<PAGE> 1
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, 2000
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 No. 1-13783
INTEGRATED ELECTRICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0542208
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
515 Post Oak Boulevard
Suite 450
Houston, Texas 77027-9408
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (713) 860-1500
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 [ ]
The number of shares outstanding as of May 11, 2000, of the issuer's common
stock was 37,723,580 and of the issuer's restricted voting common stock was
2,655,709.
<PAGE> 2
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and
March 31, 2000....................................................................... 2
Consolidated Statements of Operations for the six months ended
March 31, 1999 and 2000.............................................................. 3
Consolidated Statements of Operations for the three months ended
March 31, 1999 and 2000.............................................................. 4
Consolidated Statement of Stockholders' Equity for the six months ended
March 31, 2000....................................................................... 5
Consolidated Statements of Cash Flows for the six months ended
March 31, 1999 and 2000.............................................................. 6
Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 2000.............................................................. 7
Condensed Notes to Consolidated Financial Statements...................................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk................... 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.......................... 19
Item 6. Exhibits..................................................................... 19
Signatures.................................................................................... 20
</TABLE>
1
<PAGE> 3
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, March 31,
1999 2000
------------- -------------
(Audited) (Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................... $ 2,931 $ 7,002
Accounts receivable:
Trade, net of allowance of $5,709 and $6,460, respectively ............... 222,824 231,775
Retainage ................................................................ 47,682 53,214
Related parties .......................................................... 220 725
Inventories, net ............................................................. 12,793 16,459
Costs and estimated earnings in excess of billings on
uncompleted contracts .................................................... 40,592 44,054
Prepaid expenses and other current assets .................................... 7,640 13,748
------------- -------------
Total current assets ..................................................... 334,682 366,977
PROPERTY AND EQUIPMENT, net .................................................. 47,368 56,242
GOODWILL, net ................................................................ 467,385 501,614
OTHER NON-CURRENT ASSETS ..................................................... 9,057 9,278
------------- -------------
Total assets .......................................................... $ 858,492 $ 934,111
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current maturities of long-term debt ..................... $ 1,444 $ 1,150
Accounts payable and accrued expenses ........................................ 116,188 138,304
Income taxes payable ......................................................... 3,971 1,081
Billings in excess of costs and estimated earnings on
uncompleted contracts .................................................... 37,507 46,170
------------- -------------
Total current liabilities ................................................ 159,110 186,705
LONG-TERM BANK DEBT .......................................................... 76,980 110,000
OTHER LONG-TERM DEBT, net of current maturities .............................. 1,120 1,708
SENIOR SUBORDINATED NOTES, net of $1,151 and $1,113
unamortized discount, respectively ....................................... 148,849 148,887
OTHER NON-CURRENT LIABILITIES ................................................ 5,267 2,451
------------- -------------
Total liabilities ..................................................... 391,326 449,751
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized,
none issued and outstanding ........................................... -- --
Common stock, $.01 par value, 100,000,000 shares authorized,
35,985,838 and 37,723,580 shares outstanding, respectively ............ 360 377
Restricted common stock, $.01 par value, 2,655,709 shares
Authorized, 2,655,709 shares issued and outstanding ...................... 27 27
Additional paid-in capital ............................................... 407,926 424,974
Retained earnings ........................................................ 58,853 58,982
------------- -------------
Total stockholders' equity ............................................ 467,166 484,360
------------- -------------
Total liabilities and stockholders' equity ............................ $ 858,492 $ 934,111
============= =============
</TABLE>
The accompanying condensed notes to financial statements are an
integral part of these financial statements.
2
<PAGE> 4
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
Six Months Ended March 31,
----------------------------
1999 2000
------------ ------------
(Unaudited)
<S> <C> <C>
Revenues .................................................. $ 413,404 $ 705,518
Cost of services (including depreciation) ................. 326,934 583,038
------------ ------------
Gross profit ......................................... 86,470 122,480
Selling, general and administrative expenses .............. 45,590 99,790
Goodwill amortization ..................................... 3,943 6,720
------------ ------------
Income from operations ............................... 36,937 15,970
------------ ------------
Other (income)/expense:
Interest expense, net ................................ 4,427 11,395
Gain on sale of assets ............................... (129) (188)
Other income, net .................................... (154) (553)
------------ ------------
4,144 10,654
------------ ------------
Income before income taxes ................................ 32,793 5,316
Provision for income taxes ................................ 13,961 5,187
------------ ------------
Net income ................................................ $ 18,832 $ 129
============ ============
Basic earnings per share .................................. $ 0.59 $ --
============ ============
Diluted earnings per share ................................ $ 0.58 $ --
============ ============
Shares used in the computation
of earnings per share (Note 4)
Basic ................................................ 31,761,207 39,878,952
============ ============
Diluted .............................................. 32,254,651 39,912,540
============ ============
</TABLE>
The accompanying condensed notes to financial statements are an
integral part of these financial statements.
3
<PAGE> 5
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 2000
------------ ------------
(Unaudited)
<S> <C> <C>
Revenues ........................................................... $ 215,692 $ 370,327
Cost of services (including depreciation) .......................... 170,189 307,467
------------ ------------
Gross profit .................................................. 45,503 62,860
Selling, general and administrative expenses ....................... 23,749 54,444
Goodwill amortization .............................................. 2,095 3,256
------------ ------------
Income from operations ........................................ 19,659 5,160
------------ ------------
Other (income)/expense:
Interest expense, net ......................................... 2,883 6,205
(Gain)/loss on sale of assets ................................. (99) 54
Other income, net ............................................. (126) (194)
------------ ------------
2,658 6,065
------------ ------------
Income (loss) before income taxes .................................. 17,001 (905)
Provision for income taxes ......................................... 7,261 1,569
------------ ------------
Net income (loss) .................................................. $ 9,740 $ (2,474)
============ ============
Basic earnings (loss) per share .................................... $ 0.30 $ (0.06)
============ ============
Diluted earnings (loss) per share .................................. $ 0.30 $ (0.06)
============ ============
Shares used in the computation
of earnings per share (Note 4)
Basic ......................................................... 32,422,323 40,379,289
============ ============
Diluted ....................................................... 32,882,040 40,379,289
============ ============
</TABLE>
The accompanying condensed notes to financial statements are an
integral part of these financial statements.
4
<PAGE> 6
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
Common Stock Restricted Common Stock Additional
--------------------- ----------------------- Paid In Retained Total
Shares $ Shares $ Capital Earnings Equity
---------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, September 30, 1999 35,985,838 $ 360 2,655,709 $ 27 $ 407,926 $ 58,853 $ 467,166
Issuance of stock for acquisitions (unaudited) 1,737,522 17 -- -- 17,045 -- 17,062
Options exercised (unaudited) 220 -- -- -- 3 -- 3
Net income (unaudited) -- -- -- -- -- 129 129
---------- -------- ---------- ---------- ---------- ---------- ----------
BALANCE, March 31, 2000 (unaudited) 37,723,580 $ 377 2,655,709 $ 27 $ 424,974 $ 58,982 $ 484,360
========== ======== ========== ========== ========== ========== ==========
</TABLE>
The accompanying condensed notes to financial statements are an
integral part of these financial statements.
5
<PAGE> 7
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended March 31,
-------------------------
1999 2000
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................. $ 18,832 $ 129
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ......................................... 6,533 17,917
Gain on sale of property and equipment ................................ (129) (188)
Non-cash compensation expense ......................................... -- 2,156
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable, net ......................................... (2,879) 547
Inventories ...................................................... (392) (2,583)
Costs and estimated earnings recognized in
excess of billings on uncompleted contracts ................. (5,044) (4,189)
Prepaid expenses and other current assets ........................ (422) (5,996)
Increase (decrease) in:
Accounts payable and accrued expenses ............................ 4,391 8,800
Billings in excess of costs and estimated earnings
recognized on uncompleted contracts ......................... (2,703) 4,667
Income taxes payable and other current liabilities ............... (4,539) (1,188)
Other, net ............................................................ (1,092) (2,618)
--------- ---------
Net cash provided by operating activities .................................. 12,556 17,454
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired ............................... (35,101) (32,181)
Proceeds from sale of property and equipment ............................... 321 1,290
Additions to property and equipment ........................................ (3,786) (15,410)
--------- ---------
Net cash used in investing activities ...................................... (38,566) (46,301)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings ................................................................. 183,748 48,404
Repayments of debt ......................................................... (131,313) (15,489)
Other ...................................................................... (5,378) 3
--------- ---------
Net cash provided by financing activities .................................. 47,057 32,918
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................................... 21,047 4,071
CASH AND CASH EQUIVALENTS, beginning of period .................................. 14,583 2,931
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ........................................ $ 35,630 $ 7,002
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for:
Interest .............................................................. $ 2,655 $ 11,507
Income taxes .......................................................... $ 17,430 $ 16,373
</TABLE>
The accompanying condensed notes to financial statements are an
integral part of these financial statements.
6
<PAGE> 8
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 2000
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................................... $ 9,740 $ (2,474)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization ........................................ 3,472 11,819
(Gain) loss on sale of property and equipment ........................ (99) 54
Non-cash compensation expense ........................................ -- 1,848
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable, net ........................................ (3,431) (8,447)
Inventories ..................................................... 53 (1,993)
Costs and estimated earnings recognized in
excess of billings on uncompleted contracts ................ (4,449) (4,596)
Prepaid expenses and other current assets ....................... (589) (5,409)
Increase (decrease) in:
Accounts payable and accrued expenses ........................... 7,618 22,135
Billings in excess of costs and estimated earnings
recognized on uncompleted contracts ........................ 684 4,175
Income taxes payable and other current liabilities .............. (479) (1,508)
Other, net ........................................................... (852) (2,621)
--------- ---------
Net cash provided by operating activities ................................. 11,668 12,983
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired .............................. (27,650) --
Proceeds from sale of property and equipment .............................. 192 864
Additions to property and equipment ....................................... (1,810) (7,621)
--------- ---------
Net cash used in investing activities ..................................... (29,268) (6,757)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings ................................................................ 164,248 --
Repayments of debt ........................................................ (109,909) (9,712)
Other ..................................................................... (5,153) --
--------- ---------
Net cash provided by (used in) financing activities ....................... 49,186 (9,712)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... 31,586 (3,486)
CASH AND CASH EQUIVALENTS, beginning of period ................................. 4,044 10,488
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 35,630 $ 7,002
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for
Interest ............................................................. $ 1,621 $ 6,088
Income taxes ......................................................... $ 13,369 $ 12,364
</TABLE>
The accompanying condensed notes to financial statements are an
integral part of these financial statements.
7
<PAGE> 9
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. OVERVIEW
Integrated Electrical Services, Inc. ("IES" or the "Company"), a Delaware
corporation founded in June 1997, is a leading national provider of electrical
and telecommunications contracting and maintenance services, focusing primarily
on the commercial, industrial, residential, power line and information
technology markets.
The accompanying unaudited condensed historical financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements
and therefore the financial statements included herein should be reviewed in
conjunction with the financial statements and related notes thereto contained in
the Company's annual report filed on Form 10-K with the Securities and Exchange
Commission. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Actual operating results for the six months ended March 31, 2000, are
not necessarily indicative of the results that may be expected for the fiscal
year ended September 30, 2000.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There were no significant changes in the accounting policies of the Company
during the periods presented. For a description of these policies, refer to Note
2 of the Notes to Financial Statements included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1999.
SUBSIDIARY GUARANTIES
All of the Company's operating income and cash flow is generated by its wholly
owned subsidiaries, which are the subsidiary guarantors of the Company's
outstanding 9 3/8% Senior Subordinated Notes due 2009 (the "Senior Subordinated
Notes"). The separate financial statements of the subsidiary guarantors are not
included herein because (i) the subsidiary guarantors are all of the direct and
indirect subsidiaries of the Company; (ii) the subsidiary guarantors have fully
and unconditionally, jointly and severally guaranteed the Senior Subordinated
Notes; (iii) the aggregate assets, liabilities, earnings, and equity of the
subsidiary guarantors is substantially equivalent to the assets, liabilities,
earnings and equity of the Company on a consolidated basis; and (iv) the
presentation of separate financial statements and other disclosures concerning
the subsidiary guarantors is not deemed material. Under the terms of the Senior
Subordinated Notes, any loans between the subsidiary guarantors and the Company
must be subordinated to the Company's senior debt.
8
<PAGE> 10
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates in these
financial statements include those regarding revenue recognition for contracts
accounted for under the percentage-of-completion method.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In accordance with SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date FASB Statement No. 133," SFAS No. 133 becomes effective for the
Company for its year ended September 30, 2001. SFAS No. 133 requires a company
to recognize all derivative instruments (including certain derivative
instruments embedded in other contracts) as assets or liabilities in its balance
sheet and measure them at fair value. The statement requires that changes in the
derivatives fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. The Company is evaluating SFAS No. 133 and the
impact on existing accounting policies and financial reporting disclosures.
However, the Company has not to date engaged in activities or entered into
arrangements normally associated with derivative instruments.
In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No. 101
"Revenue Recognition". SAB No. 101 provides guidance on the recognition,
presentation and disclosure of revenue in financial statements and draws upon
the existing accounting rules and explains those rules, by analogy, to other
transactions that the existing rules do not specifically address. SAB No. 101
requires that revenue generally is realized or realizable when all of the
following criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the seller's price to the
buyer is fixed or determinable and collectibility is reasonably assured. The
Company has not yet determined what impact the adoption of SAB No. 101 will have
on its consolidated financial statements. The Company is required to adopt SAB
No. 101 no later than the first quarterly filing of fiscal 2001.
2. ACQUISITIONS
For the six months ended March 31, 2000, the Company completed five acquisitions
accounted for as purchases. The total consideration paid in these transactions
was approximately $49.2 million, comprised of $32.2 million of cash, net of cash
acquired and 1.7 million shares of common stock, which exceeded the net tangible
assets acquired by $40.9 million, which amount has been recorded as goodwill in
the accompanying consolidated financial statements. The accompanying balance
sheets include allocations of the respective purchase prices to the assets
acquired and liabilities assumed based on preliminary estimates of fair value
and are subject to final adjustment.
9
<PAGE> 11
The unaudited pro forma data presented below assume that the acquisitions made
by the Company from October 1, 1998 through March 31, 2000 had occurred at the
beginning of the periods presented.
<TABLE>
<CAPTION>
Six Months Ended March 31,
-------------------------------------
1999 2000
-------------- --------------
(in thousands, except per share data)
<S> <C> <C>
Revenues...................................... $ 642,611 $ 720,880
Net income.................................... $ 27,353 $ 873
Basic earnings per share...................... $ 0.69 $ 0.02
Diluted earnings per share.................... $ 0.69 $ 0.02
</TABLE>
The unaudited pro forma data presented above also reflects pro forma adjustments
primarily related to: reductions in general and administrative expenses for
contractually agreed reductions in owners' compensation, estimated goodwill
amortization for the excess of consideration paid over the net assets acquired
assuming a 40-year amortization period, interest expense on borrowings incurred
to fund acquisitions, elimination of interest income, and additional tax expense
based on the Company's effective tax rate.
3. WRITE-OFF OF CAPITALIZED SOFTWARE
In accordance with its ongoing review of capitalized software, in March 2000,
the Company curtailed the development of a complex and proprietary information
system. This comprehensive information system had been under development for
approximately one year. After a period of field-testing, the Company determined
that it was necessary to significantly alter the technological architecture of
the system in order to reduce ongoing support, maintenance and communications
costs. Accordingly, the Company recorded a pretax charge of approximately $7.7
million, of which $5.7 million was included in depreciation expense for the
quarter ended March 31, 2000, to write-off the carrying value of the software
costs, development costs and certain hardware and network infrastructure costs.
4. LONG-TERM DEBT
Credit Facility
The Company has a $175.0 million three-year revolving credit facility with Bank
of America, N.A. as agent, as amended (the "Credit Facility"). The Credit
Facility matures on July 30, 2001, and is used for working capital,
acquisitions, capital expenditures and other corporate purposes. The amounts
borrowed under the Credit Facility bear interest at an annual rate equal to
either (a) the London interbank offered rate ("LIBOR") plus 1.0% to 2.0%, as
determined by the ratio of the Company's total funded debt to EBITDA (as
defined), or (b) the higher of (i) the bank's prime rate and (ii) the Federal
Funds rate plus 0.5%, plus up to an additional 0.5% as determined by the ratio
of the Company's total funded debt to EBITDA. Commitment fees of 0.25% to
0.375%, as determined by the ratio of the Company's total funded debt to EBITDA,
are due on any unused borrowing capacity under the Credit Facility. The
Company's subsidiaries have guaranteed the repayment of all amounts due under
the facility, and the facility is secured by the
10
<PAGE> 12
capital stock of the guarantors and the accounts receivable of the Company and
the guarantors. The Credit Facility requires the consent of the lenders for
acquisitions exceeding a certain level of cash consideration, prohibits the
payment of cash dividends on the Company's common stock, restricts the ability
of the Company to incur other indebtedness and requires the Company to comply
with certain financial covenants. The Company was in compliance with its
financial covenants at March 31, 2000. As of March 31, 2000, the Company had
outstanding indebtedness of $110.0 million under its Credit Facility, letters of
credit outstanding of $2.2 million, and available capacity under the Credit
Facility of $62.8 million. Availability of the Credit Facility is subject to
customary drawing conditions.
Senior Subordinated Notes
In January 1999 the Company issued its $150.0 million Senior Subordinated Notes
(the "Notes"). The Notes bear interest at 9 3/8% and mature on February 1, 2009.
The Company pays interest semi-annually on February 1 and August 1. The Notes
are unsecured senior subordinated obligations and are subordinated to all
existing and future senior indebtedness. The Notes are guaranteed on a senior
subordinated basis by all of the Company's subsidiaries. Under the terms of the
Notes, the Company is required to comply with various affirmative and negative
covenants including: (i) restrictions on additional indebtedness, and (ii)
restrictions on liens, guarantees and dividends.
5. PER SHARE INFORMATION
Basic earnings per share calculations are based on the weighted average number
of shares of common stock and restricted voting common stock outstanding.
Diluted earnings per share calculations are based on the weighted average number
of common shares outstanding and common equivalent shares from the assumed
exercise of outstanding stock options.
As of March 31, 2000, the Company had outstanding options to purchase up to a
total of approximately 5.7 million shares of Common Stock, of which
approximately 1.3 million shares were vested and exercisable, issued pursuant to
the Company's stock option plans. The shares used to calculate the historical
earnings per share for the periods presented are summarized as follows:
<TABLE>
<CAPTION>
Six Months Ended March 31,
----------------------------
1999 2000
----------- -----------
<S> <C> <C>
Weighted average shares outstanding........................ 31,761,207 39,878,952
Weighted average equivalent shares
from outstanding stock options........................ 493,444 33,588
----------- -----------
32,254,651 39,912,540
=========== ===========
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 2000
----------- -----------
<S> <C> <C>
Weighted average shares outstanding........................ 32,422,323 40,379,289
Weighted average equivalent shares
from outstanding stock options........................ 459,717 --
----------- -----------
32,882,040 40,379,289
=========== ===========
</TABLE>
For the six months ended March 31, 1999 and 2000, the Company excluded 0.2
million and 3.9 million stock options, respectively, from the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market price of the Company's common stock during the period.
6. NON EXECUTIVE INCENTIVE COMPENSATION PLAN
In November 1999 the Board of Directors adopted the Nonexecutive Incentive
Compensation Plan (the "NICP"). The NICP authorizes the Compensation Committee
of the Board of Directors or the Board of Directors to grant employees of the
Company awards in the form of options, stock appreciation rights, restricted
stock or other stock based awards. The Company has up to 2.0 million shares of
Common Stock authorized for issuance under the NICP.
In December 1999 the Company awarded 594,534 shares of common stock under its
stock plans to certain of its employees. The awards vest in equal installments
on May 31, 2000, and August 31, 2000, provided that the recipient is still
employed by the Company. At the time of the awards, the market value of the
awards was approximately $5.2 million. The Company is amortizing this amount to
expense over the vesting period. During the six months and three months ended
March 31, 2000, this expense totaled approximately $2.2 million and $1.9
million, respectively.
7. COMMITMENTS AND CONTINGENCIES
Subsidiaries of the Company are involved in various legal proceedings that have
arisen in the ordinary course of business. While it is not possible to predict
the outcome of such proceedings with certainty, in the opinion of the Company,
all such proceedings are either adequately covered by insurance or, if not so
covered should not ultimately result in any liability which would have a
material adverse effect on the financial position, liquidity or results of
operations of the Company.
12
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following should be read in conjunction with the response to Part I, Item 1
of this Report. Any capitalized terms used but not defined in this Item have the
same meaning given to them in Part I, Item 1. This report on Form 10-Q includes
certain statements that may be deemed to be "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
are based on our expectations and involve risks and uncertainties that could
cause our actual results to differ materially from those set forth in the
statements. Such risks and uncertainties include, but are not limited to,
fluctuations in operating results because of downturns in levels of
construction, incorrect estimates used in entering into fixed price contracts,
difficulty in managing the operation and growth of existing and newly acquired
businesses, the high level of competition in the construction industry and due
to seasonality. The foregoing and other factors are discussed in our filings
with the SEC including our Annual Report on Form 10-K for the year ended
September 30, 1999.
Because of the significant effect of acquisitions on our results of operations,
our historical results of operations and period-to-period comparisons are not
indicative of future results and may not be meaningful. The integration of
acquired businesses and the addition of management personnel to support
acquisitions may positively or negatively affect our results of operations.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO THE
SIX MONTHS ENDED MARCH 31, 2000
The following table presents selected unaudited historical financial information
for the six months ended March 31, 1999 and 2000. The historical results of
operations of IES presented below includes the results of operations of its
acquired companies beginning on their respective dates of acquisition.
<TABLE>
<CAPTION>
Six Months Ended March 31,
-------------------------------------
1999 % 2000 %
--------- ------ --------- ------
(dollars in millions)
<S> <C> <C> <C> <C>
Revenues................................................. $ 413.4 100% $ 705.5 100%
Cost of services......................................... 326.9 79% 583.0 83%
--------- ------ --------- ------
Gross profit............................................. 86.5 21% 122.5 17%
Selling, general & administrative expenses............... 45.6 11% 99.8 14%
Goodwill amortization.................................... 4.0 1% 6.7 1%
--------- ------ --------- ------
Income from operations................................... 36.9 9% 16.0 2%
Interest and other expense, net.......................... 4.1 1% 10.7 1%
--------- ------ --------- ------
Income before income taxes............................... 32.8 8% 5.3 1%
Provision for income taxes............................... 14.0 3% 5.2 1%
--------- ------ --------- ------
Net income............................................... $ 18.8 5% $ 0.1 0%
========= ====== ========= ======
</TABLE>
13
<PAGE> 15
REVENUES. Revenues increased $292.1 million, or 71%, from $413.4 million for the
six months ended March 31, 1999, to $705.5 million for the six months ended
March 31, 2000. The increase in revenues is primarily the result of
acquisitions. Same store revenues increased $38.7 million, or 9%, from $409.5
million for the six months ended March 31, 1999, to $448.2 million for the six
months ended March 31, 2000, primarily due to increased construction activity in
the markets we serve.
GROSS PROFIT. Gross profit increased $36.0 million, or 42%, from $86.5 million
for the six months ended March 31, 1999, to $122.5 million for the six months
ended March 31, 2000. Gross profit as a percentage of revenues decreased
approximately 4%, from 21% for the six months ended March 31, 1999 to 17% for
the six months ended March 31, 2000. The decrease in gross profit as a
percentage of revenues is primarily the result of losses recorded on contracts
at one subsidiary, the mix of bid and negotiated contract work, the completion
of certain contracts at lower than planned gross margins and the recording of
additional claims reserves for our self-insured healthcare plan resulting from a
higher level of employee participation and higher medical costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $54.2 million, or 119%, from $45.6 million for
the six months ended March 31, 1999, to $99.8 million for the six months ended
March 31, 2000. Selling, general and administrative expenses as a percentage of
revenues increased approximately 3% from 11% for the six months ended March 31,
1999 to 14% for the six months ended March 31, 2000. The increased selling,
general and administrative expenses related to acquisitions was $50.4 million.
Other increased selling, general and administrative costs primarily resulted
from the need for additional infrastructure as a result of our rapid growth,
claims reserves related to the Company's self-insured health insurance plan, the
non-cash compensation charge associated with the restricted stock awards and the
write-off of costs associated with the Company's decision to curtail the
development of its information system.
INCOME FROM OPERATIONS. Income from operations decreased $20.9 million, from
$36.9 million for the six months ended March 31, 1999, to $16.0 million for the
six months ended March 31, 2000. This decrease in income from operations is
primarily attributed to the lower gross profit margins as previously discussed,
higher selling, general and administrative expenses resulting from acquisitions,
additional infrastructure costs, a higher funding level for claims in the
Company's medical plan, a non-cash compensation charge related to the restricted
stock awards, the write-off of costs associated with the Company's decision to
curtail the development of its information system and higher goodwill
amortization resulting from acquisitions.
NET INTEREST AND OTHER EXPENSE. Interest and other expense, net increased from
expense of $4.1 million for the six months ended March 31, 1999, to $10.7
million for the six months ended March 31, 2000, primarily as a result of
interest expense on borrowings to fund the Company's acquisitions and interest
expense on the $150.0 million 9 3/8% Senior Subordinated Notes ("the Notes") due
February 1, 2009.
PROVISION FOR INCOME TAXES. Our effective tax rate increased from 42.7% for the
six months ended March 31, 1999 to 98.1% for the six months ended March 31,
2000. The higher effective tax rate for the current six month period is the
result of disproportionately lower pretax income than in the prior period
together with higher non-deductible goodwill amortization and the non-deductible
portion of the compensation expense associated with the restricted stock awards.
14
<PAGE> 16
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2000
The following table presents selected unaudited historical financial information
for the three months ended March 31, 1999 and 2000. The historical results of
operations of IES presented below includes the results of operations of its
acquired companies beginning on their respective dates of acquisition.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1999 % 2000 %
--------- ------ --------- ------
(dollars in millions)
<S> <C> <C> <C> <C>
Revenues................................................. $ 215.7 100% $ 370.3 100%
Cost of services......................................... 170.2 79% 307.4 83%
--------- ------ --------- ------
Gross profit............................................. 45.5 21% 62.9 17%
Selling, general & administrative expenses............... 23.7 11% 54.4 14%
Goodwill amortization.................................... 2.1 1% 3.3 1%
--------- ------ --------- ------
Income from operations................................... 19.7 9% 5.2 2%
Interest and other expense, net.......................... 2.7 1% 6.1 2%
--------- ------ --------- ------
Income (loss) before income taxes........................ 17.0 8% (0.9) 0%
Provision for income taxes............................... 7.3 3% 1.6 1%
--------- ------ --------- ------
Net income (loss)........................................ $ 9.7 5% $ (2.5) (1%)
========= ====== ========= ======
</TABLE>
REVENUES. Revenues increased $154.6 million, or 72%, from $215.7 million for the
three months ended March 31, 1999, to $370.3 million for the three months ended
March 31, 2000. The increase in revenues is primarily the result of
acquisitions. Same store revenues increased $21.8 million, or 10%, from $213.9
million for the three months ended March 31, 1999, to $235.7 million for the
three months ended March 31, 2000, primarily due to increased construction
activity in the markets we serve.
GROSS PROFIT. Gross profit increased $17.4 million, or 38%, from $45.5 million
for the three months ended March 31, 1999, to $62.9 million for the three months
ended March 31, 2000. Gross profit as a percentage of revenues decreased
approximately 4%, from 21% for the three months ended March 31, 1999 to 17% for
the three months ended March 31, 2000. The decrease in gross profit as a
percentage of revenues was primarily the result of losses recorded on contracts
at one subsidiary, the mix of bid and negotiated contract work and the
completion of certain contracts at lower than planned gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $30.7 million, or 130%, from $23.7 million for
the three months ended March 31, 1999, to $54.4 million for the three months
ended March 31, 2000. Selling, general and administrative expenses as a
percentage of revenues increased approximately 3% from 11% for the three months
ended March 31, 1999 to 14% for the three months ended March 31, 2000. The
increased selling, general and administrative expenses related to acquired
companies was $11.4 million. The other increased selling, general and
administrative costs primarily resulted from the write-off of costs associated
with the Company's decision to curtail the development of its information system
and the non-cash compensation charge associated with the restricted stock
awards.
15
<PAGE> 17
INCOME FROM OPERATIONS. Income from operations decreased $14.5 million, from
$19.7 million for the three months ended March 31, 1999, to $5.2 million for the
three months ended March 31, 2000. This decrease in income from operations is
primarily attributed to lower gross profit margins previously explained and
higher selling, general and administrative costs resulting from acquisitions,
the write-off of costs associated with the Company's decision to curtail the
development of its information system, a non-cash compensation charge associated
with the restricted stock awards and increased goodwill amortization resulting
from acquisitions.
NET INTEREST AND OTHER EXPENSE. Interest and other expense, net increased from
expense of $2.7 million for the three months ended March 31, 1999, to $6.1
million for the three months ended March 31, 2000, primarily as a result of
interest expense on borrowings to fund the Company's acquisitions and a full
quarter of interest expense related to the Notes.
PROVISION FOR INCOME TAXES. Our effective tax rate increased from the three
months ended March 31, 1999 to the three months ended March 31, 2000. The higher
effective tax rate for the current three month period is the result of
disproportionately lower pretax income than in the prior period together with
higher non-deductible goodwill amortization and the non-deductible portion of
the compensation expense associated with the restricted stock awards.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had cash and cash equivalents of $7.0 million, working
capital of $180.3 million, $110.0 million in outstanding borrowings under our
Credit Facility (defined below), $2.2 million of letters of credit outstanding,
and available capacity under our Credit Facility of $62.8 million.
During the six months ended March 31, 2000, we generated $17.5 million of net
cash from operating activities. Net cash flow from operating activities is
comprised of $20.0 million of non-cash charges including approximately $5.7
million related to the Company's decision to curtail the development of its
information system and approximately $2.0 million of compensation expense
related to the restricted stock awards, and further increased by a $8.8 million
increase in accounts payable and accrued expenses as a result of the timing of
payments. Net cash used by investing activities included capital expenditures of
approximately $15.4 million and businesses acquired of approximately $32.8
million. Net cash flow provided by financing activities includes net borrowings
of $32.9 million.
During the three months ended March 31, 2000, we generated $13.0 million of net
cash from operating activities. Net cash flow from operating activities is
comprised of $13.7 million of non-cash charges including approximately $5.7
million related to the Company's decision to curtail the development of its
information system and approximately $1.8 million of compensation expense
related to the restricted stock awards, and further increased by a $21.1 million
increase in accounts payable and accrued expenses as a result of the timing of
payments. Net cash used by investing activities included capital expenditures of
approximately $7.6 million. Net cash used by financing activities includes
paydowns on debt of $9.7 million.
We have a $175.0 million revolving credit facility with Bank of America, N.A. as
agent that matures on July 30, 2001 (the "Credit Facility"). The Credit Facility
is used for working capital, acquisitions, capital expenditures and other
corporate purposes. The amounts borrowed under
16
<PAGE> 18
the Credit Facility bear interest at an annual rate equal to either (a) the
London interbank offered rate ("LIBOR") plus 1.0% to 2.0%, as determined by the
ratio of our total funded debt to EBITDA (as defined), or (b) the higher of (i)
the bank's prime rate and (ii) the Federal Funds rate plus 0.5%, plus up to an
additional 0.5% as determined by the ratio of our total funded debt to EBITDA.
Commitment fees of 0.25% to 0.375%, as determined by the ratio of our total
funded debt to EBITDA, are due on any unused borrowing capacity under the Credit
Facility. Our subsidiaries have guaranteed the repayment of all amounts due
under the Credit Facility, and the Credit Facility is secured by the capital
stock of the guarantors and the accounts receivable of the Company and the
guarantors. The Credit Facility requires the consent of the lenders for
acquisitions exceeding a certain level of cash consideration, prohibits the
payment of cash dividends on our common stock, restricts our ability to incur
other indebtedness and requires us to comply with certain financial covenants.
Availability of the Credit Facility is subject to customary drawing conditions.
As of May 12, 2000, we have available borrowing capacity under our Credit
Facility of approximately $98 million. The Company was in compliance with its
financial covenants at March 31, 2000.
In January 1999, we completed our offering of $150.0 million Senior
Subordinated Notes (the "Notes"). The Notes bear interest at 9 3/8% and will
mature on February 1, 2009. The Company pays interest semi-annually on February
1 and August 1. The Notes are unsecured Senior Subordinated obligations and are
subordinated to all existing and future senior indebtedness. The Notes are
guaranteed on a senior subordinated basis by all of our subsidiaries. Under the
terms of the Notes, we are required to comply with various affirmative and
negative covenants including: (i) restrictions on additional indebtedness, and
(ii) restrictions on liens, guarantees and dividends.
We anticipate that our existing cash, cash flow from operations and borrowings
under our Credit Facility will provide sufficient cash to enable us to meet our
working capital needs, debt service requirements and planned capital
expenditures for property and equipment through at least the remainder of the
year.
While we have currently curtailed our acquisition program compared to historical
standards to focus on operations and integration of existing companies, the
timing, size or success of any acquisition effort and the associated potential
capital commitments cannot be predicted. To the extent we pursue and consummate
any acquisitions, we would fund such acquisitions primarily with issuances of
Company equity, working capital, cash flow from operations and borrowings,
including any unborrowed portion of the Credit Facility. Should a significant
portion of the consideration for future acquisitions be funded with cash, we may
have to incur additional debt or issue additional equity. Capital expenditures
for equipment and expansion of facilities are expected to be funded from cash
flow from operations and supplemented as necessary by borrowings under the
Credit Facility.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Our results of operations, particularly from residential construction, are
seasonal, depending on weather trends, with typically higher revenues generated
during the spring and summer and lower revenues during the fall and winter. The
commercial and industrial aspect of our business is less subject to seasonal
trends, as this work generally is performed inside structures protected from the
weather. Our service business is generally not affected by seasonality. In
addition, the construction industry has historically been highly cyclical. Our
volume of business may be
17
<PAGE> 19
adversely affected by declines in construction projects resulting from adverse
regional or national economic conditions. Quarterly results may also be
materially affected by gross margins in both bid and negotiated projects, the
timing of new construction projects and any acquisitions. Accordingly, operating
results for any fiscal period are not necessarily indicative of results that may
be achieved for any subsequent fiscal period.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In accordance with SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date FASB Statement No. 133," SFAS No. 133 becomes effective for the
Company for its year ended September 30, 2001. SFAS No. 133 requires a company
to recognize all derivative instruments (including certain derivative
instruments embedded in other contracts) as assets or liabilities in its balance
sheet and measure them at fair value. The statement requires that changes in the
derivatives fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. The Company is evaluating SFAS No. 133 and the
impact on existing accounting policies and financial reporting disclosures.
However, the Company has not to date engaged in activities or entered into
arrangements normally associated with derivative instruments.
In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No. 101
"Revenue Recognition". SAB No. 101 provides guidance on the recognition,
presentation and disclosure of revenue in financial statements and draws upon
the existing accounting rules and explains those rules, by analogy, to other
transactions that the existing rules do not specifically address. SAB No. 101
requires that revenue generally is realized or realizable when all of the
following criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the seller's price to the
buyer is fixed or determinable and collectibility is reasonably assured. The
Company has not yet determined what impact the adoption of SAB No. 101 will have
on its consolidated financial statements. The Company is required to adopt SAB
No. 101 no later than the first quarterly filing of fiscal 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk primarily related to potential adverse changes in
interest rates as discussed below. Management is actively involved in monitoring
exposure to market risk and continues to develop and utilize appropriate risk
management techniques. We are not exposed to any other significant market risks,
including commodity price risk, foreign currency exchange risk or interest rate
risks from the use of derivative financial instruments. Management does not use
derivative financial instruments for trading or to speculate on changes in
interest rates or commodity prices.
Therefore, our exposure to changes in interest rates primarily results from our
short-term and long-term debt, with both fixed and floating interest rates. Our
debt with fixed interest rates primarily consists of the Senior Subordinated
Notes. Our debt with variable interest rates is primarily the Credit Facility.
The following table presents principal or notional amounts (stated in
thousands) and related interest rates by year of maturity for our debt
obligations and their indicated fair market value a March 31, 2000:
<TABLE>
<CAPTION>
2001 2002 2003 2004 2005 Thereafter Total
------- ------- ------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities -- Long-Term Debt:
Variable Rate.................. $110,000 $ -- $ -- $ -- $ -- $ -- $110,000
Average Interest Rate ......... 7.54% 7.54% 7.54% 7.54% 7.54% 7.54% 7.54%
Fixed Rate .................... $ -- $ -- $ -- $ -- $ -- $ 150,000 $150,000
Average Interest Rate ......... 9.375% 9.375% 9.375% 9.375% 9.375% 9.375% 9.375%
</TABLE>
<TABLE>
<CAPTION>
Fair
Total Value
------- -------
<S> <C> <C>
Liabilities -- Long-Term Debt:
Variable Rate ................... $110,000 $110,000
Fixed Rate ...................... $150,000 $118,500
</TABLE>
18
<PAGE> 20
INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(A) The company held its annual meeting of stockholders in Houston, Texas on
February 9, 2000. The following sets forth matters submitted to a vote of
the stockholders:
(B) The following individuals were elected to the Board of Directors as stated
in the Company's Proxy Statement dated December 29, 1999, for terms
expiring at the 2003 annual stockholders' meeting or until their successors
have been elected and qualified -- Class II Directors: Jerry M. Mills,
Richard Muth, Jon Pollock and Richard L. Tucker.
Mr. Mills was elected by a vote of 24,566,308 shares, being more than a
majority of the common stock of the Company, and 472,545 shares withheld.
Mr. Muth was elected by a vote of 24,863,769 shares, being more than a
majority of common stock of the Company, and 175,084 withheld. Mr. Pollock
was elected by a vote of 22,488,179 shares, being more than a majority of
common stock of the Company, and 2,550,674 withheld. Mr. Tucker was elected
by a vote of 24,887,509 shares, being more than a majority of common stock
of the Company, and 151,344 withheld.
(C) The stockholders ratified the appointment of Arthur Andersen LLP to audit
the financial statements of the Company and its subsidiaries, by a vote of
26,260,396 shares, being more than a majority of the common stock and
restricted voting common stock of the Company, with 101,707 shares of
common stock voted against, and 4,605 shares of common stock abstained.
The stockholders approved the Employee Stock Purchase Plan by a vote of
25,925,935 shares, being more than a majority of the common stock and
restricted voting common stock of the Company, with 317,226 shares of
common stock voted against, and 123,547 shares of common stock abstained.
ITEM 6. EXHIBITS
A. EXHIBITS:
10.1 Amendment No. 4 dated March 31, 2000 for the Credit Agreement
dated July 30, 1998, among the Company, the Financial
Institutions named therein and NationsBank of Texas, N.A.
10.2 Employment Agreement between the Company and H. David Ramm dated
March 20, 2000.
27.1 Financial Data Schedule
19
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 4
This Amendment No. 4 dated as of March 31, 2000 (the "Agreement"), is
among Integrated Electrical Services, Inc., a Delaware corporation (the
"Borrower"), Bank of America, N.A., as agent (the "Agent"), and the financial
institutions parties to the Credit Agreement defined below (the "Banks").
INTRODUCTION
Reference is made to the Credit Agreement dated as of July 30, 1998 (as
amended, the "Credit Agreement"), among the Borrower, the Banks, and
NationsBank, N.A., predecessor in interest to the Agent, the defined terms of
which are used herein unless otherwise defined herein. The Borrower has
requested and the Banks and the Agent have agreed to modify the Credit Agreement
to amend the calculation of the Fixed Charge Coverage Ratio, permit certain
additional investments, and to make other amendments to the Credit Agreement as
set forth herein in connection therewith.
Therefore, in connection with the foregoing and for other good and
valuable consideration, the Borrower, the Banks, and the Agent hereby agree as
follows:
Section 1. Amendment.
(a) The definition of "Applicable Margin" is modified by replacing
such definition in its entirety with the following:
"Applicable Margin" means, with respect to interest rates, unused
commitment fees, and letter of credit fees and as of any date of its
determination, an amount equal to the percentage amount set forth in
the table below opposite the applicable ratio of (a) the consolidated
Total Debt of the Borrower as of the end of the fiscal quarter then
most recently ended to (b) the consolidated EBITDA of the Borrower for
the four fiscal quarters then most recently ended:
<TABLE>
<CAPTION>
Applicable Margin
Total Debt LIBOR Tranches and Applicable Margin Applicable Margin
to EBITDA Letter of Credit Fee Prime Rate Tranche Commitment Fee
---------- -------------------- ------------------ -----------------
<S> <C> <C> <C>
< or = 1.50 1.25% 0.00% 0.250%
>1.50 but < or = 2.00 1.50% 0.00% 0.375%
>2.00 but < or = 2.50 1.75% 0.25% 0.375%
>2.50 but < or = 3.00 2.00% 0.50% 0.500%
>3.00 2.25% 0.75% 0.500%
</TABLE>
1
<PAGE> 2
The foregoing ratio and resulting Applicable Margin shall be based upon
Schedule C of the most recent Compliance Certificate delivered to the
Agent pursuant to Section 5.2(a) or Section 5.2(b) (provided that for
the period from the date of this Agreement until the date when the
Applicable Margin is reset based upon the Compliance Certificate for
the period ending March 31, 2000, the ratio shall be deemed to be 2.01
and the Applicable Margin shall be set accordingly).
Any adjustments to the Applicable Margin shall become effective on the
45th day following the last day of each fiscal quarter or on the 90th
day following the last day of each fiscal year as applicable; provided,
however, that if any such Compliance Certificate is not delivered when
required hereunder, the Applicable Margin shall be deemed to be the
maximum percentage amount in each table from such 45th or 90th day
until such Compliance Certificate is received by the Agent.
Upon any change in the Applicable Margin, the Agent shall promptly
notify the Borrower and the Banks of the new Applicable Margin.
(b) The definition of "Permitted Investments" is modified by adding the
following subpart (h) thereto in appropriate alphabetical order and replacing
the final paragraph of such definition in its entirety with the paragraph set
forth below:
(h) other investments in an aggregate outstanding amount not
to exceed $25,000,000.
In valuing any investments for the purpose of applying the limitations
set forth in this Agreement, such investments shall be taken at the
original cost thereof (but without reduction for any subsequent
appreciation or depreciation thereof) less any amount actually repaid
or recovered on account of capital or principal (but without reduction
for any offsetting investments made by the investee in the investor).
(c) Section 5.5(c) of the Credit Agreement is amended by replacing such
Section in its entirety with the following: (a)
2
<PAGE> 3
(c) Minimum Fixed Charge Coverage Ratio. As of the last day of
each fiscal quarter, the Borrower shall not permit the ratio of (i) (A)
the consolidated EBITDA of the Borrower for the preceding four fiscal
quarters then ended minus (B) consolidated Cash Taxes paid by the
Borrower during such period minus (C) the consolidated Capital
Expenditures (other than Capital Expenditures that are deemed to occur
solely because of the making of an Acquisition) of the Borrower during
such period to (ii) (A) the consolidated Interest Expense of the
Borrower for the preceding four fiscal quarters then ended (excluding,
however, Interest Expense paid by Persons prior to the respective dates
on which such Persons became Restricted Entities) plus (B) the
aggregate amount of Restricted Payments declared or paid by the
Borrower during such period (excluding, however, Restricted Payments
permitted pursuant to the proviso to Section 5.10) plus (C) the
consolidated current maturities of the Borrower (including Capital
Leases but excluding any portion of the Revolving Loan classified as
current in accordance with GAAP) plus (D) the greater of (1) 1/7 of the
outstanding amount of the Revolving Loan as of the last day of such
fiscal quarter or (2) $4,000,000, to be less than 1.25 to 1.00;
provided, that with respect to a determination for which any component
of such determination involves Persons which were not Restricted
Entities for the entire applicable period of determination, the Cash
Taxes paid by each such Person during such period may, at the election
of the Borrower, be deemed to be equal to the product of (a) the actual
historical EBIT of such Person for the applicable period multiplied by
(b) 39%. Compliance with this paragraph (c) shall be determined based
upon Schedule C of the applicable Compliance Certificate.
(d) Section 5.12(a) of the Credit Agreement is amended by replacing
such Section in its entirety with the following:
(a) The Borrower shall cause each Restricted Entity to
maintain insurance with responsible and reputable insurance companies
or associations reasonably acceptable to the Agent in such amounts and
covering such risks as are usually carried by companies engaged in
similar businesses and owning similar properties in the same general
areas in which such Persons operate. The Borrower shall deliver to the
Agent certificates evidencing such policies or copies of such policies
at the Agent's request following a reasonable period to obtain such
certificates taking into account the jurisdiction where the insurance
is maintained.
(e) Section 5.14 of the Credit Agreement is amended by replacing such
Section in its entirety with the following:
5.14 Lines of Business. The Borrower, either through itself or the
Restricted Entities, shall not change the character of its business as
conducted on the date of this Agreement, or engage in any type of
business not reasonably related to such business as presently and
normally conducted.
Section 2. Representations and Warranties. The Borrower represents and
warrants that (a) the execution, delivery, and performance of this Agreement are
within the corporate power and authority of the Borrower and have been duly
authorized by appropriate proceedings, (b) this Agreement constitutes legal,
valid, and binding obligations of the Borrower enforceable in accordance with
its terms, except as limited by applicable bankruptcy, insolvency,
3
<PAGE> 4
reorganization, moratorium, or similar laws affecting the rights of creditors
generally and general principles of equity, and (c) upon the effectiveness of
this Agreement and the amendment of the Credit Documents as provided for herein,
the representations and warranties contained in each Credit Document are true
and correct in all material respects, no Event of Default exists under the
Credit Documents, and there shall have occurred no event which with notice or
lapse of time would become an Event of Default under the Credit Documents.
Section 3. Effect on Credit Documents. As amended herein, the Credit
Documents remain in full force and effect. Except as specifically set forth
herein, nothing herein shall act as a waiver of any of the Agent's or the Banks'
rights under the Credit Documents as amended, including the waiver of any
default or event of default, however denominated. The Borrower must continue to
comply with the terms of the Credit Documents, as amended. This Agreement is a
Credit Document for the purposes of the provisions of the other Credit
Documents. Without limiting the foregoing, any breach of representations,
warranties, and covenants under this Agreement may be a default or event of
default under other Credit Documents.
Section 4. Effectiveness. This Agreement shall be effective as of the
date hereof when the Agent shall have received duly executed counterparts hereof
signed by the Borrower, the Agent, and the Majority Banks.
Section 5. Miscellaneous. The miscellaneous provisions of the Credit
Agreement apply to this Agreement. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, and may be executed and delivered by telecopier.
THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
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<PAGE> 5
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
EXECUTED as of the date first above written.
BORROWER:
INTEGRATED ELECTRICAL SERVICES, INC.
By: /s/ STANLEY H. FLORANCE
-----------------------------------
Name: Stanley H. Florance
---------------------------------
Title: Senior Vice President and
Chief Financial Officer
--------------------------------
AGENT:
BANK OF AMERICA, N.A., as Agent
By: /s/ CRAIG S. WALL
-----------------------------------
Craig S. Wall
Senior Vice President
BANKS:
BANK OF AMERICA, N.A., as Agent
By: /s/ CRAIG S. WALL
-----------------------------------
Craig S. Wall
Senior Vice President
5
<PAGE> 6
BANK OF SCOTLAND
By: /s/ ANNIE GLYNN
-----------------------------------
Name: Annie Glynn
---------------------------------
Title: Senior Vice President
--------------------------------
COMERICA BANK - TEXAS
By: /s/ ROBERT HUMPHREYS
-----------------------------------
Name: Robert Humphreys
---------------------------------
Title: Vice President
--------------------------------
NATIONAL CITY BANK OF KENTUCKY
By: /s/ TOM GURBACH
-----------------------------------
Name: Tom Gurbach
---------------------------------
Title: Vice President
--------------------------------
PARIBAS
By: /s/ ROSINE K. MATTHEWS
-----------------------------------
Name: Rosine K. Matthews
---------------------------------
Title: Vice President
--------------------------------
By: /s/ MARIAN LIVINGSTON
-----------------------------------
Name: Marian Livingston
---------------------------------
Title: Vice President
--------------------------------
6
<PAGE> 7
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
-----------------------------------
Name: F.C.H. Ashby
---------------------------------
Title: Senior Manager, Loan Operations
--------------------------------
CENTURA BANK
By: /s/ LOWRY D. PERRY
-----------------------------------
Name: Lowry D. Perry
---------------------------------
Title: Bank Officer
--------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ ROBERT IVOSEVICH
-----------------------------------
Name: Robert Ivosevich
---------------------------------
Title: Senior Vice President
--------------------------------
Amsouth Bank successor in interest by
merger to
FIRST AMERICAN NATIONAL BANK
By: /s/ SETH BUTLER
-----------------------------------
Name: Seth Butler
---------------------------------
Title: Corporate Bank Officer
--------------------------------
SUNTRUST BANK, ATLANTA
By: /s/ DAVID J. EDGE
-----------------------------------
Name: David J. Edge
---------------------------------
Title: Vice President
--------------------------------
By: /s/ DANIEL KOMITOR
-----------------------------------
Name: Daniel Komitor
---------------------------------
Title: Vice President
--------------------------------
7
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Integrated
Electrical Services, Inc., a Delaware corporation ("IES"), and H. David Ramm
("Executive") is hereby entered into effective as of this 20th day of March,
2000 (the "Effective Date").
RECITALS
As of the Effective Date, IES and the subsidiary companies of IES
(collectively, the "IES Companies") are engaged primarily in the providing of
electrical contracting services.
Executive is employed hereunder by IES in a confidential relationship
wherein Executive, in the course of his employment with IES, has and will
continue to become familiar with and aware of information as to IES' customers
and specific manner of doing business, including the processes, techniques and
trade secrets utilized by IES, and future plans with respect thereto, all of
which has been and will be established and maintained at great expense to IES.
This information is a trade secret and constitutes the valuable goodwill of IES.
Therefore, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby agreed
as follows:
AGREEMENTS
1. Employment and Duties.
(a) IES hereby employs Executive as Chief Executive Officer
("CEO") of IES. As such, Executive shall have responsibilities, duties
and authority reasonably accorded to, expected of and consistent with
Executive's position as Chief Executive Officer of IES. Executive
hereby accepts this employment upon the terms and conditions herein and
agrees to devote substantially all of his time, attention and efforts
to promote and further the business and interests of IES and its
affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill
all lawful policies established by IES.
(c) Executive shall not, during the term of his employment
hereunder, engage in any other business activity pursued for gain,
profit or other pecuniary advantage if such activity interferes in any
material respect with Executive's duties and responsibilities
hereunder. The foregoing limitations shall not be construed as
prohibiting Executive from making personal investments in such form or
manner as will neither require his services in the operation or affairs
of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
(d) Executive shall be entitled to vacation in accordance with
the policies of IES.
(e) Upon his employment as CEO, IES will also elect Executive
as a member of the Board of Directors of IES.
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<PAGE> 2
2. Compensation. For all services rendered by Executive, IES shall
compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during
the term shall be $350,000 per year, payable in accordance with IES'
payroll procedures for officers, but not less frequently than monthly.
Such base salary may be increased from time to time, at the discretion
of the Board of Directors of IES (the "IES Board"), in light of the
Executive's position, responsibilities and performance.
(b) Executive Perquisites, Benefits and Other Compensation.
Executive shall be entitled to receive additional benefits and
compensation from IES in such form and to such extent as specified
below:
(i) Reimbursement for all business travel and other
out-of-pocket expenses (including those costs to maintain any
professional certifications held or obtained by Executive)
reasonably incurred by Executive in the performance of his
duties pursuant to this Agreement and in accordance with IES'
policy for executives of IES. All such expenses shall be
appropriately documented in reasonable detail by Executive
upon submission of any request for reimbursement, and in a
format and manner consistent with IES' expense reporting
policy.
(ii) Executive shall, subject to the satisfaction of
any general eligible criteria, be eligible to participate in
all compensation and benefit plans and programs as are
maintained from time to time for executives of IES.
(iii) Executive shall receive four weeks of paid
vacation per year.
(iv) IES shall provide Executive with such other
perquisites as may be deemed appropriate for Executive by the
IES Board.
(v) On the date of the Agreement, Executive will be
granted an employee stock option to purchase 132,500 shares of
IES Common Stock with an exercise price equal to the closing
price on the New York Stock Exchange of the IES Common Stock
on such day and will vest based on the following schedule:
<TABLE>
<S> <C>
First day of employment 40%
First anniversary of employment 55%
Second anniversary of employment 70%
Third anniversary of employment 85%
Fourth anniversary of employment 100%
</TABLE>
While Executive is the CEO of IES, he will
participate in the IES bi-annual stock option grant program
for its officers subject to the terms of the applicable stock
option plan. The program currently provides that Executive
will receive an option to purchase 32,500 shares of IES common
stock with an exercise price equal to fair market value of the
IES common stock on the date of grant in October 2000, and an
option to purchase 32,500 shares of IES common stock with an
exercise price equal to fair market value of the IES common
stock on the date of grant in April 2001.
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<PAGE> 3
(vi) Provided Executive is CEO of IES on September
30, 2000, IES shall pay Executive a cash payment of $300,000,
minus all applicable withholdings required by law.
Additionally, while Executive is the CEO of IES, he
may receive an incentive payment equal to one-fourth (1/4) of
Executive's total cash compensation earned as set forth in
paragraphs 2(a) and 2(b)(vi) above (i.e., salary paid to
Executive during the fiscal year plus the bonus payment earned
as described in the preceding paragraph) if IES has earned in
excess of $0.75 per fully diluted share for its fiscal year
ended September 30, 2000 (October 1, 1999 to September 30,
2000). The amount of such incentive payment will increase by
5% for each $0.01 in excess of $0.75 (i.e., the amount to be
paid as calculated in the previous sentence will increase by
5% for $0.01 in excess of $0.75 and by a total of 10% for
$0.02 in excess of $0.75). This incentive payment will be paid
one-half in cash and one-half in IES common stock with a fair
market value determined on September 30, 2000. IES anticipates
offering a similar bonus potential related to earnings per
share and the price of the IES common stock on September 30,
2001. IES will determine such targets following September 30,
2000. The actual payout of the bonus payments and incentive
payment are typically made in December of each year.
(vii) Executive will be granted a contingent right to
receive 400,000 shares of IES Common Stock in accordance with
IES standard grants and, assuming Executive is employed by IES
on such dates, such award will vest based on the following
schedule:
<TABLE>
<S> <C>
First anniversary of employment 25%
Second anniversary of employment 50%
Third anniversary of employment 75%
Fourth anniversary of employment 100%
</TABLE>
; provided, if Executive terminates his employment other than
for Good Reason (as hereinafter defined) and such award is not
100% vested, then Executive shall forfeit and return to the
Company 15% of such vested shares.
3. Non-Competition Agreement.
(a) Executive recognizes that IES' willingness to enter into
this Agreement is based in material part on Executive's agreement to
the provisions of this paragraph 3 and that Executive's breach of the
provisions of this paragraph 3 could materially damage IES. Subject to
the further provisions of this Agreement, Executive will not, during
the term of his employment with IES, and for a period of two years
immediately following the termination of such for any reason
whatsoever, either for Cause or in the event the Executive terminates
his employment without Good Reason, except as may be set forth herein,
directly or indirectly, for himself or on behalf of or in conjunction
with any other person, company, partnership, corporation or business of
whatever nature:
(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 electrical
contracting business in direct competition with any IES
Company within 100 miles of where any IES Company conducts
business, including any territory
3
<PAGE> 4
serviced by an IES Company during the term of Executive's
employment (the "Territory");
(ii) call upon any person who is, at that time, an
employee of an IES Company for the purpose or with the intent
of enticing such employee away from or out of the employ of
the IES Company;
(iii) call upon any person or entity which is, at
that time, or which has been, within one year prior to that
time, a customer of an IES Company within the Territory for
the purpose of soliciting or selling electrical contracting
products or services in direct competition with the IES
Companies within the Territory;
(iv) call upon any prospective acquisition candidate,
on Executive's own behalf or on behalf of any competitor,
which candidate was, to Executive's knowledge after due
inquiry, either called upon by an IES Company or for which an
IES Company made an acquisition analysis, for the purpose of
acquiring such entity; or
(v) disclose customers, whether in existence or
proposed, of IES to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever except to the
extent that IES has in the past disclosed such information to
the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit Executive from acquiring as an investment not more
than 1% of the capital stock of a competing business, whose stock is
traded on a national securities exchange, the Nasdaq Stock Market or on
an over-the-counter or similar market, unless the Board of Directors of
IES consents to such acquisition.
(b) Because of the difficulty of measuring economic losses to
IES as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IES for
which they would have no other adequate remedy, Executive agrees that
foregoing covenant may be enforced by IES, in the event of breach by
him, by injunctions and restraining orders. Executive further agrees to
waive any requirement for IES' securing or posting of any bond in
connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants
in this paragraph 3 impose a reasonable restraint on Executive in light
of the activities and business of the IES Companies on the date of the
execution of this Agreement and the current plans of the IES Companies;
but it is also the intent of IES and Executive that such covenants be
construed and enforced in accordance with the changing activities,
business and locations of the IES Companies throughout the term of this
covenant, whether before or after the date of termination of the
employment of Executive, unless the Executive was conducting such new
business prior to any IES Company conducting such new business. For
example, if, during the term of this Agreement, an IES Company engages
in new and different activities, enters a new business or establishes
new locations for its current activities or business in addition to or
other than the activities or business enumerated under the Recitals
above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such
new activities or business or from such new location and from directly
competing with such new business within 100 miles of its
then-established operating location(s) through the term of this
4
<PAGE> 5
covenant, unless the Executive was conducting such new business prior
to any IES Company conducting such new business.
(d) It is further agreed by the parties hereto that, in the
event that Executive shall cease to be employed hereunder and shall
enter into a business or pursue other activities not in competition
with the electrical contracting activities of the IES Companies or
similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (a)(i) of this
paragraph 3, and in any event such new business, activities or location
are not in violation of this paragraph 3 or of Executive's obligations
under this paragraph 3, if any, Executive shall not be chargeable with
a violation of this paragraph 3 if the IES Companies shall thereafter
enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 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 the Agreement
shall thereby be reformed.
(f) All of the covenants in this paragraph 3 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
Executive against IES or IES, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by IES or
IES of such covenants. It is specifically agreed that the period of two
years (subject to the further provisions of this Agreement) following
termination of employment stated at the beginning of this paragraph 3,
during which the agreements and covenants of Executive made in this
paragraph 3 shall be effective, shall be computed by excluding from
such computation any time during which Executive is in violation of any
provision of this paragraph 3.
(g) IES and the Executive hereby agree that this covenant is a
material and substantial part of this transaction.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for three years (the "Initial
Term") and, unless terminated sooner as herein provided, shall continue on a
year-to-year basis on the same terms and conditions contained herein in effect
as of the time of renewal (the "Extended Term"); provided, however, upon a
Change in Control (as defined in paragraph 9(d)) the term of this Agreement
shall automatically continue following such Change in Control for a period equal
to the then remaining term or two years, whichever period is longer, unless
earlier terminated as provided in paragraph 9. This Agreement and Executive's
employment may be terminated in any one of the following ways:
(a) Death. The death of Executive shall immediately terminate
this Agreement with no severance compensation due to Executive's
estate.
(b) Disability. If, as a result of incapacity due to physical
or mental illness or injury, Executive shall have been absent from his
full-time duties hereunder for four consecutive months, then 30 days
after receiving written notice (which notice may occur before or after
the end of such four-month period, but which shall not be effective
earlier
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<PAGE> 6
than the last day of such four-month period), IES may terminate
Executive's employment hereunder, provided that Executive is unable to
resume his full-time duties at the conclusion of such notice period.
Also, Executive may terminate his employment hereunder if his health
should become impaired to an extent that makes the continued
performance of his duties hereunder hazardous to his physical or mental
health, provided that Executive shall have furnished IES with a written
statement from a doctor reasonably acceptable to IES to such effect and
provided, further, that, at IES' request made within 30 days of the
date of such written statement, Executive shall submit to an
examination by a doctor selected by IES who is reasonably acceptable to
Executive or Executive's doctor and such second doctor shall have
concurred in the conclusion of Executive's doctor. In the event this
Agreement is terminated as a result of Executive's disability,
Executive shall receive from IES, in a lump sum payment due within 10
days of the effective date of termination, six months of base salary at
the rate then in effect.
(c) Cause. IES may terminate this Agreement and Executive's
employment 10 days after written notice to Executive for "Cause," which
shall be: (1) Executive's breach of this Agreement; (2) Executive's
gross negligence in the performance or intentional nonperformance of
any of Executive's duties and responsibilities hereunder; (3)
Executive's dishonesty or fraud with respect to the business,
reputation or affairs of IES or IES; (4) Executive's conviction of a
felony crime or crime involving moral turpitude; (5) Executive's drug
or alcohol abuse; or (6) Executive's violation of Company policy (which
remains uncured or continues 5 days after delivery of written notice).
In the event of a termination for Cause, Executive shall have no right
to any severance compensation.
(d) Without Cause. Executive may, without Good Reason (as
hereinafter defined) terminate Executive's employment, effective 30
days after written notice is provided to IES. Executive may be
terminated without Cause by IES during either the Initial Term or
Extended Term. Should Executive be terminated by IES without Cause or
should Executive terminate with Good Reason during the Initial Term,
(i) Executive shall receive from IES, in a lump sum payment due on the
effective date of termination, the base salary at the rate then in
effect for whatever time period is remaining under the Initial Term or
for one year, whichever amount is less and (ii) the contingent stock
grant made to Executive under paragraph 2(b)(vii) shall immediately
vest in full. Further, any termination without Cause by IES or by
Executive for Good Reason shall operate to shorten the period set forth
in paragraph 3(a) and during which the terms of paragraph 3 apply to
one year from the date of termination of employment. If Executive
resigns or otherwise terminates his employment without Good Reason,
rather than IES terminating his employment pursuant to this paragraph
4(d), Executive shall receive no severance compensation.
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless
such event is agreed to in writing by Executive: (a) Executive is
demoted by means of a material reduction in authority, responsibilities
or duties to a position of less stature or importance within IES than
the position described in Section 1 hereof; or (b) Executive's annual
base salary as then in effect is reduced.
If Executive's employment as CEO is terminated for any reason,
Executive agrees to immediately resign as a member of the Board of Directors of
IES.
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<PAGE> 7
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of IES, IES or any IES
Companies or their representatives, vendors or customers which pertain to the
business of IES or IES or any IES Companies shall be and remain the property of
IES or IES or the IES Company, as the case may be, and be subject at all times
to their discretion and control. Likewise, all correspondence, reports, records,
charts, advertising materials and other similar data pertaining to the business,
activities or future plans of IES or IES or the IES Company which is collected
by Executive shall be delivered promptly to IES without request by it upon
termination of Executive's employment.
6. Inventions. Executive shall disclose promptly to IES any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of IES and which Executive
conceives as a result of his employment by IES. Executive hereby assigns and
agrees to assign all his interests therein to IES or its nominee. Whenever
requested to do so by IES, Executive shall execute any and all applications,
assignments or other instruments that IES shall deem necessary to apply for and
obtain Letters Patent of the United States or any foreign country or to
otherwise protect IES' interest therein.
7. Trade Secrets. Executive agrees that he will not, during or after
the term of this Agreement, disclose the specific terms of IES' relationships or
agreements with their respective significant vendors or customers or any other
significant and material trade secret of IES or IES, whether in existence or
proposed, to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever.
8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of IES is confidential and a valuable,
special and unique asset of IES that gives IES an advantage over its
actual and potential, current and future competitors. Executive further
acknowledges and agrees that Executive owes IES a fiduciary duty to
preserve and protect all Confidential Information from unauthorized
disclosure or unauthorized use, that certain Confidential Information
constitutes "trade secrets" under applicable laws and, that
unauthorized disclosure or unauthorized use of IES' Confidential
Information would irreparably injure IES.
(b) Both during the term of Executive's employment and after
the termination of Executive's employment for any reason (including
wrongful termination), Executive shall hold all Confidential
Information in strict confidence, and shall not use any Confidential
Information except for the benefit of IES, in accordance with the
duties assigned to Executive. Executive shall not, at any time (either
during or after the term of Executive's employment), disclose any
Confidential Information to any person or entity (except other
employees of IES who have a need to know the information in connection
with the performance of their employment duties), or copy, reproduce,
modify, decompile or reverse engineer any Confidential Information, or
remove any Confidential Information from IES' premises, without the
prior written consent of the President of IES, or permit any other
person to do so. Executive shall take reasonable precautions to protect
the physical security of all documents and other material containing
Confidential Information (regardless of the medium on which the
Confidential Information is stored).
7
<PAGE> 8
This Agreement applies to all Confidential Information, whether now
known or later to become known to Executive.
(c) Upon the termination of Executive's employment with IES
for any reason, and upon request of IES at any other time, Executive
shall promptly surrender and deliver to IES all documents and other
written material of any nature containing or pertaining to any
Confidential Information and shall not retain any such document or
other material. Within five days of any such request, Executive shall
certify to IES in writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential
Information" shall mean any information or material known to or used by
or for IES (whether or not owned or developed by IES and whether or not
developed by Executive) that is not generally known to persons in the
electrical contracting business. Confidential information includes, but
is not limited to, the following: all trade secrets of IES; all
information that IES has marked as confidential or has otherwise
described to Executive (either in writing or orally) as confidential;
all nonpublic information concerning IES' products, services,
prospective products or services, research, product designs, prices,
discounts, costs, marketing plans, marketing techniques, market
studies, test data, customers, customer lists and records, suppliers
and contracts; all Company business records and plans; all Company
personnel files; all financial information of or concerning IES; all
information relating to operating system software, application
software, software and system methodology, hardware platforms,
technical information, inventions, computer programs and listings,
source codes, object codes, copyrights and other intellectual property;
all technical specifications; any proprietary information belonging to
IES; all computer hardware or software manual; all training or
instruction manuals; and all data and all computer system passwords and
user codes.
9. Change in Control.
(a) Executive understands and acknowledges that the Company
may be merged or consolidated with or into another entity and that such
entity shall automatically succeed to the rights and obligations of the
Company hereunder or that the Company may undergo a Change in Control
(as defined below). In the event a Change in Control is initiated or
occurs during the Initial Term or Extended Term, then the provisions of
this paragraph 9 shall be applicable.
(b) In the event of a Change in Control wherein the Company
and Executive have not received written notice at least ten business
days prior to the date of the event giving rise to the Change in
Control from the successor to all or a substantial portion of the
Company's business and/or assets that such successor is willing as of
the closing to assume and agree to perform the Company's obligations
under this Agreement in the same manner and to the same extent that the
Company is hereby required to perform, then Executive may, at
Executive's sole discretion, elect to terminate Executive's employment
on such Change in Control by providing written notice to the Company
prior to the closing of the transaction giving rise to the Change in
Control. In such case, the applicable provisions of paragraph 4(d) will
apply as though the Company had terminated Executive without Cause;
however, the amount of the lump sum severance payment due Executive
shall be double the amount calculated under the terms of paragraph
4(d).
(c) In any Change in Control situation, Executive may, at
Executive's sole discretion, elect to terminate Executive's employment
upon the effective date of such
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<PAGE> 9
Change in Control by providing written notice to the Company at least
five business days prior to the closing of the transaction giving rise
to the Change in Control. In such case, the applicable provisions of
paragraph 4(d) will apply as though the Company had terminated
Executive without Cause; however, the amount of the lump sum severance
payment due Executive shall be double the amount calculated under the
terms of paragraph 4(d).
(d) If, on or within two years following the effective date of
a Change in Control the Company terminates Executive's employment other
than for Cause or Executive terminates his employment for Good Reason,
or if Executive's employment with the Company is terminated by the
Company within three months before the effective date of a Change in
Control and it is reasonably demonstrated that such termination (i) was
at the request of a third party that has taken steps reasonably
calculated to effect a Change in Control, or (ii) otherwise arose in
connection with or anticipation of a Change in Control, then Executive
shall receive from Company, in a lump sum payment due on the effective
date of termination the equivalent of two years' base salary at the
rate then in effect.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, entity or group (as such terms are
used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Act"), other than the IES
Companies or an employee benefit plan of the IES Companies,
acquires, directly or indirectly, the beneficial ownership (as
defined in Section 13(d) of the Act) of any voting security of
the Company and immediately after such acquisition such person
is, directly or indirectly, the beneficial owner of voting
securities representing 20% or more of the total voting power
of all of the then outstanding voting securities of the
Company entitled to vote generally in the election of
directors;
(ii) upon the first purchase of the Company's common
stock pursuant to a tender or exchange offer (other than a
tender or exchange offer made by the Company);
(iii) the stockholders of the Company shall approve a
merger, consolidation, recapitalization or reorganization of
the Company, or a reverse stock split of outstanding voting
securities, or consummation of any such transaction if
stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total
voting power represented by the voting securities of the
surviving entity outstanding immediately after such
transaction being beneficially owned by the holders of all of
the outstanding voting securities of the Company immediately
prior to the transactions with the voting power of each such
continuing holder relative to other such continuing holders
not substantially altered in the transaction;
(iv) the stockholders of the Company shall approve a
plan of complete liquidation or dissolution of the Company or
an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets; or
(v) if, at any time during any period of two
consecutive years, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election or nomination
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<PAGE> 10
for the election by the Company's stockholders of each new
director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the
beginning of the period.
(f) Notwithstanding anything in this Agreement to the
contrary, a termination pursuant to paragraph 9(b), (c), or (d) shall
operate to automatically waive in full the noncompetition restrictions
imposed on Executive pursuant to paragraph 3(a).
(g) If it shall be finally determined that any payment made or
benefit provided to Executive in connection with a Change in Control of
the Company, whether or not made or provided pursuant to this
Agreement, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto,
the Company shall pay Executive an amount of cash (the "Additional
Amount") such that the net amount received by Executive after paying
all applicable taxes on such Additional Amount shall be equal to the
amount that Executive would have received if Section 4999 were not
applicable.
10. No Prior Agreements. Executive hereby represents and warrants to
IES that the execution of this Agreement by Executive and his employment by IES
and the performance of his duties hereunder will not violate or be a breach of
any agreement with a former employer, client or any other person or entity.
Further, Executive agrees to indemnify IES for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, by any
such third party that such third party may now have or may hereafter come to
have against IES based upon or arising out of any non-competition agreement,
invention or secrecy agreement between Executive and such third party which was
in existence as of the date of this Agreement.
11. Assignment; Binding Effect. Executive understands that he has been
selected for employment by IES on the basis of his personal qualifications,
experience and skills. Executive agrees, therefore, that he cannot assign all or
any portion of his performance under this Agreement. Subject to the preceding
two sentences and the express provisions of paragraph 12 below, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
12. Release. Notwithstanding anything in this Agreement to the
contrary, Executive shall not be entitled to receive any payments pursuant to
this Agreement unless Executive has executed (and not revoked) a general release
of all claims Executive may have against IES and its affiliates in a form of
such release reasonably acceptable to IES.
13. Complete Agreement. Executive has no oral representations,
understandings or agreements with IES, IES or any of their officers, directors
or representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between IES, IES and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements. This written Agreement
may not be later modified, except by a further writing signed by an officer of
IES who must be duly authorized by IES' Board of Directors and Executive, and no
term of this Agreement may be waived except by writing signed by the party
waiving the benefit of such term. Without limiting the generality of the
foregoing, either party's failure to insist on strict compliance with this
Agreement shall not be deemed a waiver thereof.
10
<PAGE> 11
14. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To IES: Law Department
Integrated Electrical Services, Inc.
515 Post Oak Boulevard, Suite 450
Houston, Texas 77027
To Executive: H. David Ramm
6320-B Haskell Street
Houston, Texas 77007
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party of
such change in accordance with this paragraph 13.
15. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
16. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties shall
request the Association of Attorney Mediators in Harris County, Texas to appoint
a mediator certified by the Supreme Court of Texas. If the mediator is unable to
facilitate a settlement of the dispute within a reasonable period of time, as
determined by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Houston, Texas, in
accordance with the rules of the American Arbitration Association then in
effect. A decision by a majority of the arbitration panel shall be final and
binding. Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The costs and expenses, including reasonable attorneys' fees, of
the prevailing party in any dispute arising under this Agreement will be
promptly paid by the other party.
17. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Texas without regard to its conflicts of
law provisions.
18. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
INTEGRATED ELECTRICAL SERVICES, INC.
By: /s/ C. BYRON SNYDER
-------------------------------------
Name: C. Byron Snyder
-------------------------------------
Title: Chairman of the Board of Directors
--------------------------------------
EXECUTIVE
/s/ H. DAVID RAMM
--------------------------------------
H. David Ramm
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTEGRATED ELECTRICAL SERVICES, INC. AS OF MARCH 31,
2000, AND FOR THE SIX MONTHS ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 7,002
<SECURITIES> 0
<RECEIVABLES> 292,174
<ALLOWANCES> 6,460
<INVENTORY> 16,459
<CURRENT-ASSETS> 366,977
<PP&E> 76,942
<DEPRECIATION> 20,700
<TOTAL-ASSETS> 934,111
<CURRENT-LIABILITIES> 186,705
<BONDS> 150,000
0
0
<COMMON> 404
<OTHER-SE> 483,956
<TOTAL-LIABILITY-AND-EQUITY> 934,111
<SALES> 705,518
<TOTAL-REVENUES> 705,518
<CGS> 583,038
<TOTAL-COSTS> 689,548
<OTHER-EXPENSES> (741)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,395
<INCOME-PRETAX> 5,316
<INCOME-TAX> 5,187
<INCOME-CONTINUING> 129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
