<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 March 31, 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>
800 Connecticut Avenue, NW, Suite 1111
Washington, D.C. 20006
(Address of principal executive offices) (Zip Code)
</TABLE>
(202) 261-6000
(Registrant's telephone number, including area code)
(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 May 14, 1999, there were 21,693,105 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 March 31, 1999 and December 31,
1998.............................................................. 1
Consolidated Statement of Operations for the three months ended
March 31, 1999 and 1998........................................... 2
Consolidated Statement of Stockholders' Equity for the three months
ended March 31, 1999.............................................. 3
Consolidated Statement of Cash Flows for the three months ended
March 31, 1999.................................................... 4
Notes to Consolidated Financial Statements......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 15
PART II--OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................... 16
Item 5. Other Events................................................. 16
Item 6. Exhibits and Reports on Form 8-K............................. 16
Signatures........................................................... 18
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>
Pro Forma
March 31, December 31, March 31,
1999 1998 1999
----------- ------------ -----------
(unaudited) (unaudited)
(see Note
3)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 174,273 $ 213,096 $ 9,638
Accounts receivable, net................ 276,981 246,623 276,981
Costs and estimated earnings in excess
of billings on uncompleted contracts... 39,931 25,441 39,931
Prepaid expenses and other current as-
sets................................... 19,252 17,108 19,252
---------- ---------- ----------
Total current assets.................. 510,437 502,268 345,802
Property and equipment, net............... 47,541 38,967 47,541
Intangible assets, net.................... 596,460 496,381 596,460
Other assets.............................. 7,682 6,306 29,682
---------- ---------- ----------
Total assets.......................... $1,162,120 $1,043,922 $1,019,485
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt......................... $ 5,068 $ 2,167 $ 5,068
Accounts payable........................ 81,882 75,029 81,882
Billings in excess of costs and
estimated earnings on uncompleted
contracts.............................. 66,672 58,773 66,672
Income taxes payable.................... 11,875 6,125 9,394
Accrued compensation.................... 32,338 27,737 32,338
Accrued liabilities..................... 60,633 25,047 60,633
---------- ---------- ----------
Total current liabilities............. 258,468 194,878 255,987
Long-term debt............................ 4,783 3,287 425,275
Other liabilities......................... 4,531 8,220 4,531
---------- ---------- ----------
Total liabilities..................... 267,782 206,385 685,793
---------- ---------- ----------
Stockholders' equity:
Common stock, $.001 par value,
250,000,000 shares authorized,
46,307,373 and 45,258,946 shares issued
and outstanding, respectively
(21,688,517 pro forma)................. 46 45 22
Additional paid-in capital.............. 874,299 832,514 273,495
Treasury stock.......................... (41,832) (41,832) --
Retained earnings....................... 61,988 47,255 60,338
Accumulated other comprehensive income
(loss)................................. (163) (445) (163)
---------- ---------- ----------
Total stockholders' equity............ 894,338 837,537 333,692
---------- ---------- ----------
Total liabilities and stockholders'
equity............................... $1,162,120 $1,043,922 $1,019,485
========== ========== ==========
</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
Ended March 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues................................................ $ 350,842 $ 54,610
Cost of revenues........................................ 280,692 44,233
---------- ----------
Gross profit........................................ 70,150 10,377
Selling, general and administrative expenses............ 42,714 7,918
Goodwill amortization................................... 3,469 324
---------- ----------
Operating income.................................... 23,967 2,135
Other (income) expense:
Interest income....................................... (2,508) (6,656)
Interest expense...................................... 96 99
Other, net............................................ (281) (111)
---------- ----------
Income before taxes..................................... 26,660 8,803
Provision for income taxes.............................. 11,927 3,722
---------- ----------
Net income.............................................. $ 14,733 $ 5,081
========== ==========
Net income per Common Share--Basic...................... $ 0.32 $ 0.15
========== ==========
Net income per Common Share--Diluted.................... $ 0.31 $ 0.15
========== ==========
Weighted average shares outstanding--Basic.............. 45,973,455 32,987,273
========== ==========
Weighted average shares outstanding--Diluted............ 47,740,958 34,075,876
========== ==========
</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 three months ended March 31, 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.... 16,926 83 83
Issuance of common stock
for acquisitions....... 1,002,507 1 15,166 15,167
Stock issued under
employee stock purchase
plan................... 28,994 435 435
Contingently Issuable
Shares................. 26,101 26,101
Unrealized gain on
marketable securities--
net of tax............. 282 282 $ 282
Net income.............. 14,733 14,733 14,733
-------
Total comprehensive
income................. $15,015
---------- --- -------- --------- ------- ----- -------- =======
Balance, March 31,
1999................... 46,307,373 $46 $874,299 $(41,832) $61,988 $(163) $894,338
========== === ======== ========= ======= ===== ========
</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>
Three months ended
March 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 14,733 $ 5,081
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 6,117 802
Changes in operating assets and liabilities:
Accounts receivable................................... (8,692) (10,601)
Costs and estimated earnings in excess of billings.... (8,403) 2,405
Prepaid expenses and other current assets............. (1,178) (951)
Billings in excess of costs and estimated earnings.... 1,781 5,552
Accounts payable...................................... 152 2,546
Accrued liabilities................................... 7,825 2,993
Change in other assets................................. (659) (523)
--------- ---------
Net cash provided by operating activities............ 11,676 7,304
--------- ---------
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired........ (45,271) (111,840)
Purchases of property and equipment..................... (5,632) (1,206)
Proceeds on sale of equipment........................... 90 617
Other................................................... (98) 304
--------- ---------
Net cash used in investing activities................ (50,911) (112,125)
--------- ---------
Cash flows from financing activities:
Net proceeds (payments) on short-term debt.............. 261 (54)
Payments on long-term debt.............................. (688) (996)
Proceeds from long-term debt............................ 1,163 1,570
Distribution to Minority Shareholders................... (842)
Proceeds from stock options exercised................... 83
Proceeds from issuance of stock under employee stock
purchase plan.......................................... 435
--------- ---------
Net cash provided by financing activities............ 412 520
--------- ---------
Net decrease in cash and cash equivalents................ (38,823) (104,301)
Cash and cash equivalents, beginning of period........... 213,096 528,972
--------- ---------
Cash and cash equivalents, end of period................. $ 174,273 $ 424,671
========= =========
The Company issued shares of common stock and cash in connection with certain
business combinations during the three months ended March 31, 1999 and March
31, 1998, respectively. The fair values of the assets acquired and liabilities
assumed at the dates of acquisition are as follows:
Accounts receivable...................................... $ 21,665 $ 73,351
Inventories.............................................. 541 1,022
Costs and earnings in excess of billings................. 6,087 10,426
Prepaid expenses and other current assets................ 343 3,660
Property and equipment................................... 5,685 11,520
Intangible assets........................................ 46,714 175,132
Other assets............................................. 2,575 2,526
Short-term debt.......................................... (2,180) (7,113)
Accounts payable......................................... (6,700) (19,103)
Accrued liabilities...................................... (7,124) (14,052)
Billings in excess of costs and estimated earnings....... (6,119) (22,425)
Long-term debt........................................... (1,049) (2,909)
Other long-term liabilities.............................. -- (2,801)
--------- ---------
Net assets acquired...................................... $ 60,438 $209,234
========= =========
These acquisitions were funded as follows:
Common stock, 1,002,507 and 5,088,049 shares,
respectively............................................ $ 15,167 $ 97,394
Cash, net of cash acquired............................... 45,271 111,840
--------- ---------
$ 60,438 $209,234
========= =========
</TABLE>
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 March 31, 1999 and for the three months
ended March 31, 1999 and March 31, 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--TENDER OFFER
On May 11, 1999, the Company completed the repurchase of 24,618,856 shares
of its common stock at $22.50 per share for cash and 881,144 shares of common
stock underlying stock options at $22.50 per share less the exercise price per
share of the options ("Tender Offer"). Funds utilized for the repurchase
totaled $560,127, 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
subordinated notes to Boss Investment LLC, an affiliate of Apollo Management,
L.P. and borrowings under a new credit facility.
The unaudited pro forma balance sheet as of March 31, 1999 as presented in
the accompanying consolidated balance sheet gives effect to the Tender Offer,
including the financing of the Tender Offer as if they had been consummated as
of the Company's most recent balance sheet date, March 31, 1999. See Note 5
for unaudited pro forma statement of operations for the three months ended
March 31, 1999 and 1998.
As a result of our allowing for the exchange of approximately 881,144
employee stock options in the Tender Offer, compensation expense will be
recognized for the net cash payments made upon exercise of the stock options.
Compensation expense related to the option shares purchased in the Tender
Offer approximates $2,751 ($1,650 after the associated tax benefit) and will
be recorded during the three months ended June 30, 1999.
NOTE 4--BUSINESS COMBINATIONS
Purchase Acquisitions
During the three months ended March 31, 1999, the Company completed eight
business combinations that were accounted for under the purchase method of
accounting. The consolidated financial statements include the results of these
acquired entities from their respective dates of acquisition. The aggregate
consideration paid for these acquisitions consisted of 1,002,507 shares of
Common Stock and $48,782 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 $11,650 in cash and
shares of 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 $46,687. 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
restrictions on the sale and transferability of the shares issued. The shares
generally are subject to the following restrictions on resale: up to one-third
of the shares may be resold beginning twelve months after their date of
acquisition, the first one-third and an additional one-third may be resold
beginning eighteen months after their date of acquisition and the first two-
thirds and the remaining one-third may be resold beginning twenty-four months
after their date of acquisition.
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 $136,927 in cash and shares of common stock based on the
performance of such acquired companies. During the three months ended March
31, 1999, $59,125 of consideration under these agreements had been earned
consisting of 1,657,483 shares of Common Stock and $30,124 million of cash.
Accordingly, additional goodwill in the amount of $56,625 was recorded. The
cash amount payable under these arrangements has been reflected as a liability
as of March 31, 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 months ended
March 31, 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
Tender Offer, including the financing of the Tender Offer, acquisitions
completed during the year ended December 31, 1998 and the three months ended
March 31, 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.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues................................................ $ 373,258 $ 336,111
Cost of revenues........................................ 298,940 275,515
---------- ----------
Gross profit........................................ 74,318 60,596
Selling, general and administrative expenses............ 45,702 39,397
Goodwill amortization................................... 3,654 3,308
---------- ----------
Operating income.................................... 24,962 17,891
Other (income) expense:
Interest income....................................... (17)
Interest expense...................................... 10,829 10,973
Other, net............................................ (497) (2,326)
---------- ----------
Income before taxes..................................... 14,647 9,244
Provision for income taxes.............................. 7,196 4,872
---------- ----------
Net income.............................................. $ 7,451 $ 4,372
========== ==========
Net income per Common Share--Basic...................... $ 0.34 $ 0.20
========== ==========
Net income per Common Share--Diluted.................... 0.31 0.21
========== ==========
Weighted average shares outstanding--Basic.............. 21,910,397 21,578,216
========== ==========
Weighted average shares outstanding--Diluted............ 27,997,422 26,405,533
========== ==========
</TABLE>
Net income per Common Share--Basic is calculated based upon the weighted
average shares outstanding assuming the repurchase of 24,618,856 shares
occured 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 subordinated debentures in the amount
of $4,788, and weighted average shares outstanding adjusted for the conversion
of the convertible subordinated debentures into 4,444,444 shares of common
stock plus the dilution attributable to options and warrants and contingently
issable 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 Tender Offer and the acquisitions occurred as of January 1, 1998 or the
results that may occur in the future.
NOTE 6--COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
March 31, 1999
--------------
<S> <C>
Costs incurred on uncompleted contracts.......................... $ 974,123
Estimated earnings............................................... 176,770
-----------
1,150,893
Less: Billings to date........................................... (1,177,634)
-----------
$ (26,741)
===========
</TABLE>
7
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
Included in the accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
March 31, 1999
--------------
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts......................................... $ 39,931
Billings in excess of costs and estimated earnings on
uncompleted contracts......................................... (66,672)
--------
$(26,741)
========
</TABLE>
NOTE 7--SEGMENT REPORTING
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.
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:
electrical, mechanical and janitorial. Effective January 1, 1999, the Company
changed the structure of its internal organization and as a result the
Electrical and Mechanical 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:
March 31, 1999............... $296,632 $ 54,210 $ -- $ 350,842
March 31, 1998............... 31,970 22,640 -- 54,610
Operating income (loss)
Three months ended:
March 31, 1999............... 23,849 3,320 (3,202) 23,967
March 31, 1998............... 2,630 145 (640) 2,135
EBITDA
Three months ended:
March 31, 1999............... 28,597 4,661 (3,174) 30,084
March 31, 1998............... 3,156 421 (640) 2,937
Total assets
March 31, 1999............... 857,722 126,301 178,097 1,162,120
March 31, 1998............... 274,362 27,773 418,446 720,581
Working capital
March 31, 1999............... 163,901 12,435 75,633 251,969
March 31, 1998............... 34,281 546 412,020 446,847
</TABLE>
8
<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
March 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
EBITDA:
Total segment EBITDA..................................... $ 30,084 $ 2,937
Depreciation and amortization............................ (6,117) (802)
Other income, net........................................ 2,693 6,668
--------- --------
Consolidated income before income taxes................ $ 26,660 $ 8,803
========= ========
</TABLE>
NOTE 8--STOCK PURCHASE AND AWARD PLANS
In connection with business combinations consummated during the period from
January 1, 1999 through March 31, 1999 the Company is expected to issue
options for an additional 207,800 shares of the Company's Common Stock, under
the Company's Long-Term Incentive Plan.
During the three months ended March 31, 1999 the Company issued 28,994
shares of common stock to employees under the Company's Employee Stock
Purchase Plan.
9
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 9--NET EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the basic
and diluted EPS computations for the three-month periods ended March 31, 1999
and 1998.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Basic earnings per share:
Net income........................................... $ 14,733 $ 5,081
Weighted average shares outstanding--Basic........... 45,973,455 32,987,273
----------- -----------
Net income per share--Basic.......................... $ 0.32 $ 0.15
=========== ===========
Diluted earnings per share:
Net income........................................... $ 14,733 $ 5,081
=========== ===========
Weighted average shares outstanding--Basic........... 45,973,455 32,987,273
Convertible non-voting common stock.................. -- 500,000
Common stock equivalents from stock options and
warrants............................................ 277,080 578,207
Contingently issuable shares......................... 1,490,423 10,396
----------- -----------
Total weighted average shares outstanding--Diluted... 47,740,958 34,075,876
----------- -----------
Net income per share--Diluted........................ $ 0.31 $ 0.15
=========== ===========
</TABLE>
Outstanding stock options and warrants to purchase 5,974,775 shares of
Common Stock as of March 31, 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.
10
<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 24,618,856 shares
of its common stock at $22.50 per share for cash and 881,144 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, $100,000 from the issuance of 7 1/2%
convertible subordinated notes to Boss Investment, LLC, an affiliate of Apollo
Management, L.P. and borrowings under a new 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 March 31, 1999. The Company completed 37 business
combinations since our inception. Thirty-four 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 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 March 31, 1999 compared to the three months ended March 31,
1998
Revenues. Consolidated revenues for the three months ended March 31, 1999
increased $296.2 million, or 542.5%, to $350.8 million from $54.6 million for
the three months ended March 31, 1998. This increase was primarily a result of
the acquisition of the Purchased Companies, which have been included since
their respective dates of acquisition, and to a much lesser extent an increase
in the revenues of the Pooled Companies.
11
<PAGE>
Gross profit. Gross profit for the three months ended March 31, 1999
increased $59.8 million, or 576.0%, to $70.2 million from $10.4 million for
the three months ended March 31, 1998. This increase was primarily a result of
the acquisition of the Purchased Companies and to a much lesser extent an
increase in gross profit at the Pooled Companies. Gross profit as a percentage
of revenues ("gross margin") increased to 20.0% for the three months ended
March 31, 1999 from 19.0% for the three months ended March 31, 1998. This
increase in the gross margin was attributable to the higher gross margins of
the Purchased Companies.
Selling, general and administrative. Selling, general and administrative
expenses for the three months ended March 31, 1999 increased $34.8 million, or
440.5%, to $42.7 million from $7.9 million for the three months ended March
31, 1998. This increase was primarily attributable to the selling, general and
administrative expenses of the Purchased Companies, and the general and
administrative costs of the Company's corporate activities. Selling, general
and administrative expenses as a percentage of revenues decreased to 12.2% for
the three months ended March 31, 1999 from 14.5% for the three months ended
March 31, 1998.
Goodwill amortization. Goodwill amortization for the three months ended
March 31, 1999 increased $3.2 million, or 970.7%, to $3.5 million from $0.3
million for the three months ended March 31, 1998. This increase was a result
of the acquisition of the Purchased Companies.
Other income, net. Other income, net for the three months ended March 31,
1999 decreased $4.0 million, or 59.7%, to $2.7 million from other income of
$6.7 million for the three months ended March 31, 1998. This decrease was
primarily attributable to the use of cash from the Company's IPO to acquire
the Purchased Companies.
Provision for income taxes. The provision for income taxes for the three
months ended March 31, 1999 increased to $11.9 million from $3.7 million for
the three months ended March 31, 1998, reflecting an effective tax rate of
44.7% and 42.3% 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 44.7% effective rate reflects the non-deductibility of
goodwill amortization associated with certain acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999, net cash provided by operating
activities was approximately $11.7 million. Net cash used in investing
activities for the three months ended was $50.9 million, which primarily
consisted of $45.3 million used for acquisitions. Net cash provided by
financing activities for the three months ended March 31, 1999 was $0.4
million, which consisted primarily of net proceeds on short-term debt of $0.3
million, net proceeds on long-term debt of $0.5 million, and $0.8 million of
distributions to minority partners of a 50% owned entity.
The Company acquired eight businesses during the three months ended March
31, 1999. Aggregate consideration for these acquisitions consisted of
1,002,507 shares of common stock and $48,782 in cash.
In conjunction with the acquisitions consummated during the three months
ended March 31, 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 May 14, 1999 $59 million of consideration has
been earned, of which $23.5 million has been paid in cash. The Company expects
that approximately $52 million of additional contingent consideration will
become payable in 1999, of which approximately $34 million will be payable in
cash.
As previously discussed, on May 11, 1999, the Company completed the
repurchase of 24,618,856 shares of its common stock at $22.50 per share for
cash and 881,144 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
12
<PAGE>
from the issuance of $200 million of 10 1/2% senior subordinated notes,
$100,000 from the issuance of 7 1/2% convertible subordinated notes to Boss
Investment, LLC, an affiliate of Apollo Management, L.P., and borrowings under
the 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, our ability to incur
indebtedness, pay dividends or repurchase capital stock, incur liens, sell or
otherwise dispose of a substantial portion of our assets or merge or
consolidate with another entity.
The convertible subordinated notes will mature on May 1, 2012 and provide
for interest payments at a rate of 7.5% to be paid in additional convertible
subordinated notes or cash, at our election, for the first five years after
their issuance, and in cash thereafter. The holders of a majority of the
outstanding principal amount of the convertible subordinated notes, however,
will have the right to require the payment of interest in cash after the third
and through the fifth anniversary of the issuance of the convertible
subordinated notes. In addition, the provisions of the Credit Facility and the
indenture for the senior subordinated notes limit our ability to pay cash
interest payments.
The convertible subordinated notes will be convertible into shares of our
common stock at an initial conversion price of $22.50 per share plus all
accrued and unpaid interest. Assuming conversion of the principal amount of
the convertible subordinated notes and assuming all interest is paid in cash,
Boss Investment will have the right to acquire upon conversion of 4,444,444
shares or 17% of the shares outstanding as of May 14, 1999. If the convertible
subordinated notes are converted prior to the fifth anniversary of their
issuance, the amount converted into shares will include additional interest
that would have accrued or been paid from the date of conversion through the
fifth anniversary of the issuance of the convertible subordinated notes.
However, unless the conversion is in connection with a change of control, the
additional interest will not exceed a total of 30 months of interest. We will
adjust the conversion price under certain circumstances, including the
issuance of shares at a price below the conversion price of the convertible
subordinated notes or below the then fair market value of a share.
The indenture for the convertible subordinated notes limits our ability to,
among other things, incur additional indebtedness, pay dividends, repurchase
securities or repay certain other indebtedness. We have agreed to seek
stockholder approval of amendments to our restated certificate of
incorporation that would authorize the holders of the convertible subordinated
notes to vote together with the holders of shares on all of the matters
submitted to stockholders for a vote and to elect three of our directors (or,
if the Board has more than ten directors, no less than 30% of the directors).
The holders of the convertible subordinated notes will be entitled to cast the
number of votes that they would be entitled to cast if they had converted the
convertible subordinated notes into shares. If this amendment is not enacted
by July 25, 1999, the interest rate on the convertible subordinated notes will
increase to 12.5%, but will revert back to 7.5% after the amendment is
enacted.
The 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 May 14, 1999, the Company
had $158 million of availability under its Credit Facility.
13
<PAGE>
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 our subsidiaries. These covenants include, among
others, restrictions on our ability to incur additional indebtedness and pay
the interest on Boss Investment's convertible subordinated notes in cash, and
restrictions on mergers, acquisitions and the disposition of assets, sale and
leaseback transactions and capital lease payments, dividends and other
distributions and voluntary prepayments of indebtedness. In addition, we are
required to comply with financial covenants with respect to minimum interest
coverage and maximum leverage ratios.
The Company needs funds for general corporate purposes, including to pay
interest on the senior subordinated notes, the convertible 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. We anticipate that our cash flow from operations and
borrowings available under the Credit Facility will be sufficient to meet
these liquidity requirements over the next twelve months.
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, 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 three months ended March 31, 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
37 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. Accordingly, the Company is currently in the process of
14
<PAGE>
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 is expected to cover 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. This survey is
expected to be completed during the second quarter of 1999.
Costs Related to the Year 2000 Issue. As part of the survey mentioned above,
the Company will be requesting an estimate from each operating subsidiary of
the material historical and estimated costs of assessment and remediation.
Accordingly, such costs, including, among other things, the costs of
assessment, software upgrade fees, hardware changes and general implementation
of a Year 2000 action plan, are not known at this time. The projected effort
for the majority of the systems is expected to include sending letters to
substantially all of 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.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable
15
<PAGE>
PART II-OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(i) Pursuant to Item 701(f) of Regulation S-K, the following information is
being furnished to disclose certain information regarding the uses of the
proceeds received by the Company in its IPO:
(1) The Registration Statement for the IPO (File No. 333-36193) was
declared effective on November 25, 1997.
(2) The offering commenced on November 25, 1997 and terminated when all
of the shares were sold in December 1997.
(3) The managing underwriter was Friedman, Billings, Ramsey & Co., Inc.
(4) In the IPO, the Company registered and sold an aggregate of
27,850,000 shares of Common Stock, par value $.001 per share, and
500,000 shares of Convertible Non-Voting Common Stock, par value
$.001 per share, which is convertible into Common Stock.
(5) The aggregate offering price of the shares sold was $567,000,000.
(6) The following expenses were incurred in connection with the IPO:
<TABLE>
<S> <C>
Underwriting discounts and commissions........................ $38,640,000
Expenses paid to or for underwriters.......................... 60,000
Accountants' fees............................................. 100,000
Legal fees.................................................... 315,000
Printing expenses............................................. 255,000
Miscellaneous filing fees and expense......................... 466,000
-----------
$39,836,000
===========
</TABLE>
Except as described under "Certain Relationships and Related
Transactions" in the Company's annual report on Form 10-K, the payments
referred to above were not made directly or indirectly to officers,
directors, general partners of the issuer or their associates, or to
any person owning 10% or more of any class of securities of the issuer,
or to any officers of the issuer and were not direct or indirect
payments to others.
(7)The net offering proceeds were approximately $527,000,000.
Item 5. Other Events
Effective April 30, 1999, the Company's Board of Directors was expanded to
ten members and the three designees of Boss Investment, Andrew Africk, Michael
Gross and Brooks Newmark, were appointed to the Board of Directors. Also
effective April 30, 1999, David Ledecky and Thomas D. Heule resigned from the
Board of Directors.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1Termination Letter Agreement
11.1Statement regarding computation of net income per share
27Financial 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:
16
<PAGE>
i. Form 8-K dated February 8, 1999 and filed with the Commission on
February 10, 1999 reporting information under Items 5 and 7.
ii. Form 8-K dated February 18, 1999 and filed with the Commission on
February 18, 1999 reporting information under Items 5 and 7. The Company
filed its restated consolidated financial statements for the years ended
December 31, 1997 and 1996 and as of December 31, 1997 to reflect under the
purchase method of accounting certain acquisitions previously accounted for
under the pooling-of-interests method of accounting as a result of the
Company's decision to repurchase shares of its common stock.
iii. Form 8-K dated March 23, 1999 and filed with the Commission on
March 23, 1999 reporting information under Items 5 and 7.
17
<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
Joseph M. Ivey
May 17, 1999 By:__________________________________
- -----------
Joseph M. Ivey
Date
Chief Executive Officer
Timothy C. Clayton
May 17, 1999 By:__________________________________
- -----------
Timothy C. Clayton
Date
Chief Financial Officer
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Exhibit Page
--- ----------------------------------------------------------- ----
<C> <S> <C>
10.1 Employment Agreement between David Ledecky and Building One
11.1 Statement regarding computation of net income per share
27 Financial Data Schedule
</TABLE>
20
<PAGE>
Exhibit 10.1
April 26, 1999
Mr. David Ledecky
5305 Elliott Road
Bethesda, MD 20816
Dear Mr. Ledecky:
This termination agreement and release ("Termination Agreement") confirms the
termination without cause of your status as a director, officer and employee of
and with Building One Services Corporation (the "Company"), and each of the
Company's direct and indirect subsidiaries, as of May 1, 1999 (the "Termination
Date") due to the re-location and re-organization of the Company's corporate
offices and the accompanying elimination of the position of Executive
Vice-President and Chief Administrative Officer pursuant to the "Corporate
Vision" presentation made to the Company's Board of Directors by the Company's
President and Chief Executive Officer, Joseph M. Ivey, on February 25, 1999. In
addition, for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto mutually agree as follows:
1. Termination of Employment Agreement; Resignation as Employee, Officer and
-------------------------------------------------------------------------
Director. Your execution of this Termination Agreement hereby confirms in
- --------
writing the termination of your status as an employee and officer of the Company
and any and all of its subsidiaries, and your resignation from the Board of
Directors of the Company and any and all of its subsidiaries, effective as of
the Termination Date. Such execution further confirms that, except as otherwise
provided herein, the Employment Agreement dated as of November 25, 1997 between
you and the Company (the "Employment Agreement") is terminated effective May 1,
1999, and all provisions thereof shall be null and void as of such date.
2. Payments and Benefits. In connection with your termination and resignation,
---------------------
you shall receive the following (subject, in each case, to (i) your compliance
with the terms of this Termination Agreement, and (ii) applicable statutory
deductions and withholdings):
(a) payment in an amount equal to the difference between $2,250,000 and
the gross proceeds received by you as a result of your participation in the
Company's tender offer (for example, if 250,000 of your stock options are
retired in accordance with the Company's tender offer and you receive gross
proceeds equal to $625,000, the amount due under this
<PAGE>
provision shall be equal to $1,625,000.) Such amount shall be paid whether or
not the Company's tender offer is consummated;
(b) continued coverage under the Company's group medical, dental, life
insurance, short-term disability and long-term disability plans (the "benefits
plans") for a period of one year following the Termination Date or until the
date such coverages are obtained by you through another employer; provided,
however, that for purposes of determining any period of "COBRA" coverage
thereafter, your "qualifying event" shall be deemed to have occurred on the
Termination Date, and provided that in the event the Company amends any or all
of its benefits plans during the one-year period, that you shall receive
coverage that is at least equivalent in scope to your current coverage; and
(c) your employee contributions and any vested employer contributions
accrued under the Company's 401(k) plan in accordance with the terms thereof.
The parties agree that the payment set forth in Section 2(a) is for cancellation
of the Employment Agreement and your agreements, releases, and waivers set forth
herein, and not remuneration for services rendered, and that therefore the
payment shall not be subject to federal employment tax withholding. You agree,
however, that you shall reimburse the Company for any amount it may be required
to pay in respect of such failure to withhold to the extent such amount
represents taxes and interest for which you would otherwise be responsible
(including your share of FICA taxes).
The parties further agree that $1,200,00 of the payment set forth in Section
2(a) shall be made no later than April 30, 1999. The remainder of the payment
set forth in Section 2(a) shall be made on the earlier of (i) six business days
following consummation of the company's tender offer and (ii) May 14, 1999.
3. Cessation of all Compensation and Benefits; Stock Options.
---------------------------------------------------------
(a) From and after the Termination Date, and except as otherwise
expressly set forth in this Termination Agreement, you will not receive payments
or benefits of any kind from the Company or its subsidiaries, and you expressly
acknowledge and agree that, except with respect to the payments and benefits
specifically set forth in this Termination Agreement, you are not entitled to
any payment or benefit whatsoever.
(b) The stock options granted to you by the Company in November, 1997
pursuant to Section 3(g) of the Employment Agreement (which you acknowledge are
the only stock options granted to you by the Company) shall be exercisable only
in connection with the Company's current tender offer (the "Company's tender
offer"). Pursuant to the Company's request, you hereby agree to tender your
stock options to the maximum extent permitted under the Company's tender offer.
Notwithstanding the relevant provisions of Section 5(d) of the Employment
Agreement regarding the immediate vesting and exercisability of your stock
options upon a termination without cause, you and the Company hereby agree that
those stock options granted to you by the Company that are not accepted under
the Company's tender offer
<PAGE>
shall expire in their entirety on the date full and final payment is made to you
by the Company pursuant to Sections 2(a) above of this Termination Agreement.
4. Payment is in Consideration of Release and Other Continuing Obligations. You
-----------------------------------------------------------------------
understand and agree that the payments provided for in Section 2 of this
Termination Agreement are being provided to you in consideration for your
acceptance and execution of, and in reliance upon your agreements in, this
Termination Agreement, including but not limited to the release contained
herein.
5. Return of Documents and Property. You shall forthwith return and deliver to
--------------------------------
the Company (a) any and all original and duplicate copies of all files,
calendars, books, records, notes, manuals, computer disks, diskettes and any
other magnetic and other media materials you have in your possession or under
your control belonging to the Company or its subsidiaries and (b) any and all
original and duplicate documents, materials and other property (including,
without limitation, computer files) containing trade secrets or other
Confidential Information (as defined below) relating to the business and affairs
of the Company or its subsidiaries, or other confidential or proprietary
information concerning the Company or its subsidiaries and/or their customers or
operations, including but not limited to information regarding any investments
of the Company or its subsidiaries. You hereby represent and warrant that you
have returned all Company keys, credit cards, office equipment (including
cellular telephones and computer equipment) and other property belonging to the
Company or any of its subsidiaries to the Company.
6. Nondisclosure of Confidential Information. You agree that you will not at any
-----------------------------------------
time disclose or use, or authorize any other person or entity to publish,
disclose or use, any secret or Confidential Information of or about the Company
or its subsidiaries. For purposes hereof, the term "Confidential Information"
shall include, by way of example and without limitation, matters of a technical
nature, "know-how," formulas, secret processes, works of authorship, computer
programs (including documentation of such programs), services, materials, patent
applications, new product plans, other plans, technical information, technical
improvements, test data, progress reports and research projects, and matters of
a business nature, such as business plans, prospects, financial information,
marketing plans and strategies, proprietary information about costs, profits,
markets, sales, prices, lists of customers and suppliers of the Company and its
subsidiaries, procurement and promotional information, credit and financial data
concerning customers or suppliers of the Company and its subsidiaries,
information relating to the management, operation and planning of the Company
and its subsidiaries, and other information of a similar nature to the extent
not available to the public, and plans for future development.
7. Confidentiality of this Agreement. You and the Company agree that unless a
---------------------------------
mutual waiver of this provision is agreed upon by the parties, the terms of this
Agreement shall remain confidential except to the extent that disclosure of any
of the terms of the Agreement are required to be disclosed by law or to any
legal and accounting representative, or other agent or representative, of the
respective parties. The Company agrees that you shall have the right to advance
review, and to make reasonable comments upon, any proposed public disclosure by
the Company regarding any or all terms of this Termination Agreement.
8. Non-Disparagement. You agree that you will not, directly or indirectly,
-----------------
disparage (whether in writing or orally) the Company or the Releasees (as
defined below) in any manner whatsoever at
3
<PAGE>
any time with respect to the Company's operations and the Releasees' respective
roles in the Company's operations. The Company mutually agrees that it will not,
directly or indirectly, disparage (whether in writing or orally) you in any
manner whatsoever at any time with respect to your employment at the Company,
your role as an officer and director of the Company, and the termination of your
status as an employee, officer and director of the Company.
9. Releases
--------
(a) You hereby agree to accept the payment and benefits provided for in
Section 2 hereof 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, Stock Option Grant
Certificate, 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. Furthermore, the Indemnity Agreement
dated November 25, 1997 made by and between you and the Company shall survive
this Termination Agreement and remain in full force and effect. The Company also
hereby agrees to provide you, your executors, heirs, administrators and legal
representatives, with specific, additional, full and complete indemnification
with respect to any legal claims that may arise from or respecting this
Termination Agreement and the maximum tender of your stock options as
contemplated and agreed to in Paragraph 3(b) hereof. The indemnification
provided shall be the same in form and substance, and in addition to, the
indemnification provided in the Indemnity Agreement dated November 25, 1997 made
by and between you and the Company.
(b) By signing this Termination Agreement and by acceptance of the
payment and benefits provided for in Section 2 above, 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
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
4
<PAGE>
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 9 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 9(a) and 9(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 any claims with respect to your breach of this Termination Agreement.
The Company further agrees that it 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 released hereunder against you, 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 release of any kind from you, 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 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 9(c) and (iii)
that there has been no assignment of any such claims.
10. 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.
11. 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 11, the Company shall reimburse you for all of your reasonable costs and
expenses incurred by you in providing such cooperation. The Company also agrees
to reimburse you at a mutually agreed upon rate for any work the Company
5
<PAGE>
requests your cooperation in completing (and which you are able to and mutually
agree to perform) following the execution of this Agreement.
12. Successors and Assigns. This Termination Agreement shall inure to the
----------------------
benefit of and shall be binding upon the parties hereto and their respective
successors and assigns, including but not limited to (i) with respect to the
Company, any entity with which the Company may merge or consolidate or to which
the Company may sell substantially all of its assets, and (ii) with respect to
you, your executors, administrators, heirs and legal representatives.
13. Severability; Headings. In the event that any provision of this Termination
----------------------
Agreement shall be held by a court of proper jurisdiction to be invalid, void or
voidable or otherwise unenforceable, the balance of this Letter Agreement shall
continue in full force and effect unless such construction would clearly be
contrary to the intentions of the parties or would result in an unconscionable
injustice. The headings of the sections and paragraphs of this Letter Agreement
are for convenience of reference only and shall not constitute a part hereof.
14. Miscellaneous: Choice of Law. This Termination Agreement may be executed in
----------------------------
several counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument. This Termination
Agreement constitutes the entire agreement, and supersedes all prior agreements,
of the parties hereto relating to the subject matter hereof, and there are no
written or oral terms or representations made by either party other than those
contained herein and therein. This Termination Agreement cannot be modified,
altered or amended except by a writing signed by all the parties. No waiver by
either party of any provision or condition of this Termination Agreement at any
time shall be deemed a waiver of such provision or condition at any prior or
subsequent time or of any provision or condition at the same or any prior or
subsequent time. This Termination Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Delaware, without giving
effect to any choice of law or conflict or law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
15. Facsimile Signatures Valid. Execution of this Termination Agreement with
--------------------------
signatures transmitted via facsimile shall be considered valid.
* * * *
If this Termination Agreement conforms to your understanding and is acceptable
to you, please indicate your agreement by signing and dating the enclosed copy
of this Termination Agreement where indicated and returning it to the Company no
later than April 27, 1999.
Sincerely,
Building One Services Corporation
6
<PAGE>
By: _____________________________
Name:
Title:
THIS TERMINATION AGREEMENT IS A LEGAL DOCUMENT. YOU SHOULD CONSULT WITH AN
ATTORNEY PRIOR TO SIGNING THIS TERMINATION AGREEMENT.
BY SIGNING THIS TERMINATION AGREEMENT YOU ACKNOWLEDGE THAT YOU ARE COMPETENT,
THAT YOU ARE COMPETENT, THAT YOU HAVE BEEN PROVIDED WITH THE OPPORTUNITY TO
REVIEW AND CONSIDER THIS TERMINATION AGREEMENT WITH AN ATTORNEY OF YOUR CHOICE
AND YOU HAVE USED SUCH REVIEW PERIOD TO THE EXTENT YOU DESIRED, THAT YOU HAVE
READ AND UNDERSTAND AND VOLUNTARILY ACCEPT THIS TERMINATION AGREEMENT AS FULLY
AND FINALLY RESOLVING, WAIVING AND RELEASING ANY AND ALL CLAIMS WHICH YOU MAY
HAVE AGAINST THE COMPANY AND RELEASEES (AS DEFINED HEREIN), THAT NO PROMISES OR
INDUCEMENTS HAVE BEEN MADE TO YOU EXCEPT AS SET FORTH IN THIS TERMINATION
AGREEMENT, AND THAT YOU HAVE SIGNED THIS TERMINATION AGREEMENT FREELY AND
VOLUNTARILY, INTENDING TO BE LEGALLY BOUND BY ITS TERMS. THE FOREGOING IS A
SUMMARY DESCRIPTION OF THE GENERAL IMPORT OF THIS INSTRUMENT AND DOES NOT ALTER
OR AMEND THE DETAILED PROVISIONS CONTAINED IN THE BODY HEREOF.
ACCEPTED AND AGREED:
_______________________________ Date: _________________
David Ledecky
7
<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
March 31,
1999 1998
------------- -------------
<S> <C> <C>
Basic earnings per share:
Net income................................................ $ 14,733 $ 5,081
Weighted average shares outstanding - Basic............... 45,973,455 32,987,273
----------- -----------
Net income per share - Basic.............................. $ 0.32 $ 0.15
=========== ===========
Diluted earnings per share:
Net income................................................ $ 14,733 $ 5,081
----------- -----------
Weighted average shares outstanding - Basic............... 45,973,455 32,987,273
Convertible Non-Voting Common Stock....................... -- 500,000
Common stock equivalents from stock options and warrants.. 277,080 588,603
Contingently issuable shares.............................. 1,490,423 --
----------- -----------
Total weighted average shares outstanding - Diluted....... 47,740,958 34,075,876
----------- -----------
Net income per share - Diluted............................ $ 0.31 $ 0.15
=========== ===========
</TABLE>
Outstanding stock options and warrants to purchase 5,974,775 shares of common
stock as of March 31, 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 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 174,273 0
<SECURITIES> 0 0
<RECEIVABLES> 279,060 0
<ALLOWANCES> 2,079 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 510,437 0
<PP&E> 58,000 0
<DEPRECIATION> 10,459 0
<TOTAL-ASSETS> 1,162,120 0
<CURRENT-LIABILITIES> 258,468 0
<BONDS> 0 0
0 0
0 0
<COMMON> 46 0
<OTHER-SE> 894,292 0
<TOTAL-LIABILITY-AND-EQUITY> 1,162,120 0
<SALES> 350,842 54,610
<TOTAL-REVENUES> 350,842 54,610
<CGS> 280,692 44,233
<TOTAL-COSTS> 280,692 44,233
<OTHER-EXPENSES> 46,183 8,242
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 96 99
<INCOME-PRETAX> 26,660 8,803
<INCOME-TAX> 11,927 3,722
<INCOME-CONTINUING> 14,733 5,081
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,733 5,081
<EPS-PRIMARY> .32 .15
<EPS-DILUTED> .31 .15
</TABLE>
