTAL-REVENUES> 436,804 787,646
<CGS> 350,713 631,405
<TOTAL-COSTS> 350,713 631,405
<OTHER-EXPENSES> 53,579 107,782
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,122 8,217
<INCOME-PRETAX> 18,186 44,846
<INCOME-TAX> 8,223 20,150
<INCOME-CONTINUING> 9,963 24,696
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,963 24,696
<EPS-BASIC> 0.29 0.61
<EPS-DILUTED> 0.28 0.59
</TABLE>
